CPA, ABA, CFP – Which Credentials Matter?

When choosing a professional to help you file your income taxes – whether you are an individual or are running a small business – choosing the tax accountant with the right credentials is key. Flipping through the phone book or browsing through online business listings, you’ll likely encounter a veritable alphabet soup of acronyms such as CPA, CFA, CFP, CMA, ABA and others. In fact, there are upwards of 46 different acronyms that relate to certifications in accounting, finance and business. Of these accountant credentials, you’re most likely to retain a CPA, ABA or CFP. Here’s what each means:

Certified Public Accountants (CPA)

CPAs are most well known for preparing taxes, but they can also advise you on how to structure your small business and setup a bookkeeping system as well as help you plan for retirement, college and organizing your estate. CPAs must undergo rigorous testing and continuing education to maintain their licenses. This means accountants who are CPAs are highly qualified with up-to-date knowledge of the latest tax laws in their local area. That means a CPA operating in Seattle or Bellevue is required to be well-versed in both federal tax law and Washington state tax law.

Accredited Business Accountant (ABA)

An ABA is an accountant who has undergone additional training and has passed the Accreditation Council for Accountancy and Taxation (ACAT) exam.  This is a voluntary accreditation and is meant to signify that this accountant specializes in accounting services for individuals and small- to medium-sized businesses.

Certified Financial Planner (CFP)

A CFP can help you with your investment goals. CFPs are a good choice if you are planning for the future, as they can offer a broad range of financial advice.

So,which financial professional should you choose? That all depends. Are you looking to file your individual income taxes? Are you starting a small business? Or are you trying to build a reliable investment portfolio for the next 30 years? Different professionals serve different needs.

The best way to determine whether a financial advisor is a good fit for your needs is to schedule an interview or consultation. Many accounting firms have multiple specialties that work in conjunction to serve your needs. For example, some CPA firms also offer business consulting for small businesses and can help you set up a QuickBooks accounting system or provide advice on how to incorporate your independently owned business.  So, take your time and interview at least three different accountants before deciding which one works best for you.

John Huddleston
Seattle CPA

Tax Accounting: How Hiring a CPA Can Help You Avoid an Audit

As a small business or self employed tax filer, your chances of being audited are somewhat higher than someone merely filing a few W-2s.  Part of the reason is that the IRS applies greater scrutiny to certain subsets of tax filers who may be more prone to tax fraud. But it also happens simply because filing taxes for a business is much more complex and there are more opportunities to make a mistake or trigger a red flag. If you run a small business or have an unusual tax situation, it can be highly beneficial to hire a Certified Public Accountant (CPA), not only because he or she can get you more deductions, organize your bookkeeping and identify weak areas in your businesses finances, but also because they can reduce your chances of triggering an audit. Here’s how:

Credibility

There’s a spot on your tax return for your tax preparer to sign. By having a professional or an outside firm handle your tax return, it gives the IRS a bit more confidence that you haven’t made a mistake.

Depth of Knowledge and Experience

Obviously, a CPA is more experienced about the ins and outs of the tax code and what will be advantageous for you when you file your return. This is even more true if your CPA has specialized expertise in your area of business. Think of it this way: the U.S. tax code is over 14,000 pages long. While its unlikely that your CPA has read it cover to cover, you can bet that he or she has handled a situation like yours and knows which mistakes to avoid – especially if they’ve been practicing for many years.

Legal Entity Advice

CPAs are exponentially more helpful than run-of-the-mill storefront tax preparers because they are also qualified to give business advice. There are many forms that your business can take and a corporation, LLC or partnership is less likely to be audited.  A CPA will be able to take a look at your business and tell you whether the benefits of incorporating outweigh the costs.

Covering Your Bases

There’s a right and wrong way to make business deductions. And certain deductions, such as automobile expenses, travel to vacation destinations on business and home offices are more likely to raise an eyebrow at the IRS than others. A CPA will help you record all the proper documentation so that your deductions will stand up to an audit as well as steer you away from deductions which might not pass muster.

Better Bookkeeping

Good bookkeeping and timely, accurate and compliant tax returns go hand in hand. Many CPAs are able to set up efficient, reliable systems for year round bookkeeping that will help you streamline payroll, cash flow and other financial matters. Some CPAs can even handle your bookkeeping for you so when tax time rolls around, they already have an intimate understanding of your business’s financial picture and they already have all the information they need.

In spite of following all the best practices and diligently dotting your i’s and crossing each t, audits happen. And in that case, you’ll be much better off if you have a CPA to back you up. By retaining a CPA who knows how to maintain a clear audit trail and can help you explain or dispute contested items on your return, you’ll not only decrease your  chances of being audited, but you’ll be well prepared so when the government does come a-knocking, it’ll only be a minor bump in the road rather than an all out crisis.


John Huddleston
Seattle CPA

How to Find a Good Accountant

If you are like most people, you have probably been confused about who you should hire to help you prepare your tax return.  Just as doctors have areas of expertise, so do accountants.  If you chose the wrong accountant, it could cost you thousands in missed or incorrect deductions.  If you own a small business, here are some of the questions you may want to ask a potential accountant:

  • What are your credentials?  Look for someone with a special designation, such as CPA (Certified Public Accountant) or an attorney.
  • Do you practice tax accounting full time?  The answer should be yes.
  • How many years have you been in practice?  You don’t want someone new to the accounting profession experimenting on you.
  • What computer software do you use to prepare returns? If the returns are handwritten, you should probably leave.
  • What are your fees?  Cheap is not necessarily better.  You often get what you pay for!
  • Do you have any references from clients similar to me?  You should not expect the accountant to give out names of clients, but he or she should have some happy clients who would be willing to speak to you.
  • Do you consider yourself to be aggressive, assertive or somewhere in the middle? 
  • Do you specialize in small business tax returns?  Hopefully, the answer is yes!
  • What do you do after tax season?  Some good answers would be that the accountant does other accounting work, markets for new customers and takes tax courses.
  • Do you provide any tax courses or tax planning during the year?  The more the better!
  • How many other clients like me do you have?  The accountant should have at least 10 clients similar to you and your situation.