Hiring the right tax professional for your small business is important. Getting good tax help can translate into money for your business. Ideally, you should form a long-term relationship with a tax professional so you have someone to call year-round. Because this person is so important to your business' bottom line -- and will help ease your stress throughout the year -- take the time to learn about the different types of tax pros, how they can help, and how to choose one.
Types of Tax Advisers
Anyone can claim to be a tax expert. And people who prepare tax returns don't have to be licensed by the IRS. Make sure your tax preparer is one of the following:
- Enrolled agent (EA). An EA is licensed by the IRS. The EA has either passed a difficult test or has at least five years of experience working for the IRS. Enrolled agents are the least expensive of the tax pros and often offer bookkeeping and accounting assistance.
- Certified public accountant (CPA) and other accountants. CPAs are licensed and regulated by each state. They perform sophisticated accounting and business-related tax work and prepare tax returns. Larger businesses or businesses with complex business tax returns often need CPAs. The larger CPA firms are expensive. Smaller CPA firms are cheaper and may be better for the typical small business.
- Tax attorney. Tax attorneys are lawyers with a special tax law degree (called an L.L.M. in taxation) or a tax specialization certification from a state bar association. Tax attorneys can be expensive. But you should consult one if you have a tax problem, are in trouble with the IRS, need legal representation in court, or need business and estate planning.
Whatever type of professional your business needs, make sure he or she has specific knowledge and experience in helping small businesses. It's even better if you can find someone who already knows a good deal about your type of business or industry.
How Tax Pros Can Help Your Business
If you find a good tax professional, you seek his or her assistance in many ways throughout the year.
Information and advice. Your tax professional should be able to help you make key tax decisions and should provide you with basic information and advice.
Record keeping. If you loathe record keeping, have your tax pro set up a record keeping system tailored for your business. (To learn more about record keeping, see Nolo's Bookkeeping and Accounting area.)
Tax form preparation. Most businesses can benefit from having a professional prepare their tax forms. If you do it yourself, at least run your documents by a tax pro. The tax pro can point out tax deductions that you or your software missed, as well as highlight red flags that might get you into trouble.
Advice in dealing with the IRS. If you are dealing with the IRS on your own, you can get advice and coaching from your tax pro.
Representation when dealing with the IRS. An attorney, CPA, or enrolled agent can represent you before the IRS -- so you don't have to deal with it at all. A good tax pro knows how to handle the IRS bureaucracy.
Choosing the Right Tax Pro for Your Business
Take these steps to get a good tax professional:
Get several names of tax pros. Some good ways to find tax professionals include:
- Personal referrals. Ask friends, family, your attorney or banker, or business associates for recommendations.
- Advertising. Look in trade journals, directories, phone books, and newspapers.
- Professional associations and referral panels. Check local bar associations and CPA societies. Or find a CPA online at www.cpadirectory.com. The National Association of Enrolled Agents ( www.naea.org) can assist you in locating an EA. Don't construe a referral from one of these agencies or associations as a recommendation or certification of competence.
Interview candidates. Interview at least three people or firms. Find out if the tax pro has time to provide consistent help and if he has the experience your business needs.
Test the tax pro's know-how. Ask questions (pulled from self-help books or online legal information) to test the tax pro's attitude towards the IRS and knowledge of small business tax issues. Find out if she has represented clients before the IRS, particularly in IRS audits.
Ask yourself questions. As you go through the selection process, ask yourself if the tax pro gives you a feeling of confidence, seems knowledgeable, and appears to be able to go to bat for you in front of the IRS. Finally, ask yourself if you'd feel comfortable working with the tax pro.
Take your time. Don't rush the process. The best time to look is in summer or fall -- not the January to May tax season.
Make sure you understand the tax pro's costs and fees up front. Some have a fixed fee for various tasks, such as bookkeeping, accounting, and tax form preparation. Others charge by the hour.
You may be able to negotiate the fees. If you catch the tax pro at a slow time or if he or she believes you'll be a long-term client, you might get a discounted rate. Either way, once you and the tax pro agree on the charges, get a written fee agreement. This will help if you have a tax bill dispute later.
To learn more about choosing a tax professional for your small business, as well as arming yourself with essential tax information -- like learning the ins and outs of the tax code, developing the best tax plan for your small business, and creating comprehensive strategies to get back the most from the IRS -- get Tax Savvy for Small Business, by Frederick W. Daily (Nolo).