For regular month-to-month financial records, it’s usually good enough to use a bookkeeper or accountant. In some situations, however, you might need a higher level of expertise, and that’s when you should consider using a certified public accountant (CPA).
Let’s go through what is a certified public accountant and when you might need such a professional for your small business.
What Is a Certified Public Accountant?
A certified public accountant (CPA) is an accounting professional who has studied for and passed the Uniform CPA exam set by the American Institute of CPAs (AICPA). CPAs usually specialize in an aspect of accounting, such as internal or external audit and tax planning, preparation and returns. They can act as a tax consultant, accountant, auditor and business or financial advisor.
All 50 states have different CPA education, experience and licensing criteria, so candidates have to fulfill the specific requirements of the state where they’re licensed. CPAs can take advantage of reciprocity laws to become licensed to operate in other states.
Do I Need a CPA?
It’s often said that while all CPAs are accountants, not all accountants are CPAs. You could use a small business CPA to handle some of the following responsibilities:
Conduct Audits and Reviews
While anyone with the training and knowledge can conduct an audit or review, only a CPA can sign off and issue the reports for these activities.
An internal audit is an important business tool to assess how well your company is financially performing. You can hire a CPA to handle your company’s internal audit, which includes:
- Examining, analyzing and calculating your business’s level of risk and controls
- Evaluating the company’s compliance with federal and state policies and laws
- Making suggestions to the company’s owners or executive team on how to improve profitability
The audit is the highest level of financial statement the CPA can provide. Companies provide financial statements along with a CPA’s report to lenders, investors, suppliers and customers.
Act as a Fiduciary
CPAs are recognized as fiduciaries, which means they have a legal duty and power to act on behalf of their clients. They are also bound by law to operate in the best interest of their clients, while non-CPA accountants are not considered fiduciaries to their clients. They are expected to comply with a strict code of ethics and to meet their profession’s standards.
Represent You in Tax Court
If you have to appear in Tax Court, you can either represent yourself or choose a qualified representative, which includes a licensed CPA or tax lawyer. Non-CPA accountants are ineligible to represent a client before the IRS.
How Much Does it Cost to Hire a CPA?
A CPA’s per-hour charges can range from about $150 to $450 or even $500. This can be a steep investment for a small business. Still, a CPA can be worth the expense depending on your business’s financial complexity or your industry’s rules for financial reporting. Getting a qualified professional to ensure you’re in good financial standing can be a budget-worthy expense.
Doing Your Own Taxes vs. Hiring a CPA
Sometimes using accounting and tax software is all of the guidance you need when filing your returns. However, there might be situations when it’s better to pay someone to do your taxes.
Here’s when to hire an accountant — really, a CPA — for taxes.
When to Hire an Accountant for Taxes
Filing for the First Time
Your first year in business can be thrilling but filled with challenges and learning curves. Filing your business taxes for the first time can also be daunting. For example, do you know what documents you’ll need when you file? Do you have the correct forms for your business’s legal structure? If you hire an accountant for taxes, you can find you’ll benefit from the guidance. In fact, we recommend consulting with a CPA before you open your business; confirm you comply with tax regulations ahead of filing your returns.
Your Business Changed
In the past year, did you convert your sole proprietorship to an LLC? Maybe your operations grew, and you hired more employees or expanded to an additional location. You also might have reorganized your company and eliminated some staff positions. Any of those changes can impact your tax obligations or potential deductions. If you want to make sure you’re correctly accounting for those adjustments, hire an accountant to file your tax return.
Tax Law Changes
It can be confusing to decipher how, or if, a recent tax law change at the federal, state or local level applies to your business. If you hire a CPA, they can help you navigate the maze of regulations. CPAs have to take courses on the latest changes to tax regulations to keep their licenses current.
Protect Against an Audit
An IRS official announced in late 2020 that the agency aims to increase audits of small businesses and investors by 50% in 2021. With that potential added scrutiny, hiring a small business CPA to file your business taxes can potentially diminish or eliminate an audit risk.
Also, a CPA can represent you in Tax Court if you need to appear about a matter.
Where Can You Find a Certified Public Accountant?
Finding a CPA to handle your financial affairs can be as simple as using Google to research all the CPA firms in your immediate area. The AICPA has a certified public accountant directory that is searchable by clicking on a map of the United States. Many states have their directories, too, such as the Florida Institute of CPAs or the Michigan Institute of CPAs. It’s also helpful to ask business connections for recommendations because this can help you find a CPA who knows your industry well.