What Is a Tax Advisor?

A tax advisor is a financial expert with advanced training and knowledge of tax accounting and tax law. The services of a tax advisor are usually retained in order to minimize tax payable while remaining compliant with the law in complicated financial situations. Tax advisors can include Certified Public Accounts (CPAs), tax attorneys, enrolled agents, and some financial advisors.

A tax advisor may also be known as a tax consultant.

Key Takeaways

  • A tax advisor is a financial professional who provides advice on strategies to minimize taxes owed while staying within the scope of the law and regulation.
  • Tax advisors may be trained as accountants, lawyers, or financial advisors, or may work as a team consisting of two or more types of professional.
  • Regardless of training, tax advisors are well-versed and up-to-date in matters of tax law and both IRS and state tax guidelines.

Understanding Tax Advisors

A taxpaying entity, such as an individual, partnership, corporation, trust, etc. that has a complex financial situation (e.g. complex investments and deductions) can seek out the expertise of a tax advisor to help minimize the amount of taxes to be paid to the taxing authorities. Depending on the taxpayer’s situation, the advise and services a tax advisor renders will differ. An individual planning for retirement will get a different advise from an entrepreneur looking to set up shop. Likewise, a real estate investor will probably have a different tax need from a commodity trader. Furthermore, a tax advisor’s dealings with a company looking to merge with or acquire another company may vary from his or her professional relationship with an estate executor seeking to minimize estate taxes.

Because tax advisors are well versed in tax laws and IRS guidelines, businesses may retain their services to represent the businesses before tax authorities and courts in order to resolve issues relating to tax. Tax advisors understand the laws regulating individual and business taxes and are, therefore, instrumental in guiding taxpayers on how to comply with federal, state, and local tax rules. Advisors are required to stay up-to-date on the latest federal and state tax requirements so as to be effective when providing advise on current tax topics.

Tax advisors may work for an agency or be self-employed. Either way, they are tasked with finding efficient ways for clients to legally lower tax liability, compute taxes on diverse investment portfolios, find the right deductions and credits applicable, etc. They can also prepare and file tax returns for their clients. A taxpayer who has experienced a major life event – such as death of a spouse, marriage, divorce, birth or adoption of a child, purchase of a new home, loss of job, received an inheritance, etc. – will be smart to hire the services of a tax advisor.

Tax Advice and Regulation

Tax advisors and preparers are regulated but not licensed by the Internal Revenue Service (IRS). In Treasury Department Circular No. 230, Reg. 10.33(a) of the circular it outlines the duties and ethical standards of tax advisors. There can be penalties levied and disciplinary action taken for failing to follow the standards outlined by the IRS, for example, failing to disclose the identity of the preparer on the return, failing to give the taxpayer a copy of the return, and negligence in preparing the return.