Bookkeeper vs Accountant vs CPA: Who Does What for Your Business

What is the difference between a bookkeeper, an accountant and a CPA?

A bookkeeper keeps the record of what happened, an accountant works with that record to prepare and examine financial information, and a CPA is an accountant licensed by a state board. The roles overlap, so a title alone does not show who may sign your return or speak for you to the IRS.

A case stops being simple when you hold two quotes that overlap, your bookkeeper and your preparer never share files, the business has employees, collects sales tax or files as a corporation or partnership, the books are behind, or an IRS notice needs someone who can act for you. Each one adds a filing or a decision that someone must own, and anyone you want to handle an IRS matter for you needs the right to act for you.

Gather before you hire: your last business return and who prepared it, your payroll provider and its reports, access to your accounting file, and a list of every state where you have employees, sales or an office.

Do I need a bookkeeper or an accountant first as a new business owner?

You need two jobs done, not necessarily two people: records all year and a return at year end. Someone has to keep the records that support the return, and that can be you or a bookkeeper (see doing your own books or hiring a bookkeeper). Someone must also prepare the return, and a paid preparer needs a preparer tax identification number (PTIN); the next two sections cover who may prepare and sign it.

The next hire follows the work you add; with a few transactions and no employees, you may need only the return prepared, by you or a paid preparer:

One firm can do the books and the return; see the section on one firm or two below.

Is "bookkeeper" or "accountant" a licensed title, and what does a CPA license add?

Neither "bookkeeper" nor "accountant" is a federal credential. The Bureau of Labor Statistics says certification is not usually required for bookkeeping clerks (BLS), and the IRS's list of credentials is CPA, enrolled agent and attorney (IRS).

State law decides who may use which title. Florida, for example, bars unlicensed people from calling themselves a "certified public accountant" or "public accountant", says no CPA license is needed to do bookkeeping or prepare tax returns, and requires a CPA firm license for audit or attest services, such as an audit of financial statements (Florida Department of Business and Professional Regulation). Other states set their own rules; ask your state board of accountancy.

A CPA license adds:

• A state license earned by passing the Uniform CPA Examination, completing accounting study and meeting experience and good-character rules, kept active with ethics rules and continuing education (IRS).
• Unlimited rights to represent you before the IRS, shared with enrolled agents and attorneys (IRS; 31 CFR 10.3).
• Where state law reserves it, the audit and attest work a lender or investor may ask for.

A CPA license does not show which services the person offers. The IRS notes that CPAs may offer a range of services and only some focus on tax.

Who may prepare and sign my business tax return?

Anyone with a PTIN may prepare a federal return for pay, and the owner or an officer signs it as well. The IRS says an individual who prepares or assists in preparing federal returns for pay must have a PTIN (IRS). Generally, a paid preparer signs the return, enters a PTIN and gives the business a copy. This covers federal returns; some states also license paid preparers, as Oregon does for personal income tax returns, with exemptions that include licensed CPAs and attorneys (ORS 673.610 and 673.615).

A sole proprietor reports business income on the owner's own Form 1040, where the same paid-preparer rule applies (Form 1040 instructions).

If an employee of the business, or a partner or LLC member, completes the return, the paid-preparer section stays blank (1120-S instructions; 1065 instructions). Can an outside bookkeeper prepare the return for pay? Only with a PTIN, generally signing as the paid preparer. Supplying the books and reports does not by itself make a bookkeeper a return preparer, but a person who furnishes enough information and advice that completing the return is largely a mechanical or clerical matter is treated as one (26 CFR 301.7701-15).

A preparer's signature does not move the responsibility. Taxpayers are legally responsible for what is on a return even when someone else prepared it (IRS).

Who can represent me before the IRS in an audit, a notice or a payment case?

CPAs, enrolled agents and attorneys can represent you on any matter, including audits, payment and collection issues, and appeals. The title "bookkeeper" or "accountant" adds no representation rights (IRS).

The Annual Filing Season Program is a voluntary IRS continuing-education program for preparers who are not CPAs, enrolled agents or attorneys (Publication 947).

