Hiring a CPA for your small business is a milestone worth celebrating. Generally, it means your business is on the rise, you’re ready to start hiring employees or 1099 contractors, or your books are simply getting too complex to handle alone.
What you’ll learn
What you’ll learn
Key takeaways
- CPAs do more than file taxes; they offer strategic business planning and forecasting, whereas accountants typically handle day-to-day bookkeeping and financial organization.
- Consider hiring a CPA if managing finances takes time away from running your business, or if your business structure becomes more complex, like electing S Corp status.
- CPA fees vary based on business complexity, location, and billing structure, but a good CPA can ultimately save you money by identifying long-term tax savings.
- When interviewing a CPA, ensure they are transparent about their pricing, avoid pushing the envelope with risky tax strategies, and always sign your return with their PTIN.
But how do you know when you’ve truly outgrown your DIY process? And once you do, how do you find a CPA who will care about your business as much as you do? In this guide, we’ll discuss the types of tasks a CPA handles, potential costs, and what to keep an eye out for.
What does a CPA do for a small business?
A CPA can fill several roles for their clients. Many people think that CPAs only file tax returns, and that’s not the whole story. Their accounting knowledge means they can handle things like bookkeeping and payroll. But they also can help with bigger picture issues, such as thinking more broadly about your overall tax strategy and planning ways to save money in the future. Plus, they can provide guidance on business planning and forecasting.
If you’re a smaller business — perhaps you’re a sole proprietor who recently set up an LLC — you may have been told you need to hire a CPA. Sometimes people say “CPA” when they really mean someone who helps my business handle the money.
The point is that you actually have a few options when it comes to hiring someone for this kind of assistance. The table below breaks down the different types of accounting and tax professionals so you can see what each provides at a glance.
What are the differences between a CPA, an EA, and an accountant?
| Professional | Education and exams | Licensing and requirements | IRS representation | Primary focus |
| Certified Public Accountant (CPA) | Typically 150 hours of education (master’s level) and passes a four-part CPA exam. | Requires experience working under a licensed CPA and yearly continuing professional education (CPE). | Yes. | Tax planning, strategy, and business forecasting. |
| Enrolled Agent (EA) | Passes a three-part special enrollment exam (SEE). | Licensed directly through the IRS and requires yearly continuing education (CE). | Yes. | Tax preparation and IRS representation. |
| Accountant | Certification and/or training can happen, but it is not required. | No specific federal licensing required. | No. | Day-to-day financial transactions and reports. |
How to decide which one to hire
CPAs will usually be more expensive — you’re paying for their education and experience. Enrolled agents will usually be less expensive than CPAs because there are fewer licensing requirements, but that’s not a reflection on the quality of the work they do. Accountants are typically less expensive, and they can be a good option if you mainly need help organizing your business finances.
So what should you consider when choosing the best option for you and your business? It depends on what you’re looking for.
| Primary need | Who to hire | Cost expectation |
| Tax planning and business strategy | Certified Public Accountant (CPA) | Highest (Paying for advanced education and IRS representation) |
| Complex tax preparation and IRS representation | Enrolled Agent (EA) | Mid-range (Licensed by the IRS) |
| Day-to-day bookkeeping and organizing finances | Accountant | Lowest (Best for standard financial transactions) |
Signs it might be time to bring a CPA on board
While everyone’s situation is different, there are some common signs that tell a business owner it’s time to consider hiring a CPA.
- You’re spending more time on spreadsheets than your actual business: Your business may have taken off, which is great news! But if it’s growing quickly, you may have trouble keeping up, and in turn you could find that you’re spending more time looking at spreadsheets than actually doing work you love.
- Your business structure is changing or getting more complex: Expanding into other states or electing S Corp status means more rules and sales tax requirements to navigate. If the complexity has grown beyond your comfort level, it could be an indication that turning to someone with more expertise may be a reasonable next step.
- You’re facing an audit or navigating regulatory hurdles: Other business owners have tried to handle everything themselves but missed a few things here and there, resulting in notices from the IRS or state tax agency about problems with prior-year tax returns. Finding a CPA to represent your business and clear up tax issues could be a good investment.
As you can imagine, many people look to their network — and sometimes peers online — for guidance. This is the case with some recent Reddit threads where business owners are seeking feedback. I felt it could be an opportunity to address some of these common message board questions (because they’ve probably crossed your mind, too!).
