How to Hire a Tax Preparer for Your Small Business Taxes

Know the types of tax professionals

CPAs, enrolled agents and attorneys can represent you before the IRS in all matters. Other paid preparers may have limited representation rights.

• Certified public accountant (CPA). State-licensed, with accounting and tax training. Often handles planning, financial statements and returns.
• Enrolled agent (EA). Federally authorized by the IRS to represent taxpayers. Focuses on tax.
• Tax attorney. Useful for complex disputes, entity planning and legal issues.
• Other paid preparers. Must have a Preparer Tax Identification Number. Their rights to represent clients are narrower.

The IRS keeps a directory of credentialed preparers on IRS.gov. Check current rules there. For basics on what your business files, see business tax return forms.

Decide how much help you need

A simple sole proprietorship may need only annual filing help. A business with employees, inventory or multiple states benefits from year-round advice.

Match the service to the complexity:

• Simple. One owner, no payroll, few transactions. Annual return preparation may be enough.
• Growing. Employees, sales tax, equipment purchases or an S corporation election. You need planning during the year.
• Complex. Multiple states, inventory, partners or a sale. Look for a firm with relevant experience.

Entity choice affects taxes and paperwork; see choosing a business structure and single-member LLC taxed as an S corp. Ask a candidate about similar clients in your industry.

Questions to ask in the first call

Ask about credentials, experience with your industry, fees, timeline, availability during the year and who will do the work.

1. What are your credentials, and may I check them?
2. Do you work with businesses like mine?
3. How do you charge, and what is included? Does the fee include quarterly estimates and a meeting in the fall for planning?
4. Who prepares the return, and who reviews it?
5. What do you need from me, and by when?
6. How do you handle IRS notices and audits? Is representation included?
7. Can I reach you in January through April, and outside tax season?

A good preparer asks questions about your business too. If they only ask for a W-2 and a bank statement, they may not be a fit.

How fees work

Tax preparers charge by the hour, by the return or by a monthly retainer. Fees depend on complexity and your region.

Get written quotes. Typical structures:

• Flat fee per return. Predictable if your records are clean.
• Hourly. Reflects the time spent; messy books can raise the bill.
• Monthly retainer. Includes planning, estimates and questions through the year.

Never hire anyone whose fee is a percentage of your refund. Paid preparers must sign the return and include their identification number. Ask whether their fee is deductible as a business expense, and confirm with them. For typical cost context see how much a CPA costs.

Get your records ready

Bring last year's return, a full-year profit and loss, bank and card statements, payroll reports, asset purchases and loan statements.

Organized records lower your fee and your risk. Collect:

• Prior-year tax returns.
• Profit and loss statement and balance sheet.
• Payroll summaries and Forms W-2 and 1099.
• Receipts for large purchases and equipment.
• Mileage logs, home office details and loan interest statements.
• Sales tax filings if applicable.

Make sure books are reconciled before you hand them over. If they are not, consider hiring bookkeeping help first. See how to manage business taxes for the year-round routine and how long to keep business records.

Red flags to avoid

Avoid preparers who guarantee refunds, refuse to sign the return, ask you to sign a blank return or have no verifiable credentials.

• Promises of a huge refund before reviewing records.
• Fees based on a percentage of the refund.
• No preparer tax identification number or refusal to sign.
• Pressure to claim deductions without documentation.
• Direction of your refund into the preparer's own account.

You remain responsible for the return even if a professional prepares it. Read the return before signing, ask about anything you do not understand and keep a copy. The IRS provides guidance on choosing a tax preparer at IRS.gov.

Tax bills, cash flow and funding

A large balance due can strain cash. Plan quarterly payments and set aside a reserve so taxes never become an emergency.

Ask your preparer for an estimate of next year's tax in the fall and set aside money monthly in a separate account. See tips for filing quarterly taxes. If a large bill arrives anyway, consider the cheapest way to cover it, and compare with the penalty and interest the IRS would charge. Read using a business loan to pay taxes before you decide.

ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue and places products such as a line of credit. We show true cost and payback before you sign. Borrowing makes sense when the cost is lower than the alternative and the payment fits your cash flow.