You can also act for yourself. An individual may appear on their own behalf. A bona fide officer or a regular full-time employee may represent a corporation, a general partner or a regular full-time employee a partnership (outside the audit rules below), and a regular full-time employee an individual employer (31 CFR 10.7; Publication 947). The rule names general partners, not LLC members, so a multi-member LLC should confirm who may act for it.

A partnership or multi-member LLC taxed as a partnership is under the IRS centralized partnership audit rules unless it validly elected out. Then only its partnership representative, or that representative's designated individual, acts for the partnership, binds every partner and signs the Form 2848 for those matters. The representative need not be a partner or hold a credential. Check who is named for the year under examination (26 USC 6223; Form 2848 instructions; IRS); see how partnerships are taxed.

A notice does not always need an outside representative: read it for what the IRS asks and the reply date, then decide who should answer.

To name someone, file Form 2848 with an individual who is eligible to practice; a firm cannot be named (Form 2848 instructions). The form covers only the matters and periods listed on line 3: a power of attorney for your Form 1040 does not cover a trust fund recovery penalty proposed against you for company payroll tax (Form 2848 instructions). Form 2848 works only before the IRS; a state agency sets its own rules for who may act for you. Naming a representative does not relieve you of your tax obligations. Form 8821 is a separate, information-only authorization: it lets a bookkeeper see your IRS records but not act for you. For Form 8821 versus Form 2848, see switching accountants.

Enrolled agent or CPA: what is the difference for a business?

Both can prepare and sign business returns and represent the business on any IRS matter. The difference is who licenses them and what else the license covers.

An enrolled agent is licensed by the IRS, has passed a suitability check and a three-part Special Enrollment Examination that covers individual and business returns and representation, and completes 72 hours of continuing education every three years (IRS). The IRS also enrolls some former IRS employees through experience (IRS).

A CPA is licensed by a state board and may offer a range of services; some CPAs specialize in tax (IRS). Where state law reserves audit and attest work to CPA firms, only a CPA firm can do it.

If the need is a return and IRS matters, either credential carries the rights. If a lender or investor asks for audited statements, ask about CPA firm licensing in your state. Either way, ask which business returns the person prepares every year. For personal returns, see CPA, enrolled agent or tax software.

Where do a full-charge bookkeeper and a controller fit?

Both are job titles, not licenses. The Bureau of Labor Statistics describes full-charge bookkeeping clerks as maintaining an organization's entire books, and controllers as directing the preparation of financial reports (bookkeeping clerks; financial managers).

Neither title carries IRS representation rights; those come from the credentials above. Ask for the scope in writing, and whether anyone on the team holds a CPA, enrolled agent or attorney credential; more questions are in questions to ask before hiring a bookkeeper.

Startups that must choose between a controller and a CFO should read choosing an accountant for a startup.

Who does what: books, payroll deposits, sales tax, the return and the year-end handoff?

The bookkeeper usually keeps the books and a paid preparer with a PTIN signs the return, but the business answers to the IRS and the states for all of it.

With an ordinary payroll service provider or reporting agent, the employer remains responsible for deposits and filings (Publication 15, section 16). A certified professional employer organization (CPEO) is generally the sole employer liable for federal employment taxes on wages it pays to its worksite employees (IRS; 26 USC 3511). See payroll provider did not pay your taxes. If tax withheld from employees' pay goes unpaid, the trust fund recovery penalty equals 100% of the unpaid tax and can be imposed on a responsible person who acted willfully, a group that can include an accountant (Publication 15); see trust fund recovery penalty. For what a monthly service delivers, see what a monthly bookkeeping service includes.

Do I need a separate bookkeeper and CPA, or can one firm do both?

One firm can do both. Florida's board, for example, says a licensed individual CPA may provide advice, tax and bookkeeping services (Florida Department of Business and Professional Regulation). The roles stay separate jobs, so settle three points in writing with either setup: which individual signs the return and whether that person holds a PTIN and a credential with representation rights, who answers IRS and state notices and whether that is inside the fee, and who holds the logins to the bank, payroll and accounting accounts (giving a bookkeeper access to your accounts).

With two providers, give the preparer read access to the accounting file and ask for its list of required reports and the date it needs them before the year ends, so the bookkeeper's output matches. A bundle sold for one fee may leave notices or state returns outside it; see online bookkeeping service or CPA firm.

