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What Do Tax Professionals Cost and How Can They Help Your Business?
Tax professionals can do much more than prepare tax returns once a year. Learn how they can help your business be more successful and what hiring a tax professional should cost.
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Small business owners and managers often wear many hats and gain vital knowledge and experience in various facets of business, including marketing, accounting and sales. However, some elements of running a business are too critical to attempt to handle on your own unless you have specific expertise. Business taxes are one such area where investing in professional help is well worth the cost. We’ll explain how knowledgeable and reputable tax professionals can help your business and share tips on evaluating options and costs to ensure this vital area of business is handled expertly.
How tax professionals can help your business
Tax professionals do much more than prepare annual tax forms. Their advice can benefit you before you even open your doors. Here are a few ways tax professionals can help your business:
- Tax professionals can help you choose a business structure: Should your business be a corporation, partnership or sole proprietorship? No single business structure is best for everyone. A tax professional can advise you on the best, simplest and most advantageous business structure to help you get your venture off on the right foot.
- Tax professionals can set up record-keeping systems: If you hire a bookkeeper or handle bookkeeping in-house, a tax professional can recommend procedures to keep you organized. They can also recommend bookkeeping software that integrates smoothly with their tax software, ensuring everything stays in line.
- Tax professionals offer business planning and tax strategy: There’s only so much a tax preparer can do about your tax bill at the end of the year. A tax professional can help you make better decisions to lower your tax bill, both now and in the future. They can also help you avoid cash flow problems, make decisions about hiring employees versus paying contractors and grow your business. Additionally, they can advise you about pending and proposed tax legislation that may affect your business.
- Tax professionals can help lower your tax bill: You can enter your income and deductions into any tax software and calculate the results. However, experienced tax professionals can help you maximize all allowable deductions and take every possible step to lower your tax bill legally.
- Tax professionals provide audit assistance and protection: A tax professional can help you prevent errors and reduce your risk of tax audits. They can also advise you on audit risk and defend you if you are audited, bringing invaluable peace of mind.
What to look for when choosing a tax professional
Tax professionals vary widely in their areas of expertise, experience, education and certifications. When choosing a tax professional, consider the following questions while taking into account your small business’s specific needs.
What certifications do they have?
Levels of education and experience vary among different types of tax professionals:
- Certified public accountants (CPAs): CPAs are licensed by a state board of accountancy. They generally have a college degree in business with a qualifying number of accountancy credits. They must meet ethical standards and pass character requirements. In most states, they also must work under the direction of another tax professional before receiving certification. Consider hiring a CPA if your business requires advanced accounting services or if you need guidance with complex tax issues.
- Tax attorneys: Tax attorneys are licensed by state courts and can prepare taxes or represent clients before the IRS as part of their practices. Consider hiring a tax attorney if you need legal representation for complex tax issues, such as audits, appeals, tax fraud investigations or business structuring.
- Enrolled agents (EAs): EAs are the highest designation for a tax professional after CPAs and attorneys. They must pass rigorous education and testing requirements and complete 72 hours of continuing education every three years. Consider hiring an EA if you need someone who specializes in tax preparation, representation before the IRS or advice on complex tax matters.
- Annual Filing Season Program participants: Preparers who are not CPAs, attorneys or enrolled agents may be issued an IRS Annual Filing Season Record of Completion, which shows they’ve completed the required continuing education hours for the year. Consider hiring this type of professional if your tax needs are relatively straightforward, such as filing basic returns or handling routine tax matters.
- Preparer tax identification number (PTIN) holders: Tax preparers with no credentials can prepare tax returns with an active IRS PTIN. However, be aware that PTIN holders are not authorized to represent clients before the IRS for returns filed after 2015 in the event of an audit. Consider hiring a PTIN holder if your tax situation is simple and you’re looking for basic, low-cost tax preparation without the need for audit representation.
In addition to IRS rules, certification requirements for tax professionals vary widely by state. Some states require all tax professionals to pass education and testing requirements, while others do not.
Do they have expertise with other clients with businesses similar to yours?
Look for a tax professional who understands your business type and industry. For example, restaurant owners have specific restaurant accounting issues, such as rules regarding tips and wages. Construction companies deal with subcontracting and other issues. Consider asking for references from other business owners in your industry to ensure the tax professional has relevant experience.
How many years of relevant experience do they have?
Choose a tax consulting firm with adequate experience in small business practice and, ideally, knowledge of your specific industry.
Will they represent you if you’re audited?
A tax professional should be willing and qualified to represent you before the IRS if needed in an audit or dispute. Attorneys, CPAs and enrolled agents can represent you in all matters, including audits, collections and appeals. Tax return preparers who participate in the IRS Annual Filing Season Program can also represent you for audits, but only for returns they personally prepared and signed.
What should using a tax professional cost?
Tax consultant pricing models and costs depend on many factors, including the type of tax consulting your business needs, whether you hire a tax advisor for a single job or as a full-time consultant and how much work is required to complete your taxes.
Here’s a look at various tax consultant pricing models and costs:
- Fixed per-service costs: Tax professionals perform many services, including preparing tax returns, at a fixed rate that varies by complexity. For example, a basic individual tax return can cost $200 to $500. In contrast, the fixed rate for a small business return, such as those for partnerships, limited liability companies, S corporations or C corporations, generally ranges from $1,500 to $5,000 or more.
- Hourly costs: Tax advisors typically have varying hourly rates for different types of services based on client type and complexity. For example, office staff may perform data entry under the supervision of a tax professional; this type of service would be charged at a lower rate than more specialized services like tax planning. Generally, a CPA costs $150 to $400 per hour while tax lawyers may charge $200 to $550 or more per hour.
- Retainer fees: An accountant or other professional who provides year-round services, such as tax and business planning, payroll taxes and general advice, may charge a retainer fee. This fee may be paid monthly, quarterly or annually, providing ongoing support at a predictable cost. The amount charged varies substantially by the size and complexity of your business.
How to evaluate the success of your tax professional
Don’t judge your tax professional’s success by the size of your refund. While everyone loves a refund, getting back an excessively large amount may be indicative of poor planning, not professional expertise.
Here are better questions to ask to gauge the success of your tax professional relationship:
- Can you communicate with your tax professional? You should be able to contact your tax advisors within a reasonable period and they should communicate clearly and answer questions as needed.
- Are they available year-round? As a small business owner, you need tax professionals who are available beyond tax season.
- Do they meet deadlines? If tax professionals are too busy to complete your returns on time or meet other deadlines, it’s time to look elsewhere.
- Do they provide valuable business guidance and insight? Many tax preparers can fill out and file a tax return. However, to help your business thrive and grow, you should have year-round professional advice you can count on, including tax-saving tips and strategic guidance.
Tax professionals should be an essential part of your team
Good tax professionals save you time and help you avoid costly fines. They can also help you plan for your company’s growth and operations and allow you to relax, knowing the pros are staying on top of changing tax regulations and complicated tax codes.
The money you spend on tax professionals can help you save on your tax bill, now and in the future and give you the time and freedom to focus on what you do best — growing your small business.
