Tax season is when millions of people and organizations turn to the expertise of professionals such as tax preparers, tax associates, and tax managers, secure in the knowledge that their returns will be accurate and filed according to Internal Revenue Service (IRS) regulations.
No one likes paying taxes, which is why tax professionals help individuals and organizations minimize their tax liabilities. Still, taxes help strengthen the overall health of the economy. Without that income, the government can’t fund public works and services that benefit taxpayers. Taxes help pay for highways, waterways, airways, and other critical infrastructure. Revenue from taxes also helps fund the military, education programs, public health organizations, and social services agencies that make an impact on the lives of everyday Americans.
The White House reports that U.S. government revenues for 2019 was $3.438 trillion. The bulk of the revenue came from income taxes and payroll taxes: $1.698 trillion and $1.187 trillion, respectively. In addition, $216 billion came from corporate taxes. Companies from small businesses to Fortune 500 corporations rely on tax professionals to ensure compliance and assess and manage the implications of evolving tax laws.
Income tax is the primary source of revenue for the federal government. Data from the Congressional Budget Office shows that income tax revenues have consistently grown since 1965. There are a few exceptions: most recently, revenues from income tax were less in 2009 and 2010, during the recession. However, federal receipts from income taxes bounced back up in 2011 and have continued to grow since. The ratio of total revenues generated from income taxes has remained consistent. Since 1950, individual income taxes have made up nearly half of federal receipts, making it the largest single source of federal revenue, according to the Tax Policy Center.
Income tax consists of a percentage of an individual’s earnings, such as from employment or investment income. Income tax payers generally use the services of a tax preparer or other accounting professional such as a certified financial planner to minimize their tax liabilities and ensure compliance.
Corporate taxes are a percentage of a company’s operating earnings. Operating earnings are determined by subtracting expenses, such as the cost of raw materials and the depreciation of assets, from revenue. Companies rely on tax professionals to use the tax code to lower their tax liabilities.
Tax professionals work with people and companies throughout the system to ensure tax compliance.
EFile.com reports that nearly 156 million tax returns were filed for the 2018 tax year, 88.72% of them electronically. Even with the rise of online tax preparation tools, there remains a growing need for tax professionals to help people and businesses with their taxes. IRS estimates indicate that 60% of taxpayers pay tax professionals for tax filing and other tax services, according to Investopedia. In order to legally prepare taxes for a fee, individuals must hold current preparer tax identification numbers (PTINs). The IRS reports that 753,884 individuals hold PITNs in 2020, with the total number of PTINs issued since 2019 close to 1.7 million.
The changing field of taxation is driving the creation of new tax jobs that require knowledgeable professionals who understand business and technology. Historically, tax experts operated in silos, apart from an organization’s business operations, according to an EY report. In today’s market, however, tax professionals need to understand the impact globalization has on businesses.
Additionally, digital transformation trends are causing tax jobs to evolve. For example, with growing demands for transparency, tax professionals are tasked with acquiring more data from various sources. Through AI and automation technologies, tax professionals can gather and analyze data faster than they would be able to via manual methods. This can enable them to develop effective tax strategies for their clients efficiently and accurately.
Tax careers also require keeping up with constantly changing laws. The national taxpayer advocate reports an average of a change or more a day to the tax code since 2001, making navigating the world of taxation increasingly complex.
Tax Careers: Outlook & Trends
According to the American Institute of CPAs (AICPA) 2019 Trends Report, 32% of those who graduated with a bachelor’s or master’s degree in accounting were hired by CPA firms for taxation assignments in 2018, with 47% hired in auditing, a field that also deals with tax issues. The increasingly complex tax code, the state of the economy, and global business trends along with other factors are driving consistently high demand for knowledgeable tax professionals.
Tax careers will always involve reducing tax liabilities and ensuring compliance with IRS regulations. Still, the emergence of the global economy and the digital revolution are transforming tax jobs. The proliferation of mobile technologies and increased connectivity are changing buyer trends.
Marketplaces reach beyond national borders, offering consumers more variety and allowing businesses to attract more customers. The new global digital economy also brings ramifications for taxation. Evolving digital tax rules make it difficult for companies to ensure tax compliance, not only in the U.S. but internationally.
To meet their tax obligations in a fast-moving digital economy, companies seek out taxation professionals with a firm understanding of business, global trends, and the law. The work of tax professionals in this environment involves more than decreasing risk for companies and reducing tax liabilities; it requires playing a strategic role in a business’s success.
