Tax Accounting: A Complete Overview

First things first, what is tax accounting? 

In the United States, taxes are the largest source of revenue to fund the federal budget, which as of 2020 hovered around $7 trillion. The three major types of taxes are income taxes paid by individuals, payroll taxes paid by workers and their employers, and corporate income taxes paid by businesses.

Tax accounting – the means of accounting for tax purposes – is a structure of accounting methods focused on taxes and governed by the complex Internal Revenue Code, which is often referred to as the “tax code.” The purpose of tax accounting as a subset of the accounting field is to determine how much a taxpayer, which could be a person or business entity, owes in taxes, following the provisions of the tax code. The tax accountant’s work also involves helping people and entities minimize their tax liability through the use of deductions that qualify under provisions of the tax code and reduce their taxable income. A few examples of common tax deductions for individuals include charitable donations, child tax credits, medical expenses and interest on student loans and mortgages. 

Tax accountants determine a company’s total taxable income – its annual income after expenses – and then go to work determining how to minimize tax liability while following the law as outlined in the tax code. They do so by considering elements of tax accounting that include profit and loss, liabilities and the accounting method used by the organization.

Different types of tax accounting correspond to the types of taxable entities that use the process. 

In tax accounting for individual taxpayers, the process focuses only on items that affect the individual’s tax liability, such as income, qualifying tax deductions, investment gains or losses and other transactions. This makes the amount and complexity of the information involved more manageable than in a business tax preparation situation. While individuals can use tax accountants, they are not required by law to hire a tax expert and many taxpayers file themselves, often using tax preparation and filing software.

The tax accounting scenario for businesses tends to be substantially different. More information regarding the entity’s revenue and expenses must be processed and analyzed to determine a company’s tax liability. More complexity is involved in the area of the company’s outgoing funds directed at fulfilling various obligations. There may be a variety of tax credits and deductions that certain businesses can use to reduce their corporate taxes, like clean energy and vehicle credits, energy-efficient commercial building deductions or employer-provided child care credits. 

Even organizations that are tax-exempt under the IRS code utilize tax accounting. While this may seem odd, the fact is nonprofits must file an annual tax return like everyone else. Even if they don’t actually pay taxes, they’re required to provide detailed information about grants or donations they’ve received and how they’ve used this income during the tax period. This helps the IRS determine whether they’ve lived up to their obligations and governed themselves properly as a tax-exempt entity.

The practice and methods of tax accounting are important in a few ways. Because it’s important for businesses to comply with the provisions of the IRS tax code to avoid fines and penalties, they hire accounting professionals with specialized training and knowledge in this area. On the flip-side of the same coin, businesses want to be able to keep as much of the profits they’ve made, so they can return value to owners or shareholders, or have more funds available to reinvest back into the business. Capable tax accountants help them find tax credits and incentives, devise tax planning strategies and look for ways to reduce tax liability without running afoul of tax laws.

Tax accounting methods are used by Certified Public Accountants (CPAs), internal auditors, tax accountants and forensic accountants. Each of these accounting professionals plays a role, in some cases a highly specialized one, in the tax accounting process. CPAs, as public accountants, may take on tax preparation duties for individuals and businesses alike. Forensic accountants use tax accounting methods to investigate financial statements and other records as they work for a government agency or private law firm. Internal auditors use similar methods to examine a company’s finances from the inside, to ensure regulatory compliance and uncover any signs of internal wrongdoing, such as fraud or embezzlement. 

As in many other occupations, the journey toward a career as a tax accountant begins with proper education, and that means earning a degree. According to the U.S. Bureau of Labor Statistics, accountants and auditors typically need a bachelor’s degree in accounting or business to enter the occupation, and some employers may prefer applicants who have a master’s degree.¹ 

Growth projected on a national level. Local growth will vary by location. BLS projections are not specific to DeVry University students or graduates and may include earners at all stages of their career and not just entry level.

At DeVry, our online Bachelor’s Degree in Accounting is designed with a robust curriculum of core business courses. This gives you a strong foundation in accounting and economics, and a thorough understanding of business technology, government regulations, business administration and management. Accounting courses cover topics like federal income taxation, accounting information systems, federal tax accounting, auditing and financial accounting.

Want to go farther? You may be able to boost your professional competency and expand your career options by pursuing accounting certifications like the CPA (Certified Public Accountant) or CMA (Certified Management Accountant) certification.²  Here at DeVry and our Keller Graduate School of Management, our Graduate Certificate in Accounting Certification Preparation is designed for students who’ve completed an undergraduate specialization in accounting or finance and want to advance in their field by earning these important credentials. 

As a tax accountant, do you also have to be a CPA? Individuals and businesses can work with licensed tax preparers who are not CPAs, but CPAs tend to have broader financial knowledge and potentially a more holistic understanding of business operations. For this reason, businesses often prefer to work with CPAs to prepare and file their tax returns. It’s best to research the specific requirements in your state for the required certification or license to work as a tax accountant.

After completing your formal education or while still in school, look for ways to gain the experience that can lead to an entry-level job in tax accounting. Some tactics to consider include looking for an internship (some are actually paid), networking and finding a mentor. Consider volunteering for a local nonprofit organization or fulfilling the treasurer’s duties at a local club. These options are good resume builders because they sharpen your skills while supporting charitable causes. 

Here at DeVry and Keller, our commitment to supporting your professional goals doesn’t stop on graduation day. Resume writing, interview preparation, career advising, one-to-one coaching and personal branding are just a few of the career resources we offer to help keep you on track and stand out to employers.

If you have your sights set on a career in accounting, DeVry can help. Begin your journey with our online Bachelor’s Degree in Accounting and gain the foundational skills that you can apply to accounting roles in finance, management, entertainment, operations management and other industries. Coursework in this bachelor’s degree program explores topics like critical thinking, financial accounting and auditing, federal income taxation and more.  

With elements of Becker Professional Education’s industry-leading content, our Bachelor’s in Accounting program gives you the opportunity to gain exposure to today’s relevant accounting principles.

Are you thinking it will take too long to earn your bachelor’s degree? Here at DeVry, students choose the schedule that best fits their goals and commitments. You can earn your Bachelor’s Degree in Accounting in as few as 2 years and 8 months* on an accelerated schedule, or follow a  normal schedule and complete the program in 4 years.**

Online learning with DeVry can help you balance your commitment to education with work, family and other aspects of your busy life. Classes start soon. Let’s talk about getting you enrolled in the program that fits your personal and professional goals.