Is It Time to Hire a CPA?

When to hire a CPA

If you can afford it, hiring a CPA is likely your best option under any circumstances. Trying to educate yourself on changing tax laws, understanding the various deductions you qualify for and staying current with filings can distract you from what’s most important: running your business. 

However, hiring a CPA is extremely advisable if your circumstances include the following: 

• You don’t have a dedicated in-house accounting and finance team.
• You’re behind on your taxes.
• You think you are at risk of being audited. (Working with a tax pro may help you avoid a tax audit.)
• You are seeking outside funding or contemplating a merger and need tight financial statements.
• You suspect an employee or partner of committing accounting fraud.

What to consider when determining who should do your taxes

Consider the following before hiring a CPA – or deciding to go it alone: 

• Your business’s current financial picture: Can you generate accurate and complete financial statements and records, including balance sheets and profit and loss statements? Even if you can, consider the time it takes to run all appropriate financial reports and how you can better spend that time.
• Your knowledge of personal and company income: Do you know your personal income as well as your business’s income? Taxes can be complex for small business owners, and accurately delineating your income is crucial.
• Your business’s accounting cycle and what it entails: Do you understand the accounting cycle and the steps involved in ensuring proper financial oversight of your business’s financial well-being?
• Your business’s legal structure and unique tax considerations: What is your business’s legal structure? Sole proprietorships, C-corps, S corporations and partnerships are taxed differently.
• The complexity of your business’s revenue sources: The more complex your revenue sources, venues (interstate or international versus local) and industry, the more you’ll need a CPA.
• Your knowledge of tax laws and regulations: Tax laws and regulations change constantly. A CPA can help you determine the tax deductions you do (or don’t) qualify for and the specific tax rules your business must meet.
• Your business’s unique financial complexities: Does your business have complex inventory or accounts receivable processes? A CPA can align your company’s specific situation with optimal tax filings.

Whether or not you hire a CPA, small business owners must consider taxes year-round – not just during tax season. A CPA can analyze your business’s operations or determine whether you qualify for certain deductions.

Pros and cons of hiring a CPA

Consider the following advantages and disadvantages of hiring a CPA:

Pros of hiring a CPA

• CPAs make fewer errors. CPAs are accounting professionals. It’s their job to know and stay current on all laws, rules and regulations relating to accounting and taxes. Their knowledge helps ensure your company won’t fall victim to critical accounting mistakes that could come back to haunt it.
• CPAs may be able to save you money. CPAs can help minimize your tax bill by taking advantage of all potential deductions and credits you can claim and advising you on tax planning and strategic decisions.
• CPAs can save you time. On average, it takes more than 10 hours to complete an individual return; complex business returns can take much longer. Freeing up this time (and removing the accompanying frustration) allows business owners to focus on their core business competencies.
• CPAs are adept at dealing with the IRS. If you’re audited or owe back taxes to the IRS, your CPA can help resolve the issue in your favor. Their knowledge and participation can minimize penalties, lower assessed taxes and give you more time to pay what you owe.

Cons of hiring a CPA

• CPAs can be expensive. CPAs have more education and undergo a rigorous certification process, so they cost more than a tax preparer or bookkeeper. On average, small businesses pay between $1,000 and $1,500 to hire a CPA. When margins are tight, this expense may be out of reach.
• CPAs have busy schedules. The months before tax day, April 15, are the busiest time of year for CPAs, followed by the months before the end of the year. Their attention will be split between your business and other clients, including some with more pressing needs. You may have to wait to get your questions answered, and your tax return could take longer to complete.
• CPAs may be hard to find. There is a limited number of CPAs to go around, so you may have a hard time finding one – especially if you’ve waited until the last minute.
• You must still handle day-to-day accounting. CPAs are the “big guns” of the accounting industry and usually don’t handle daily accounting tasks. You’ll likely need to hire a bookkeeper for standard accounting tasks (though some CPAs also offer bookkeeping as an add-on service).

Ways to do your business taxes

There’s no getting around the fact that your business taxes must be completed. You can do them yourself, work with a third-party service or hire a CPA. 

1. Do your business taxes yourself.

While filing taxes involves many moving parts, it isn’t quite as challenging for business owners with a background in taxes or those who operate a small business with a simple structure. These businesses may do well with a top-notch accounting software platform. 

For example, Mark Aselstine, the founder of online wine club Uncorked Ventures, switched from using an accountant to doing his taxes himself. Aselstine found that his business’s simple structure allows him to categorize expenses easily and calculate tax totals.

“My [business] is … money in, money out, and we don’t carry a lot of inventory,” Aselstine explained. “It was going to take me less time to just do it myself rather than have to answer questions about how stuff should be categorized.”

Each month, Aselstine sits down and calculates his expenses; when tax time arrives, he has accurate, timely information at his disposal. He also tries to stay current with changing tax laws, although his business’s relatively simple structure makes this less challenging. Aselstine recommends that any business owner who wants to do their own taxes experiment with bookkeeping for a month or two before switching from a CPA.

2. Use a third-party tax service for your business taxes.

A third-party tax preparation service can be less expensive than a CPA while still taking the work off your plate. Popular tax preparation chains like H&R Block and Liberty Tax can handle business taxes. However, you won’t get the financial analysis a CPA can give you, and these services may not have the industry experience to understand your business’s optimal deductions and best filing options. For example, their software may use default settings for calculations, while a CPA might utilize alternative calculation methods. 

Ask any potential service how many business returns they handle annually to ensure they’re familiar with and proficient in scenarios like yours. It’s vital to look for a company and specialist with experience doing business tax returns. 

3. Hire a CPA for your business taxes.

Trusting a CPA with your taxes can take an immense burden off your shoulders. While you could still technically be subject to an IRS audit, trusting a CPA educated on all the latest tax laws means that chance falls dramatically.

“I use a CPA to do my taxes and wouldn’t consider doing it on my own,” said John Kinskey, president of AccessDirect, a small business phone system company. “[Eliminating the headaches] of trying to keep up with all the shifting changes in tax laws – and just the sheer amount of detail required to file state and federal tax returns – is well worth paying a professional.”

Hiring a tax accountant or accounting firm means guaranteeing yourself a few advantages: 

• You can spend less time worrying about your tax situation and more time handling business operations.
• You can potentially save money by taking advantage of deductions you wouldn’t know about on your own.
• You can ensure all your finances are current and that you’re in good standing with the IRS. 

Hiring an accounting firm is an obvious choice for complex businesses that can afford a certified tax professional and an excellent option for any small business that wants to reduce the chances of being audited and offload the burden and headaches of tax filing. 

Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article.