How do I check someone's credentials?

Ask for the name of the individual who will sign or represent you, then check that person, not the firm. Form 2848 names individuals only, never a firm (Form 2848 instructions).

1. CPA: check the license and any discipline with the state board of accountancy (IRS).
2. Enrolled agent: the IRS licenses them and its Office of Enrollment can confirm status (IRS). The IRS directory of federal tax return preparers lists enrolled agents, CPAs and attorneys with valid PTINs, plus Annual Filing Season Program participants (IRS; directory).
3. Attorney: check standing with the state bar (IRS).
4. PTIN: ask for it. The preparer must enter it on the return filed with the IRS, though not necessarily on your copy (IRS).
5. Missing from the directory: the IRS says preparers with PTINs who are not listed may still do good work, and to ask about their education and training.

Bookkeepers have no federal license or directory, so references and clear scope matter more; see questions to ask before hiring a bookkeeper. The IRS takes complaints about preparer misconduct; see choosing a tax professional.

Example

These examples are illustrative; amounts are in US dollars.

Elena: two vendors who never talk

Elena's one-person design LLC is taxed as a sole proprietorship and has US$90,000 of revenue. She pays a bookkeeper US$200 a month and a preparer US$900 a year, US$3,300 in all. The bookkeeper's reports are not in the format the preparer asks for.

Federal rules do not require a CPA license to prepare her return: the preparer needs a PTIN and generally signs it, and her state may add its own preparer rules. Elena asks the preparer for a written list of the reports it needs, passes the list to the bookkeeper and gives both read access to the accounting file. If a firm quotes both jobs together, she compares the named signer, the written scope and who answers IRS letters, not only the price.

Marcus: payroll, books and a return

Marcus's S corporation has US$600,000 of revenue and 4 employees. An ordinary payroll service provider (not a certified professional employer organization) files the deposits, a bookkeeper closes each month and a CPA signs the Form 1120-S as paid preparer. Marcus signs as the officer.

The corporation remains responsible for the deposits. If the provider misses one, the IRS can assess penalties and interest on the corporation's account. If the IRS writes about the return, Marcus can sign Form 2848 for the corporation, naming the CPA for Form 1120-S and the years listed.

Ivy: a notice on a return someone else prepared

Ivy gets an IRS notice about her corporation's return, prepared by a preparer who holds only a PTIN, with no credential and no Annual Filing Season Program record. That preparer has no right to represent her. Ivy reads the notice for the form, the tax year and the reply date, and checks whether the preparer signed and entered a PTIN on the filed return.

She can answer as an officer, or sign Form 2848 for the corporation naming a CPA, enrolled agent or attorney for that form and year. If the notice proposes a payroll penalty against her personally, she needs a Form 2848 in her own name that lists that penalty on line 3.

Different for you?

• You hold two quotes that overlap, or your bookkeeper and preparer never share files: compare scope, named signer and who answers IRS mail, using online bookkeeping service or CPA firm and bookkeeping cost per month, then get bookkeeping help to settle which roles you need now, who signs and represents you, and whether one firm can do the books and the return.
• Your books or returns are behind: start with catching up on overdue books and catching up on unfiled business returns, and get bookkeeping help if the years are missed.
• An IRS notice or payroll penalty arrived: if you want someone to act for you, that person needs representation rights; see behind on payroll taxes and an accountant who missed the deadline. If the books behind the notice are not current either, get bookkeeping help to sort out who handles which part.
• Your bookkeeper or preparer made mistakes: see bookkeeper mistakes: who pays the penalties and switching accountants.
• You need a profit and loss statement or CPA letter for a lender: see proving income to a lender.
• You run a venture-backed corporation: see choosing an accountant for a startup.
• You own a US LLC or corporation from outside the US: a foreign-owned US business can have extra annual filings, depending on its entity type and transactions; see foreign-owned single-member LLC filing and foreign-owned C corporation filing, and ask about cross-border tax help.
• Your business or owners are in Canada too: see the Canada guide to bookkeepers, accountants and CPAs and when a Canadian business needs a cross-border accountant.