Careers in Tax Accounting Overview
Published April 5, 2022 | OnlineMBA.com Staff
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Tax accountants have advanced expertise in procedures that ensure client compliance with all applicable taxation laws and regulations. They also help individuals and businesses reduce their tax burdens through deductions, credits, management of investment gains and losses, and other accounting procedures.
As a professional specialization, tax accounting demands advanced mathematical proficiency and the ability to apply technical aspects of complex tax codes. Given these demands, the profession requires additional training beyond a general accounting degree. Many emerging tax accountants choose to complete this training in a master's-level accounting program with a concentrated taxation focus.
U.S. Bureau of Labor Statistics (BLS) data from May 2020 indicates strong prospects for accountants and auditors. Along with positive job growth projections, the median pay rate eclipsed $73,000 per year.
What Does a Tax Accountant Do?
The tax accountant job description varies by professional context. These professionals interact with individual clients to prepare personal tax returns. They also work with businesses and tax-exempt organizations. In all cases, tax accountants make sure clients stay on the right side of all applicable laws and regulations. Other specifics of the role may differ among cases.
With individual clients, taxation professionals look at all income sources and seek deductions and credits that reduce their client's tax liability. These professionals also analyze clients' investment activity, asset holdings, and transactions, providing advice on managing associated tax implications.
Businesses of all sizes employ tax advisors and accountants. In smaller enterprises, tax professionals work toward objectives that resemble those of individuals preparing personal tax returns.
In larger companies, and especially publicly traded companies, tax accountants fill a more complex niche. They strategically direct incoming revenues and outgoing expenditures to create financial advantages. This takes on added importance if the company has shareholders who receive dividends or other direct financial benefits, which carry their own set of tax implications.
Tax-exempt entities such as charities do not need to pay taxes, but most need to post financial statements and tax returns each year. As such, these entities often hire tax specialists to ensure their operational activities adhere to tax-exempt status requirements.
Given this multiplicity of duties, tax accountants draw on many soft and hard skills. The following subsections explain crucial aptitudes in more detail.
Key Soft Skills for Tax Accountants
- Oral and Written Communication: Tax specialists need to convey dense, often complicated financial details in easy-to-understand terms.
- Interpersonal Skills: In accounting firms and large companies, tax accountants often function within teams. Those who cultivate collegial interpersonal skills tend to have an easier time navigating cooperative environments.
- The Ability to Inspire Confidence: Taxation accountants deal in complicated, technical tax laws that tend to confuse and mystify laypeople. Thus, they need to project an air of professional competence to win clients over.
- Leadership: Given that many clients lack actionable tax insights and expertise, taxation accountants need to display self-starter qualities and take the reins on tasks with minimal client-side input.
Key Hard Skills for Tax Accountants
Extensive Knowledge of Tax Codes: Tax laws apply at the federal, state, and local levels, and lawmakers change and update them regularly. Tax advisors and accountants require extensive, current knowledge of applicable details.
Auditing Training: Despite the best efforts of tax accountants, clients sometimes face audits. Capable taxation professionals recognize this and must apply their knowledge of auditing procedures to protect client interests.
Mathematical Proficiency: Taxation accountants draw heavily on mathematical skills including algebra, order of operations, ratios, and percentages in performing their duties.
Accuracy: Tax accounting is not a field that easily forgives mistakes, as even small errors and oversights can leave clients liable for serious financial penalties.
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A Day in the Life of a Tax Accountant
Typical duties vary for tax accountants, depending on the time of year. During tax season, specialists spend most of their days preparing client tax returns. A mini busy season recurs in the fall, when accountants finalize returns for clients who were granted extensions beyond the usual April 15 deadline.
At other times of year, tax advisors and accountants confer with clients to discuss the tax implications of their financial operations and business decisions. They also engage in professional development, attending training workshops and refreshing their knowledge of tax codes.
Many taxation accountants use their off-season time to handle administrative needs, such as:
- Filing necessary tax and legal forms with the Internal Revenue Service (IRS) and other government agencies
- Updating internal client profiles
- Resolving correspondence and notices sent to clients by the IRS and other tax authorities
In team-oriented environments, workflow procedures typically include an open list of general tasks that require attention. Team members with free time can go into their workflow management platform and complete an available task.
Career Spotlight: Marie Spoto, CPA
Marie Spoto's career began with PricewaterhouseCoopers, where she performed full-scale audits and prepared financial statements for a variety of clients. Spoto furthered her skills as the manager of accounting at Wheaton College, where she oversaw the accounting department while reporting the college's income and expenses, including the endowment investments. She then spent eight years with the Hancock Timber Resource Group, where she coordinated and reviewed the client reporting and tax process for investment partnerships and limited liability companies.
Since 2011, Spoto has been providing tax, accounting, and consulting services to individuals and small businesses. She and her husband founded Spoto CPA, through which they enjoy serving and educating clients while providing impactful tax advice.
