US Expat Tax Professional Accountants – Should I Use a CPA or an EA?
Choosing an expat tax professional or accountant is an important decision. Getting it wrong could literally cost you thousands of dollars, as they may not have the specialist knowledge to apply the best strategies or claim the right exemptions for your situation. One of the first questions you should consider when filing US expat taxes is whether to choose an EA or CPA to help you prepare your federal income tax return.
What is an EA?
An EA (Enrolled Agent) is a tax agent licensed directly by the IRS. There are no academic qualifications required to sit the SEE exam to become a EA (literally anyone can sit it), or, if you’ve worked at the IRS for at least five years, you can become an EA automatically, without sitting the exam. The exam covers just IRS tax. Having passed the SEE exam, EAs can prepare tax returns and represent tax payers in disputes with the IRS, however due to the narrow focus of their training, they are far less qualified than CPAs to offer strategic guidance and advice.
What is a CPA?
A CPA (Certified Public Accountant) has achieved the highest level of US accountancy accreditation. Aspiring CPAs have to have a bachelors degree, and in most states also the equivalent credits to a masters degree in accounting, as well as a certain amount of professional experience, before they can sit one of the most rigorous professional examinations, which covers not just accounting, but tax law and business concepts too.
“If you own a small business, hiring a CPA with a bookkeeping and reporting background can help you get organized and on track for the next year.”
– Fox Business
They are also fully trained in audit, financial reporting, and other accounting aspects (rather than just IRS tax like EAs) so they are far better qualified to provide advice. For these reasons, they often cost more than EAs, being qualified to offer strategic planning to help clients make the most of their situation. This may for example include recommending the best way to structure a business to minimize tax.
Which should I use?
Americans living abroad with a minimum income of around $10,000 (or just $400 of self-employment income) sourced anywhere in the world are still obliged to file a US federal income tax return, irrespective of where they are living or whether they have already paid tax to a foreign government.
Furthermore, taxes for US expats are more complex than those for Americans living Stateside. There are extra filing requirements (such as those relating to FATCA and FBAR), potentially two tax regimes to juggle (the US, and another country where you may be a resident or have financial interests), and there may be exemptions you can claim that are only available to Americans living abroad.
So the first point to make is that it’s important that your tax preparer is a specialist in expat taxes, rather than someone who usually prepares tax returns for Americans living in the US.
The second point to make is that while both CPAs and EAs are qualified to prepare your tax return, a CPA is far better qualified to offer you strategic tax planning advice that could save you money. This my include claiming the Foreign Earned Income Exclusion, or the Foreign Tax Credit, or looking at your business’ corporate structure, depending on your circumstances.
So if all else is equal, including cost, you would ideally choose an expat-specializing CPA to help you prepare your US expat tax return, as they can offer the best combination of guidance and advice, specialist experience, and general tax knowledge.