Handling business taxes is a challenge for many business owners. If you don’t know what you’re doing or don’t fully understand tax laws, you can make mistakes that turn into fines and penalties by the IRS.
That happens to about 40% of all small businesses, and they pay an average of $845 in fines from the IRS. That amount is doesn’t count the missed opportunities because you didn’t know about certain tax credits and business deductions.
Your best bet is to hire a tax professional that can handle tax issues. Should you hire a CPA or accountant for the job? Believe it or not, there are big differences between a CPA and accountant.
Read on to learn what the differences are and which one you should hire for your business.
The Differences Between CPAs and Accountants
CPAs and accountants can handle taxes. However, there are differences in the level of education, accountability, and duties.
Accountants can work on taxes, give you advice, and handle internal financial issues. They’re likely to have a bachelor’s degree in accounting, but they aren’t regulated by the state.
On the other hand, CPAs have gone to school for accounting and have a Certified Public Accountant designation. To get that designation, they have to pass an exam and meet the requirements of the state board of accounting.
The requirements will vary from state to state, but they usually require at least one exam, and continuing education credits to maintain the license.
CPAs are held accountable by the state licensing board. If an accountant fails in their duty to have the client’s best interest in their work, a client can file a complaint against the CPA with the state.
A CPA can handle a lot more than a general accountant. They can file your taxes on your behalf, create and file regulatory documents with the Securities Exchange Commission. A CPA can also represent you in tax matters should the IRS have issues with your tax return.
What Do Bookkeepers Do?
You might be wondering about bookkeepers and where they fit into the financial picture. Bookkeepers are responsible for handling the books in your business. They enter income and expenses into your accounting software, which helps you manage your cash flow.
Typically, a business will have a bookkeeper and an accountant on hand. The bookkeeper manages the day-to-day data entry and invoicing tasks. They’ll then compile that information and send that to the accountant or CPA to generate reports and file taxes.
Should You Hire a CPA or Accountant?
It depends on the size of your business and your accounting needs. If you have a large business, you may have a general accountant to handle bookkeeping and other accounting duties and have a CPA file your taxes for you.
You could have a small operation where you do your taxes yourself and have a general accountant look them over for you before you file them.
Another option is to have a CPA to complete your tax returns for you, and then you have time to focus on other parts of your business.
Startup organizations that seek investors need to have a CPA on hand. That’s because a CPA is qualified to prepare documentation and financial statements for potential investors. An accountant can’t submit those types of documents.
How to Hire an Accountant or CPA
No matter which one you decide to use, both can be valuable resources to help you manage your taxes. How can you make sure that you hire the right person or firm for the job? These are among the most important things that you should look for.
Experience and Expertise
You have to work with an accountant or CPA that has experience doing taxes and preparing reports. It’s even better if they work in your industry. They’ll understand the tax laws and how they apply to your unique situation.
There are also accounting specialties that may fit your business needs. For example, a forensic accountant can be hired to audit your books if you suspect fraud. They check for things like discrepancies between your tax returns or public documents and what your books really say.
This is common when companies want their financial statements to look better than they really are. Other times, people will create financial losses to avoid paying taxes.
Another specialty is a cost accountant. They look at your business expenses and make recommendations as to where you can cut back on spending.
Tax laws are changing all of the time. This year is no exception with the coronavirus pandemic forcing many people and businesses to rely on economic aid to get by.
You need to know how the accountant or CPA stays up to date on changes. They may take regular webinars with the IRA and have a tax network for insights and updates.
There are differences in pricing for an accountant and a CPA. Since a CPA has invested more in their career, they will cost more than a general accountant.
You’ll want to check your budget and ask about pricing methods. Most accountants and CPAs will charge by the hour for consultations and ongoing projects.
For tax returns, CPAs may charge for the forms that need to be prepared and filed.
Hire a CPA or Accountant for Your Financial Future
There are big differences between CPAs and general accountants. While a CPA has more to offer clients, that doesn’t mean that you shouldn’t hire an accountant.
Should you hire a CPA or accountant? It depends on your business needs and your budget. You can have an accountant on your internal team and work with a CPA on public documents and tax filings.
A CPA will cost more, but you’ll have more time to focus on your business. The bottom line is that you need to know what your needs are before you decide.
For more great business tips, be sure to check out the Business section of this site.