Spoto is a licensed certified public accountant. She holds a master of science in accounting and a master of business administration from the Northeastern University Graduate School of Professional Accounting.
Why did you become a tax accountant? What initially interested you in the role?
Honestly, I was tired of getting cornered at parties and social events by people who had tax questions. They assumed that because I was a CPA, I could answer their tax questions. Simply put, I was embarrassed when I could not answer tax questions on demand and decided to get more tax experience. Also, taxation was my favorite subject in graduate school, which helped!
How does your current role vary from past tax accounting roles?
I am currently the owner of my own tax accounting business. Before I was a contract employee at other CPA firms. Now I am responsible for everything! I need to attract clients, do the accounting and tax work, and meet with/educate clients! I also make decisions with respect to software, technology, procedures, client service delivery models, etc. It is the perfect opportunity to use my years of experience doing taxes as well as my MBA for running the business.
What does your typical workday look like?
There is no 'typical' day — every day is different. Obviously, during tax season there is a lot of tax preparation work. However, a lot of time is spent meeting with new and existing clients to build relationships and understand what they are doing that might impact their taxes.
What are some of the most rewarding aspects of working in tax accounting? Some of the most challenging aspects?
Nothing is more rewarding than researching an elusive tax credit or tax planning strategy and discovering that it will help a client lower their tax liability.
One of the most challenging things is trying to convince people that receiving a tax refund is not necessarily an indication of a good tax preparer! We work closely with clients, year-round, to ensure that their withholdings and estimated tax payments fit with their goals and expectations (i.e., owe nothing when filing tax returns, receive a refund, owe just enough to avoid penalties). Many new clients come to us thinking that a tax preparer is not doing their job if they do not get a refund.
Why did you decide to pursue an MBA? How did your MBA prepare you for your current career?
I enrolled in a double degree program at Northeastern University Graduate School of Professional Accounting where I received an MBA and an MSA. It was truly the perfect combination of degrees. The accounting degree gave me the ability to understand a business from a financial perspective (financial statements, analysis, accounting, etc.) whereas the MBA taught me how to run a business. In every job that I have held, I have always used both degrees. It is second nature for me to take a good look at the processes and procedures and help make improvements, as opposed to simply doing things as they have always been done. I do not think I would have the confidence to own my business if I did not have the knowledge that I gained from the MBA.
What do you think helped you most on your journey toward tax accounting?
I had a tax professor at Northeastern University who sparked my interest in tax. His teaching style really spoke to me and I still quote him today! That same professor also ran a volunteer tax preparation program to help low income and elderly taxpayers. By working with that program, I learned that there was a whole other side to tax preparation — one that could help those who are less fortunate obtain much needed income through valuable tax credits.
What advice would you give to students considering pursuing a career as a tax accountant?
Tax accounting is not just about numbers and regulations. It involves a level of creativity and constant learning since tax laws are always changing. You also need to communicate well with others. A good tax accountant does not sit alone in an office crunching numbers! Instead, they need to develop relationships with their clients to understand what they have done in the past. Furthermore, you need to develop trust so that clients will share their plans for the future so that you can properly plan for any tax situation.
Tax Accountant Salary and Career Outlook
The BLS projects demand for accountants and auditors to keep pace with national growth from 2019-2029. This would translate to over 60,000 new accounting and auditing jobs by the decade's end. As the table below illustrates, tax accountants also earn competitive salaries.
Salary Expectations for Tax Accountants
According to job search website Indeed, the average U.S. entry-level salary was about $40,150 as of February 2021. Relative to this standard, tax accountants enjoy high early-career earning power. As explained in the table below, starting salaries for tax specialists average approximately $53,000 per year, which exceeds typical entry-level earnings by more than 32%.
Many other factors impact actual salaries, including experience, job function, and level of responsibility. Location also plays a major role, with professionals based in major cities tending to command an earnings premium that reflects their higher living costs.
Education level also plays a major role in determining compensation. BLS data from 2020 indicates that professionals with master's degrees earn 18% more than those with bachelor's degrees on average. They also enjoy lower unemployment rates: 4.1%, compared to 5.5% for bachelor's-only workforce members.
Next Steps on the Career Path
As a tax accountant's resume expands to include more experience, more career opportunities become available. Three major options include auditing, tax consulting, and managerial positions in accounting departments or firms.
Auditors usually work for government agencies like the IRS, performing thorough reviews of personal and business tax returns to ensure their accuracy, compliance, and legal validity. Tax accounting experience provides a valuable background, as auditors typically work on cases of suspected tax evasion. Auditors require a specialized certified internal auditor license, obtained by passing a standardized examination.
