Advisors
What is a tax consultant?
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Updated 1:12 p.m. UTC Nov. 2, 2023
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Key points
- Tax consultants help clients reduce their tax liability and comply with the law.
- You may hire a tax consultant if your financial situation has become more complex.
- Tax consultants generally charge between $100 and $500 per hour.
If your tax situation has gotten more complex or you think you’re paying too much in taxes, it may be time to enlist help. A tax consultant — also known as a tax advisor — is a professional who helps clients reduce their tax liability while remaining compliant with tax laws.
Tax consultants aren’t right for everyone. They are more expensive than traditional tax preparers and may not be necessary for people with relatively simple tax situations. But you may find that the money they can save you in taxes is worth more than what you pay for their services.
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What does a tax consultant do?
A tax consultant helps clients reduce their tax burdens and plan their futures.
For individuals, the process may look like maximizing their deductions and tax credits and deciding where to keep their assets to reduce their tax liabilities.
Tax consultants can also help businesses choose their optimal structures and provide guidance on managing their finances to minimize their tax burdens.
Tax consultants should know the ins and outs of tax laws, whether they serve individuals or businesses. They ensure their clients are compliant with tax laws and represent them in audits and other dealings with the IRS and state tax agencies.
Tax consultants often help their clients prepare and file their taxes. But there can be huge differences in the services and levels of expertise tax consultants and tax preparers provide.
“Tax consultants possess an advanced understanding of tax laws, enabling them to offer nuanced advice on tax planning and strategic decision making,” says Elise Faucette, a certified public accountant (CPA) and tax associate at the firm CMP. “Beyond simple tax preparation, they are capable of representing clients during tax audits.”
How much does a tax consultant cost?
Because of the variety of services tax consultants offer and the different types of clients they serve, they charge a wide range of rates.
“As a ballpark figure, tax consultants may charge anywhere from $100 to $500 per hour,” Faucette says. “However, the potential tax savings and peace of mind they offer often justify the cost.”
The cost of a tax consultant depends in part on the type of client. For example, consultants who serve businesses might charge more than those who serve individuals. The more complex your tax situation, the more you can expect to pay.
As with other professional services, you can also expect to pay more based on the experience and expertise of the person you’re hiring and how specialized the service is.
Why hire a tax consultant?
Tax consultants help clients reduce their tax burdens and follow state and federal tax laws. Because these professionals play such important roles, there are many situations where you may want to hire one.
“Aside from the peace of mind that comes with having a professional review your tax strategy, a general rule of thumb is if it can’t be figured out with 10 minutes on Google, then it’s time to consult an advisor,” says Chris Haller, the vice president of marketing with the tax advisory firm RealCount.
Here are some situations where you may want to hire a tax consultant:
- You own a business. Not only does a business have its own tax situation, but being a business owner can make your finances more complex. A tax consultant can help you reduce your business and personal tax liabilities.
- You have a high income. It stands to reason that the higher your income, the more you pay in income taxes. Once you reach a higher tax bracket, it may be worth enlisting the help of a tax consultant so you can pay less.
- You plan to itemize your deductions. Most people claim the standard deduction, especially since Congress increased it. But if you plan to itemize your deductions, which usually means you have a more complex tax situation, then a tax consultant can help.
- You receive a large inheritance. While a large inheritance can be positive, it can also have major tax consequences. A tax consultant can help you find the most tax-advantaged way to deal with the influx.
- You have a variety of income streams. Filing your taxes is fairly simple if you have only W-2 wages. But if you get paid as a 1099 contractor or with equity shares in a company, for example, you may want to hire a tax consultant.
- You want to minimize your taxes. The one thing the above situations have in common is reducing your tax liability. If you want to pay less in taxes, a tax consultant can help you do so while ensuring you comply with state and federal tax laws.
How to find a tax consultant
You’ve decided you need a tax consultant. But how do you go about finding one? According to Faucette and Haller, a personal referral is the best way to find a tax consultant.
Here are some ideas to help you get started:
- Ask friends or family for recommendations based on their experiences.
- If you’re a business owner, ask members of the local business community who may face the same challenges you do.
- Consult lists of qualified professionals compiled by the National Association of Tax Professionals or the American Institute of Certified Public Accountants.
- Read Google and Yelp reviews for tax consultants in your area.
You have more options for finding the perfect consultant than you used to because you aren’t limited to those who are nearby.
“Pre-COVID, tax advisory was a local business, but more and more advisors are open to virtual meetings,” Haller says. “This means that there are more opportunities to find the right mix of experience, expense and personality.”
Once you’ve gathered a few recommendations, vet them on your own to ensure they’re good fits.
“Key considerations when choosing a tax consultant include ensuring they are licensed and insured, inquiring about their experience and qualifications, and obtaining a written fee estimate before engagement,” Faucette says.
It’s worth noting that no certification is required for a tax consultant. Many professionals in the industry have accounting degrees. And someone who has the CPA designation may have more education and experience.
But a tax consultant’s education isn’t the only important factor. In addition to finding a qualified professional, you want to find one who fits your budget and whom you trust to guide you on important financial matters.
Frequently asked questions (FAQs)
Some tax consultants work in private practice for themselves, while others work at accounting firms, consulting firms and financial institutions. They may also work within businesses, helping them optimize their tax situations. Tax consultants can work locally or remotely, serving customers across a greater area.
Accounting is a broad term that can describe many roles. Generally speaking, accountants deal with financial records of some kind. But they can do so in many jobs, including tax consultants, tax preparers, bookkeepers, auditors and data analysts.
It’s probably time to hire a tax consultant if your tax situation has become too complex for you to handle on your own. That may be the case if you own a business, plan to itemize your deductions, or have a high income or net worth and want to minimize your tax liability.
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