Technological advances impacting tax careers include machine learning, artificial intelligence, and analytics. These innovations can change how tax professionals work, improving processes like data collection and analysis, and the overall efficiency of tax functions. For example, a machine learning application may help to mitigate the challenges of an increasingly complex tax code by automating manual tasks, freeing up time for humans to do more.
As such, tax professionals have more time to respond to tax complexities and help clients meet demands for transparency by the government and advocacy groups. Similarly, data analytics technologies can review, analyze, and manipulate large volumes of data, allowing tax professionals to spend more time extrapolating conclusions to devise tax strategies for their clients.
These trends and forces are reorganizing the corporate world, and the high demand for tax professionals is expected to remain consistent in the future. The growth of tax jobs is also tied to the overall health of the U.S. economy.
Tax jobs come in many forms. Tax professionals often work in professional service firms, where they advise clients on how tax laws may impact their business objectives. For example, a tax professional at Deloitte might work in business tax services, mergers and acquisitions, private wealth, or global employer services, to name a few specialties.
Tax professionals may also work in an in-house tax department for a small or large business. In this role, they may be responsible for federal, state, and local income taxes or payroll taxes. In-house tax professionals work with company stakeholders to solve complex tax-related problems and develop strategies to maximize profitability.
In government agencies, tax professionals can serve various roles. IRS tax jobs include providing technical tax guidance as tax managers, conducting investigations as tax compliance officers, and mediating between the IRS and taxpayers as appeals officers.
Tax Preparer Jobs: Description & Salary Information
Tax preparers are responsible for preparing federal, state, and local income tax returns for individuals and businesses. They correctly report tax liability, use legitimate exemptions to lessen tax burden, and advise clients of tax regulation changes. Their primary aim is to help clients meet their federal and state tax obligations.
While the law requires all tax preparers to have an IRS-issued PTIN, they have different levels of representation rights. Certified public accountants (CPAs), who in most states must undergo 150 hours of education and pass the Uniform CPA Examination, enjoy unlimited representation rights, meaning that they can help clients in all matters, such as audits, collection issues, and appeals to the IRS.
Like CPAs, tax attorneys and enrolled agents have unlimited representation rights. Tax preparers with limited representation rights include Annual Filing Season Program participants and PTIN holders without professional credentials.
The median annual salary for tax preparers was $39,390 as of May 2018, according to the BLS. However, tax preparers with the title of tax accountant earned a median annual salary of around $56,900 as of February 2020, according to PayScale. Geography can also play a role in salary; according to PayScale, tax preparers in New York earn about 14.4% more than the national average.
Tax Associate Jobs: Description & Salary Information
Tax associates review financial records to ensure compliance and proper tax payments and keep tax files organized. Tax associates work as part of a team, regularly interacting with accountants and other financial professionals. Their daily tasks include using software to file taxes, gathering and validating tax documents, and meeting timelines and legal requirements. Larger companies may require candidates for this role to hold master’s degrees and CPA designation.
The median annual salary for tax associates was around $57,200 as of February 2020, according to PayScale. However, at the senior level, tax associates may earn higher wages. For example, the median annual salary for a senior tax associate for the global consulting firm PwC is $95,659, according to Indeed.
Tax Manager Jobs: Description & Salary Information
Tax managers oversee tax returns, ensure compliance, supervise accounting staff, and participate in tax planning. They also analyze the impact of tax legislation on business decisions. Tax managers may be involved in internal public offerings (IPOs) and mergers. A senior-level tax manager often has a CPA designation and a graduate degree in accounting or taxation. Tax managers typically have at least six years of experience, according to AICPA.
The position of tax manager is one of the top four most competitive financial roles, according to Investopedia, and MarketWatch calls it “the No. 1 job in America with the ‘best career opportunities.’” Tax managers earned an annual median salary of around $97,200 as of February 2020, according to PayScale.
Tax Jobs: What Impact Can They Make?
Skilled tax professionals analyze the effect tax regulations have on revenue to help companies and organizations maximize returns and limit liabilities. Strong technical skills are taking center stage for tax professionals as AI, automation, and analytics are transforming the old ways of doing things. Tax careers can be challenging and rigorous. They require professionals to keep up to date with tax law changes and technological developments to ensure accuracy and thoroughness for their clients and employers.
Preparing for a tax career today requires an understanding of tomorrow’s tax challenges. Accounting and finance professionals with advanced knowledge of current taxation practices and the competencies to deliver results can stand out from the competition.
Shared with permission from Northeastern’s Online Master in Taxation program.