DO I NEED A CPA? YES, HERE’S WHY

Vault’s Viewpoint

• Getting a CPA can significantly impact the amount you pay in annual taxes, and can reduce your risk of liability or error.
• CPAs are not the same as bookkeepers, instead acting as financial consultants to businesses, assisting with reporting and analysis.
• A CPA can represent you in the event of an audit with the IRS, and is generally the more cost-effective investment for budding and growing businesses.

What Is a CPA?

A certified public accountant (CPA) is an individual who has met the state licensing requirements for public accountancy, across required areas of education, experience and testing.

Typically, the person must have completed an accounting degree and acquired the minimum required hours in public accounting. Then, the candidate must pass the Uniform CPA Exam®, which consists of three four-hour core sections and one four-hour discipline section. While the uniform exam is the same, state licensing agencies may have different requirements for licensure across one’s education and experience.

So when it comes to answering the question of “do I need a CPA for my small business?” the answer is complicated. While they aren’t legally required, they are strongly recommended, as they can elevate the financial strength and stability of your business.

Licensed CPAs can help the business plan tax strategies to comply with tax laws and save money where possible. They can also advise clients regarding money management, taxes and investments, as well as the proper preparation of business documentation, such as profit-and-loss statements.

Should the company be audited by the Internal Revenue Service (IRS), the CPA can represent it. CPAs can also conduct forensic accounting on behalf of a third-party or the IRS, addressing and confirming cases of fraud and embezzlement.

Bookkeeper vs. CPA

If you’re still asking yourself, ”Do I need a CPA? Or do I need a bookkeeper?” we’re here to help. Here’s a closer look at each job title, courtesy of our area experts:*

Reasons to Use a CPA

Do I need a CPA for small business? Our experts want to note that while there isn’t a mandatory requirement in this area of business, there is a strong recommendation to invest in a CPA early on.

Why? Simply put, CPAs have the education and experience to help a business with many aspects of its financial operations. Your CPA can support you in:

• Tax planning: The IRS tax code is quite complex; and there are many areas of liability for a business owner, especially during tax season. (Plus—those who err on the side of caution often pay more taxes than they need to). A CPA helps plan the best tax scenario for the business so it remains compliant, but doesn’t overpay—instead saving at every opportunity.
• Financial analysis: CPAs do more than just prepare financial statements; they analyze them. They look at the implications of expenses and deductions and assess the impact of depreciation and amortization, and they can also help you understand your profit and loss reports. This enables you to make strategic decisions about how to allocate financial resources.
• Tax return preparation: During tax season, your CPA compiles your financial data and can file your tax return on your behalf.
• Understanding complex financial transactions: Your CPA can help you understand the implications of certain financial transactions, such as leasing equipment rather than buying it, or bringing on a new investor.
• Audit protection: No business is exempt from the possibility of an audit, regardless of how much planning you do to reduce the risk. A CPA can represent you to the IRS through the audit, helping make you find success with your specific case.

Do I Need A CPA? Likely Yes—Here’s When To Hire One

If you can afford one, consulting with a CPA from the onset is wise. For example: When you start a business, a CPA can help with key decisions, such as what business structure to choose and how to set up the books to track expenses properly.

Additionally, if you have an existing business and are making significant financial changes, engaging with a CPA who can help mitigate the tax consequences and remain compliant with tax laws is a smart decision.

Ways to Manage Small Business Accounting

Every business has different accounting needs. While some business owners might attempt to handle accounting tasks based on their own experiences, this isn’t necessarily recommended as there can be a larger overall risk of error.

Below, our experts have compiled four ways to address accounting needs depending on your business budget and comfort level.

Do It Yourself

If you are good with numbers and can manually set up a system for the books, you might consider doing the accounting yourself. However, this may be time-consuming, and you may risk getting audited without the protection and support of a CPA.

Despite this risk, many business owners handle the accounting themselves until they have the budget to pay for it, or until they have expanded enough to need more complex accounting systems.

Use Accounting Software

Accounting software can help a person who is doing the books on their own, or it can assist a hired bookkeeper with better tracking of income and expenses. Beyond simple expense organization, the tool can also automatically generate reports, helping the business owner see the company’s financial health.

Be advised, however, that when you’re using accounting software alone, you won’t get the input of advice from a trained CPA. This can limit your understanding of the reports.

Accounting software can run anywhere from $0 to $30 per month on average for a cloud-based subscription.

Hire an In-House Accountant or Bookkeeper

Larger organizations might benefit from having an internal accountant or bookkeeper on staff. This person would generally handle all the accounting work, including bookkeeping, payroll and tax filings; offering business leaders strategy sessions to make a strong financial impact.

While helpful, our experts want to note that this option can be quite expensive since you’d have to bear the entire cost of the staff member’s salary and benefits. After all, the average bookkeeper’s salary is $44,000+. However, it may be worth it to have someone on hand to address issues and concerns immediately.

Outsource to an Experienced CPA

Outsourcing financial projects to an experienced CPA is a great way to ensure tax compliance and get the most out of financial planning, all while not bearing the entire cost of a new staff member.

As a client of a professional CPA, you can get advice on cash flow management, business planning and the completion of annual tax returns. Hourly rates vary widely based on location and experience, but our experts recommend that you expect to pay anywhere from $100 to $500 an hour for a CPA. Some services, such as tax preparation usually get invoiced as a flat fee.

How to Choose a CPA

Considering hiring a CPA? Our experts recommend considering a few key factors before finalizing your decision:

• Specialization: We recommend hiring a CPA who specializes in business accounting, even if they don’t have other areas of expertise. Why? Simply put, while experience in things like forensic accounting is helpful, your firm may not need to pay for this expertise from the onset.
• Confirm licensing: It’s generally good to check with your state’s licensing database to ensure that the CPA you choose is licensed to work in your state to prevent disruptions down the line. This also helps you to verify that they are up to date with the most current state regulations.
• Consider experience: While a newly licensed CPA might be less expensive, they may not completely grasp the tax code with the depth and nuance you need to succeed. If you’re not sure where to start, we recommend looking for that balance between cost and experience to ensure you get someone who can help your organization succeed.
• Ask about audit defense: While all CPAs can represent you in the event of an audit, not all will offer this service as some don’t want to add that liability to their firm. If you anticipate being audited now or at any point in the future, it’s best to inquire about this service early before it’s needed.
• Consider fees: Generally speaking, many business owners want to get someone with plenty of experience for as little as possible. However, we recommend that you consider the balance of the benefits for the price. As you search, you might consider finding someone who fits the budget and can bring enough experience to make it worthwhile.

The post Do I Need A CPA? Yes, Here’s Why first appeared on Newsweek Vault.

2024-04-29T14:27:42Z dg43tfdfdgfd