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While some entrepreneurs opt to file their own taxes or use tax software, these alternatives may not be the most secure or efficient options. Hiring a certified public accountant (CPA) to manage your accounting and tax planning might be an investment, but the potential benefits can outweigh the costs. The expertise and guidance a CPA brings to the table can be invaluable to your small business’s growth and financial well-being. If you’re contemplating whether it’s time to hire a CPA, several essential factors must be considered.
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:
Consider the following before hiring a CPA – or deciding to go it alone:
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.
Consider the following advantages and disadvantages of hiring a CPA:
Pros of hiring a CPA | Cons of hiring a CPA |
---|---|
Deep knowledge base | Expensive |
Additional financial modeling support | Still requires adequate bookkeeping |
Audit support | Limited availability |
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.
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.
Pros of doing your own taxes with tax software | Cons of doing your own taxes with tax software |
---|---|
Inexpensive | Less audit support than professionals can offer |
Interview-style format | Cannot override system defaults |
Suitable for simple business models | May require additional research |
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.
Pros of using a third-party tax service | Cons of using a third-party tax service |
---|---|
Reasonably priced | Limited knowledge base |
Convenient | May not be able to override systems for more favorable calculation methods |
Good for simple business models | Limited audit support |
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:
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.
| Doing your own taxes with tax software | Using a third-party service | Hiring a CPA |
---|---|---|---|
Price range | Inexpensive | Moderate | Expensive |
Audit support | None | Limited | Full |
Availability | Anytime | By appointment only | By appointment only |
Taxes done for you | No | Yes | Yes |
Help with business modeling | No | No | Yes |
Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article.