In this guide, we'll explain what an accountant does, share some advice on when you should consider hiring one, and offer some tips for getting the most value from your CPA.
In small business accounting, an accountant helps you understand your financial health and make strategic financial decisions.
Your financial records are typically handled by a bookkeeper, who's in charge of tracking your daily income and expenses and providing monthly financial statements. Then, an accountant helps you interpret your business finances and provide advice.
Small business accounting services can include tax planning, forecasting, payroll services, and more. But that's not all: they tailor their services to your business needs. Think of them as financial advisors who can also file your taxes and help you through an audit.
If your business is in its hobby stages, you might not need to worry about hiring an accountant. But you should still talk to one early on. It will benefit your business at no cost, help you form your business plan, and bring your attention to specific deductions for startups.
Most accountants provide free consultations. In an initial consultation, you'll get free advice and a better understanding of what they're able to offer you in case you choose to hire an accountant down the line.
While there's no "right" time to hire an accountant, it's a smart idea to have a CPA on hand once a new business starts turning a profit. Here are several other milestones that indicate it might be time to hire an accountant:
Ready to share the financial load of your business with a CPA? Here's some tips to find a good accountant.
Are you part of your local small business community? Ask around for recommendations for accountants who work with companies in your area. This is a chance to use your connections from community organizations like Rotary clubs or the Chamber of Commerce. You may even be able to find a worthwhile referral for a new accountant through your bank, realtor, or loan officer.
If you're not having luck with local referrals, look online for accountants in your area and use online reviews about their services to guide your selection. Forums and other online communities like Yelp, LinkedIn, or local Facebook groups can be helpful resources.
Accountants specialize in different things. Some accountants prefer being a tax preparer for multiple companies, while others would rather help a handful of small business owners navigate financial decisions year-round. Some include bookkeeping services and will prepare your tax returns, and others prefer complicated compliance cases. There are solo operations and larger CPA firms.
As part of an initial consultation with an accountant, ask them about the services they provide their clients. Discuss how they work with clients and how much experience they have in your industry.
A good accountant will have the credentials to back up their knowledge and experience with business taxes. Ask if they have a Preparer Tax Identification Number (PTIN). The IRS requires a PTIN for anyone getting paid to help file taxes for others.
In addition to a PTIN, check for other select certifications and licenses. A certified public accountant, an enrolled agent, a licensed attorney, or someone with a certificate from the IRS Annual Filing Season program will be registered with the IRS and searchable in the IRS directory.
A reputable accountant may also have memberships in reputable professional organizations. You can check for membership in a professional organization such as:
These organizations require members to have certain qualifications, like a degree from a recognized college accounting program, a set expectation for years of experience, and a code of ethics and professional conduct requirements. If your accounting prospects are members of one or more professional organizations, the organization has done a bit of the vetting for you.
Once you've done your legwork, it's time to sit down with your prospective accountants. This is where you will have more meaningful conversations. Before scheduling these meetings, make a list of topics to discuss, including:
The right accountant will be the professional whose financial advice will guide you through long-term decisions for your business and be your guidance through legal statutes at tax time every year.
A good accountant will not only prepare your tax documents but will sign them with their credentials and represent you if any tax questions or issues arise. With information this sensitive and essential, you want to be confident in your decision.
In 2015, the SCORE report found that the majority of small businesses spend $1,000 to $5,000 annually on accounting. But this number varies based on the services the CPA provides and the size and complexity of the business.
Many accountants charge by the hour, while some work on a monthly retainer fee. As you interview multiple accountants, obtain quotes from each of them so you can compare prices.
On average, professional tax preparation costs fall between $220 (filing a Form 1040 for a self-employed individual) and $800 (filing a Form 1120 for a C corporation).
It may seem painful to pay that much money to have your taxes done, but remember: you're saving hours of labor by having a pro handle the task. Their expertise may secure tax savings that outweigh the cost of hiring them.
When it comes to taxes, in particular, there are certain things you should always review. Here are the right questions to ask to make sure you're getting the most value out of your accountant.
Early stage entrepreneurs often encounter issues with cash flow. If you feel like your business is struggling to stay on top of payments or lacks the capital to make significant improvements, an accountant can help you understand why you face these situations and what business decisions can help you avoid them. Their business consulting can help you go from feeling like a passenger on the wild ride of business ownership to being behind the wheel.
There's a wide array of small business tax deductions, some of them unique to specific business types.
Remember, only the ordinary and necessary expenses of running your business can be deducted from your taxes. Your accountant can tell you whether you qualify for certain deductions and highlight others you may not know about.
Not all business expenses are one hundred percent deductible—for instance, meals and entertainment expenses, business travel, and any that are mixed-use home office items, such as cell phone or internet service. An accountant's tax advice ensures you properly calculate which percentage to deduct depending on how frequently you use the item for work.
Tax regulations are constantly being updated. Some changes may benefit your business, while others won't. Part of your accountant's job is keeping up with tax law changes and leveraging them to save you money.
Ask your accountant if any tax benefits or disadvantages apply specifically to your business's legal structure. They may be able to help you change business structures in a way that will help you save on taxes. For instance, some LLCs can file as S corps which reduces their likelihood of being audited.
As a self-employed person, your health insurance premium is tax-deductible. However, if you are eligible to be included in your spouse's health insurance plan, you can't sign up for your own plan and then deduct it. An accountant can elaborate on these rules and determine whether your plan qualifies to be deducted.
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If you missed filing a previous year's tax return, don't count on the IRS forgetting about it. There are several reasons to file your tax return retroactively.
As soon as you miss a tax filing deadline, you'll start incurring penalties and fees. But that doesn't mean you can't get caught back up with the IRS.
Do you really need to catch up on old bookkeeping? Or just focus on the future? Here's your answer.
