The following article explains the differences between two of the most commonly confused job titles; Enrolled Agent and CPA.
Enrolled Agent vs CPA: What’s The Right Choice?
Majority of people turn to the two well-known groups of licensed tax professionals: certified public accountants (CPA) and enrolled agents (EA). No matter the acronym after their name, the first step in your decision-making process is to make sure they are licensed.
To understand the difference between an enrolled agent and a CPA, we must look at what each of them actually does.
EAs are considered tax specialists. They have a vast knowledge of anything that pertains to income tax, inheritance tax, gift tax, estate, payroll, retirement, and non-profit taxation.
In order to become an enrolled agent, you must take the EA exam or have at least 5 years of IRS work experience under your belt. The EA exam, also known as the Special Enrollment Examination (SEE), is a 3-part exam. Each section tests your knowledge on all tax-related matters.
Part one of the exam focuses on Individuals and covers 5 sections: Preliminary Work and Taxpayer Data, Income and Assets, Deduction and Credits, Taxation and Advice, and Specialized Returns for Individuals.
Part two is considered the hardest section and is based on Business Entities. Candidates should study very hard to pass the three sections that make up this part: Businesses, Business Financial Information, and Specialized Returns and Tax Payers.
The third part of the exam covers Representation, Practice and Procedures. This part of the EA exam is broken down into 4 sections: Practices and Procedures, Representation before the IRS, Specific Types of Registration, and Completion of the Filing Process.
Once you have passed the EA exam, you are federally recognized as a tax specialist.
Certified Public Accountant
CPAs have a broad range of knowledge on all topics related to accounting, including auditing, taxes, business law, finance and more.
To become a CPA you must first complete the education requirements of the state in which you plan to practice.
After you have met the prerequisite education requirements, you can sit for the CPA exam in that state. The CPA exam is a standardized test that consists of 4 different sections: Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation.
Depending on your state, you may also have to complete a work experience requirement. Typically this is 1 year of accounting-based work under the supervision of an active CPA.
CPAs are licensed at the state level and can only practice in that state. This is one of the biggest differences between CPA’s and enrolled agents, who are licensed on a federal level.
Many people choose a specific career path based on potential earnings. Although most people have heard of CPAs, fare less are familiar with the work of EAs are not aware of their potential income level.
While these numbers appear to indicate that pursuing a CPA is more profitable, it is important to remember that these are average salaries and that an EA with experience can expect to earn much more. The increasing need for enrolled agents in recent years means that EAs could potentially have a higher income than CPAs because these specialists are in such demand.
If you are deciding between becoming an enrolled agent or a CPA, you should weigh the pros and cons for each job.
EAs are not as common in the business sector, which means that you could choose to work from home. CPAs, on the other hand, are integral to businesses and also work in the public sector in more traditional capacity. Being an EA offers more flexibility in terms of lifestyle in terms of choosing where and how much you want to work.
To become an enrolled agent you should focus your studies on taxation and take the SEE. To become a CPA, you will have to satisfy specific educational requirements first, take a specialized exam, gain work experience and then become licensed in the state in which you intend to work.
According to Payscale.com, enrolled agents typically make anywhere between $30,000-$75,000 a year, while CPAs make between $40,000-$104,000 annually.
Enrolled agents are becoming increasingly recognized in the tax business and their field continues to grow. The number of EAs has risen in recent years as clients have begun to recognize their value and special skill set. If you are an accountant interested in starting your own practice to have the freedom to work when and where you want, you should seriously consider becoming an enrolled agent.