A Certified Public Accountant (CPA) is one of the most beneficial service providers you can hire as a small business owner. In addition to helping yo
A Certified Public Accountant (CPA) is one of the most beneficial service providers you can hire as a small business owner. In addition to helping you complete and file your annual tax return, they can provide valuable tax and business planning during the year.
Of course, a CPA’s services aren’t free and you need to know that their assistance is worth the price before you pay for one. To help you decide if it would be worthwhile, here’s how much a CPA typically costs and what they can do for you.
Average Cost of Hiring a CPA for a Small Business
Though CPA fees vary by location and expertise, their tax services cost $174 per hour on average in 2020 and 2021. The cost of hiring a CPA for your small business usually depends on their hourly rate and the amount of work you need. Your actual accountant fees depend significantly on the help you need from them.
Fortunately, small businesses usually don’t need to hire a CPA full-time. Most can get by paying for CPA services intermittently throughout the year, such as calendar year-end, tax season, and before significant decisions.
Here are the average hourly costs for some popular CPA services.
Average Hourly Costs of Different CPA Services
|Service||Certified Public Accountant Hourly Cost (2020 – 2021)|
|Full Payroll Management||$100|
|Quickbooks or Bookkeeping Advisory||$109|
|Financial Statement Audits||$164|
|Estate or Financial Planning Services||$170|
|Federal and State Tax Return Prep||$180|
CPAs also often bill their clients fixed fees for specific services, such as preparing individual tax forms. For example, the average CPA charges $192 for a Schedule C, $323 for an itemized Form 1040, and $913 for a corporation’s Form 1120.
What Does a CPA Do for You?
CPAs are most well-known for business and individual tax preparation, but they provide many accounting services. Here are some other types of assistance you may want from a CPA.
There’s only so much a CPA can do to lower your tax bill once the year has already ended. As a result, if you only visit one when you need to file your tax return, you’ll probably pay more to the Internal Revenue Service (IRS) than necessary.
However, if you consult a CPA at the beginning of the year and stay in contact with them, they can help you develop and execute a plan to reduce your tax burden significantly.
For example, they might have you file an election so the IRS treats your limited liability company (LLC) as an S Corp, which could lower your self-employment taxes.
The Thomson Reuters Institute shared that 95% of accountants have clients asking for broader business advisory services. As a result, CPAs are increasingly taking on a more general consulting role.
These services may include:
- Cash flow forecasting and analysis
- Mergers and acquisitions assistance
- Outsourced chief financial officer services
- Key performance indicator (KPI) analytics
CPAs are well-equipped to provide this kind of advice due to their in-depth understanding of financial statements, taxes, and individual industries since so many CPAs specialize.
Finally, CPAs provide assurance services for your financial statements. That means verifying the accuracy of documents like your balance sheet and income statement.
There are 3 types of assurance engagements:
- Compilations: These involve a CPA using data that you provide to create financial statements. Your statements don’t have to follow generally accepted accounting principles (GAAP), and the CPA won’t verify your financial data.
- Reviews: These provide limited assurance that your financial statements are accurate and conform with GAAP. The CPA will follow procedures designed to reveal unusual items in your documents and investigate them.
- Audits: These provide reasonable assurance that your statements are free of material misstatement and conform with GAAP. That’s the highest level of assurance possible and involves an in-depth review of your internal controls and financial data.
There are many different scenarios in which you may require assurance services. For example, you may need audited financial statements to qualify for funding from an investor.
Costs For Additional Services
Remember, the hourly cost of hiring a CPA depends significantly on the type of work you need them to do. As you might expect, the more complex and involved the work, the higher the hourly rate is likely to be.
As a simple example, it costs more for a CPA to complete your IRS Form 1040 if you itemize than it would if you were to take the standard deduction. In 2020, the average hourly rate was $161.34 for an itemized return and $153.74 for a non-itemized return.
Here’s what you can expect to pay per hour for the services above:
- Tax planning: $174
- Financial planning: $170
- Compilations, reviews, and audits: $164
Fortunately, there are some services that a public accounting firm won’t charge clients for if they’re paying for something else. For example, 58% of CPAs don’t charge a fee to file a tax return extension.
Because accounting fees vary significantly between providers, you should shop around before committing. Ask each CPA how they bill for services and try to get a quote for your expected needs.
Is Hiring A CPA Worth It?
Whether or not it makes sense to hire a CPA for your business depends primarily on the complexity of your financial situation. Here are some times when hiring one makes sense.
Your Tax Returns Are Complex
The more complicated your tax situation becomes, the more likely you’ll benefit from hiring a CPA. For example, if you’re a sole proprietor with one income stream and no investments, you could probably get by with accounting software.
However, if you have 3 business entities and four rental properties in separate states, you’ll likely need to hire a tax preparer.
You’re Considering Significant Financial Decisions
If you’re about to make a change that might significantly impact your tax and financial situation, it’s best to talk to a CPA first. They can explain the potential repercussions and walk you through the process.
For example, if you’re considering moving to another state, changing your legal relationship status, or bringing a partner into your business, ask a CPA for guidance.
You’re In Trouble With The IRS
Dealing with the IRS is a major headache, but having a good CPA makes it a lot easier. Not only can they guide you through the interactions, but they can serve as a middleman to take most of the work off your plate.
For example, if you have multiple delinquent returns or are undergoing an IRS audit, it’s a good idea to hire a CPA.
You Need Assurance Services
If you need to verify that your financial statements are accurate so a third party can use them, you’ll need to hire a CPA. They’re the only ones authorized to issue an opinion on financial statements.
For example, if you want to take your company public, you’ll need to hire a CPA firm to audit your statements.
The Return On Investment Of A Good CPA
Whether or not paying a CPA is worthwhile for your business depends on how much their services cost and how much money they can generate for you. They might reduce your taxes, save you time, or help you qualify for financing.
For example, say you’re considering hiring a CPA to perform the following services in 2022, which will cost you the following amounts:
- Tax return preparation: $180 per hour for 3 hours
- Quarterly tax planning: $174 per hour for 4 hours
- Financial statement review: $164 per hour for 3 hours
Your CPA expects that they’ll be able to save you $6,000 in taxes by finding additional deductions and optimizing the way you pay yourself from your business.
In addition, you’ll need your balance sheet and income statement reviewed to qualify for a $100,000 loan.
In this case, you’d be paying your provider $1,728 for the year, but they’d generate $106,000 of additional capital. In this situation, the return on your CPA would be well worth the investment.
How Lendio’s Accounting Software Can Help
Hiring a CPA makes sense for some small businesses, but not all. If your financial situation is relatively straightforward, paying advisory and tax preparation fees may cost more than it’s worth.
However, even if your situation isn’t complex enough to warrant a CPA, you’ll still benefit from assistance with your taxes and finances. Fortunately, Lendio’s Accounting Software can help, and it doesn’t have to cost you anything.
We offer free accounting software for small businesses that can automatically track your transactions and generate your income statement! In addition, using our bookkeeping software gives you free access to our tax assistance program, which includes:
- An expert tax checklist to guide you through your annual tax filing
- Organization of your tax documents, like 1099s, to keep all your data in one place
- A calculator that can estimate how much money you need to have on hand at each tax deadline
Whether or not you are using a CPA for your small business, Lendio’s Accounting Software is a great tool to help you with your accounting and bookkeeping. You can also download our free small business accounting app to manage your finances on the go with the push of a button. Give it a try today!
*The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.
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