With the April 15 deadline for filing business income taxes looming, many small business owners are getting their documents and finances in order to determine how much they may owe or whether they can expect a refund.
Working with a tax professional such as a tax preparer or a certified public accountant (CPA) can help you maximize your deductions, pay the correct amount and even organize your systems for a smoother tax season.
While it may be tempting to save money on fees and file a tax return yourself, working with a tax professional can help you get organized and catch what you might be missing.
“It’s easy as an entrepreneur to read a lot of emotion into [finances],” says Crystal Stranger, CEO of tax-preparing and advisory firm Optic Tax. “They may not know that they’re not doing well enough or spending too much, or missing out on things that they could have done with their business.”
While working with a tax professional can make the filing process easier, there’s more to it than Googling local CPAs and handing over your receipts.
Here’s seven tips for getting the most out of working with a business tax professional.
1. Figure out if you need a tax professional
Like everything when it comes to running a business, hiring a tax professional comes with a cost-benefit analysis. Determining whether your business needs a CPA, or if you can simply run the numbers yourself or through tax software, will depend on the size and complexity of your business.
Stranger recommends going by the number of transactions your business runs each year – especially if you use multiple payment methods.
“The benchmark that we normally use is about 200 transactions,” Stranger says. “That’s typically where it gets more complex, that in order to go through and properly clean up and reconcile it all at the end of the year, it’s far more extensive.”
A CPA or a tax preparer can help your business in multiple ways. Not only will you know that you’re sending the correct amount to the IRS, but you’ll also maximize your deductions and get a professional evaluation of your finances and your recording systems, which helps your business in the long run.
The peace of mind that comes from working with a tax professional is another perk, Stranger says.
“You can sleep a little easier knowing that your risk level is a lot lower than self-preparing,” Stranger says. “The likelihood of getting audit letters goes down.”
2. Find someone experienced in your industry
It’s a good idea to work with a CPA or a tax professional familiar with your industry, since they’ll be familiar with the quirks and tendencies of your finances, and how to apply tax policy accordingly.
A CPA that’s experienced in working with restaurants, for example, will likely know how to best account for cash transactions, write-offs due to food loss and equipment loans you can get a deduction on.
However, business owners should be wary of searching for tax professionals with industry keywords (Such as “CPA restaurant”), as some fake sites and preparers are using AI to spoof descriptions.
Instead, Stranger recommends relying on word-of-mouth.
“It’s always good to get a recommendation,” Stranger says. “A lot of CPAs build their practice around recommendations from the Small Business Association or various other industry associations.”
3. Be on the same page about pricing
How much a tax professional charges will depend on their rates, how complex your finances are and other factors. Some CPAs will charge hourly, while others may charge based on the number of tax forms filed or the exact services you’re looking for. If you work with a CPA or tax preparer year-round, how much they charge will depend on their retainer fee or the fee outlined in their contract.
A good CPA or tax preparer will be able to give you a reliable quote after getting an idea of your filing needs. Be sure to get on the same page about how they will charge you, what upcharges may be added and what your budget is before hiring a tax professional.
Be careful of tax preparers who demand exorbitant upfront fees or who use unorthodox ways to calculate their fees.
“Flag anyone who charges by a percentage of the refund or a percentage of a credit,” Stranger says. “Anything like that is unethical, and that’s a huge red flag.”
4. Get your records in order
Good record keeping will help you get your money’s worth out of a tax preparer. The less time your CPA spends trying to decipher handwritten invoices, tracking down gas receipts or combing through loan files, the more time they have to maximize your deductions and get your filing in order.
Be sure to track expenses throughout the year for deduction purposes, including debt repayments, recruitment purchases, payroll, gas, office supplies and otherwise. Digitizing documents such as receipts and keeping an orderly digital filing system will make it easier for your tax preparer to analyze your records and expenses.
Working with a CPA before tax season can help you get a system in place for your records so you don’t have a last-minute scramble.
If you haven’t worked with a CPA or tax preparer before, then ask ahead of time how they want your records, and work on arranging them in advance.
5. Be ready to collaborate
Working with a tax professional doesn’t mean simply handing off your papers and waiting to sign off on your Schedule C.
“The number one biggest mistake business owners make is the idea that you can hand everything off and not be involved,” Stranger says. “You’re utilizing their expertise, their knowledge and their many years of experience on best practices, but in order to optimize that relationship, you need to be an active party.”
Stranger encourages business owners to ask questions throughout the process. Ask where you can maximize deductions for next year, how you can better organize your files and where you can make improvements in your finances.
Also make sure to be available to answer questions your tax preparer may have, as it can speed up the process and help them avoid missing out on details.
“Nobody else will know the facts of your business as well as you do,” Stranger adds.
6. Be careful of scams
Unfortunately, scams, fake preparers and lofty claims are rampant in the tax world. Stranger says to watch out for refund claims that promise more they can possibly deliver.
“Watch out for things that are too good to be true, like double your refund,’” Stranger says. “That kind of thing is always a massive red flag. If someone says ‘I’ll make your tax return completely tax-free, just come to me and pay me this money’ – run as fast as you can away.”
A tax preparer should never take your physical documents – such as your Social Security card or ID – without making copies and giving them back.
Stranger adds that a CPA or tax professional should have a way of keeping sensitive information safe, such as a secure, password-protected server or a secure online portal to submit information to.
You can confirm your CPA’s license through the National Association of State Boards of Accountancy (NASBA) verify tool at www.cpaverify.org. All CPAs must hold an active license in order to work under the title of CPA, so anyone falsifying their credentials should be reported to NASBA immediately.
7. Work with a professional throughout the year
A tax preparer isn’t just for filing by April 15. Working with a tax professional throughout the year can help you organize your finances, make smart decisions that maximize your deductions and make tax season run more smoothly.
“Systematizing your finances really helps to have that consistent financial picture year after year,” Stranger says. “That gives you both financials that you can look at and plan for your business and life around it. It also gives peace of mind and certainty about where you stand.”
Talk to your tax professional and work out a schedule of regular check-ins for your business. Ask if they’re available to answer questions throughout the year, and determine how they can help you review your finances over time.
Taking time to do these check-ins can allow you to adjust and make changes over time, as well as make sure you’re putting aside enough for taxes throughout the year instead of trying to overhaul everything and getting a larger-than-anticipated tax bill all at once.
Bottom line
A tax professional such as a preparer or a CPA can play a vital role in your business. Tax professionals can help you organize your finances, file the correct amount and maximize your deductions. When hiring a tax professional, be sure to have your records in order and be ready to ask questions throughout the process. By doing so, you can set up a long-term relationship that helps your business in the long run.
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