Tax consultants offer up their insightful expertise on a freelance basis, advising individuals and organizations on strategies they can use to reduce their tax burdens. Thus, instead of preparing returns, they focus more on helping clients navigate the complexities of tax codes when making important financial decisions. They also make strategic advisory contributions to business deals, especially acquisitions.
Accounting firms and companies that maintain internal accounting teams feature hierarchical structures that assign more responsibilities to senior members and fewer responsibilities to junior members. As tax accountants accrue experience, they can move into management positions. Some such positions have the potential to lead to senior executive and C-suite roles.
Where Can I Work as a Tax Accountant?
Tax accountants work in a multitude of locations, settings, and industries. These factors impact earning potential, advancement potential, and career opportunities. As such, emerging tax accountants should understand how these factors affect career paths, considering their own needs, preferences, and professional objectives accordingly.
Tax specialists live and work in every U.S. state, but location-specific factors can significantly affect their earning power and career opportunities. Jobs tend to cluster in higher numbers in large urban centers, while openings in smaller towns and rural areas are usually more limited as a natural consequence of population density.
Salaries also vary from one location to the next, with professionals based in major urban areas tending to earn more money. However, they also face higher costs of living, which aspiring professionals should factor into the balance as they weigh opportunities. Quality of life is another key consideration. School systems, healthcare, culture and recreation, and lifestyle factors all merit close analysis.
Many accounting professionals work in office environments by default. However, this appears to be changing. Thomson Reuters notes that the number of accountants working from home was rising even before COVID-19. The pandemic has accelerated that trend, making remote work a viable option for those seeking offsite opportunities.
In some cases, tax accountants work in client-based settings, visiting individuals in their homes or interfacing with enterprise customers in their places of business. As the economy continues to move toward globalization, international taxation continues to grow as a niche specialization. These roles often come with travel opportunities.
Tax Accounting Requirements
For those wondering how to become a tax accountant, the process covers education, licensing, and certification. The entire journey can take as little as 4-5 years, but most aspiring accountants complete the background requirements in 6-7 years. In many cases, this extra time goes into a graduate accounting degree, which can pay dividends in terms of higher salaries and enhanced career opportunities.
Education Requirements for Tax Accountants
Candidates can pursue multiple educational paths to become a tax accountant. The most basic option includes a four-year accounting degree, which is the minimum required education for the standardized certified public accountant (CPA) exam. Licensed CPAs have the specialized knowledge and skills to enter taxation-oriented career tracks.
The downside of this approach comes from the generalist focus of undergraduate accounting education. While some bachelor's programs offer tax concentrations, a specialized master's degree provides more thorough knowledge. Candidates with advanced degrees in tax accounting qualify for roles with more responsibility and higher pay.
License and Certification Requirements for Tax Accountants
The CPA designation is an important general standard, but tax specialists with niche certifications and credentials tend to enjoy advantages. CPA licensure is the only firm tax accountant licensing requirement, but optional credentials may strengthen a job-seeker's resume. Agencies like the American Institute of CPAs offer recognized certification programs in tax planning and advisory services.
Additionally, anyone who receives pay in exchange for preparing an individual or business tax return requires a preparer tax identification number (PTIN) from the IRS. First-time applicants can get a PTIN online in about 15 minutes, but they require a CPA license or other recognized credential such as enrolled agent, enrolled actuary, or certified acceptance agent. Use this complete checklist of PTIN requirements as a resource.
Required Experience for Tax Accountants
In most cases, aspiring tax accountants enter the field in junior positions after earning their CPA credential. The experience they accumulate over multiple years of professional practice may then lead to senior roles that demand highly detailed, specialized knowledge and carry greater levels of responsibility.
Candidates can bypass some experiential learning by obtaining a specialized master's degree in tax accounting or an accounting MBA. Adding optional tax-focused professional certifications further strengthens a professional profile, paying dividends in the form of accelerated career advancement and increased earning potential.
Frequently Asked Questions
What is the job description of a tax accountant?
A typical tax accountant job description covers the preparation of individual or business tax returns. As part of their duties, they also identify tax savings and strategic courses of action that may lead to future tax benefits.
What is the difference between a CPA and a tax accountant?
Most tax accountants are CPAs who specialize in taxation, having accumulated concentrated knowledge through experience, focused schooling, or both. Note that licensed or certified tax return preparers are not necessarily accountants, and they can only offer clients a limited set of services.
How do you become a tax accountant?
To become a licensed tax accountant, a candidate must complete at least a bachelor's degree in accounting and pass the CPA exam. From there, they can pursue entry-level jobs with a taxation focus, or supplement their general education with a specialized advanced tax accounting degree, MBA, or optional professional certification.
Where do tax accountants have the highest salary?
According to BLS data, the U.S. jurisdictions with the highest average pay rates for accountants and auditors are, in descending order, the District of Columbia, New York, New Jersey, Massachusetts, and California.
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