Recently asked on Reddit
“I run a small business and have been doing my own bookkeeping and tracking. It was manageable at first, but as we grow, the sheer volume of transactions and tax-related tasks is getting complicated. What made you realize it was finally time to hire an accountant or bookkeeper?”
When is the sheer volume of transactions too much to DIY?
In my experience, it can be pretty common to become overwhelmed by all the bookkeeping and tax pieces of the business ownership puzzle. Small businesses often turn to a CPA when the business and its required financial tasks have become more than they can manage on their own. The takeaway? If you’re spending more time dealing with money than you are doing the work of the business itself, that can provide a push to consider outside help.
How much does it cost to hire an accountant for a small business?
The amount you’ll pay will vary widely, depending on things like the complexity of your business and where you’re located, as well as which services you’re looking for. Sole proprietors reporting their business income and expenses on Schedule C of Form 1040 are likely to pay less for tax preparation (and potentially bookkeeping) than an S Corp or partnership. If you have employees, that could also increase the cost, especially if you need help managing payroll and related taxes.
CPAs use different pricing strategies; there’s no single “right” or “best” way to pay for help, but you’ll want to make sure you understand what you’re paying for and why:
- Hourly rate: The CPA tracks their time, multiplies it by their hourly rate, and sends you the bill. While it’s a straightforward calculation, you have to trust the amount of time being clocked, and you also may not know exactly what you’ll be paying until after the work is finished.
- Per-form pricing: Some tax pros charge based on the forms they’re preparing, including every schedule they fill out. This method is generally less straightforward than hourly charges, and it can also lead to padding the bill if you’re not certain which forms are actually required in your situation.
- Flat fee or package pricing: You pay a set price for a specific scope of work, such as a Schedule C filer or a partnership return. This method is the clearest and most transparent because you know exactly what you’re paying for. But it can also lead to sticker shock because seeing a lump sum instead of an hourly or per-form rate often means a larger number up front.
You may wonder how to weigh the upfront costs of hiring a CPA against the potential for long-term savings. A good CPA can actually save you money in the long run by pointing out opportunities for tax savings. They can also keep you from making mistakes if you don’t know what you don’t know.
A Reddit user asked a question about pricing that may be similar to what you’re wondering.
What other entrepreneurs are asking online
“I just started a simple S Corp. I’m a solo psychiatrist contracted with one hospital — no employees, no complex deductions. My CPA charged me $1,250 just for my quarterly taxes and expects it to be $5,000+ for the year. Is this reasonable for personal + self-employed taxes for a very simple business?”
Is $1,250 a reasonable fee for quarterly S Corp taxes?
Yes, depending on the market, paying $1,250 for quarterly payroll taxes and filings for an S Corp can be reasonable. One thing that surprises some clients I talk to is the complexity that comes with an S Corporation, even one with a single shareholder. The CPA must calculate reasonable compensation, run payroll, and file a separate S Corporation tax return each year on Form 1120S, including preparation of a Schedule K-1 for each shareholder. This means two tax returns to prepare and file, which will increase your cost compared to just preparation of a single personal tax return.
Finding the right CPA for your specific needs
So what do you get for your money when you hire a CPA? There are some services that many CPAs will typically offer. The obvious one is preparation and e-filing of federal (and state, if required) income tax returns. They should also calculate estimated taxes for the current year, if necessary, during the tax preparation process. Another big one is that they should sign your tax return as the preparer (including their PTIN) when you’re ready to file them.
Looking for someone who either has experience in your industry or works with a number of clients in your field is likely to have good insights into how to handle your bookkeeping and what tax moves could make sense for your business. In this case, familiarity is a good thing, because it demonstrates knowledge of the kinds of problems unique to your industry, along with solutions to make your life easier.
Here are a few questions you might want to ask during the call:
- How do you work with clients? What’s the process, and is it a good fit for me?
- Are you comfortable with or do you have experience working with small business owners?
- What’s included in your fees?
- Are you available outside of tax season for consultations or questions, and if so, do you charge for that?
Before you get on the call, make sure you have at least a high-level understanding of your income sources as well as how you’ll document your business expenses for the CPA. Understand your own expectations going into the search so you can communicate them to the prospective CPA.
Warning signs to watch out for
In your search for a CPA, there are a few things that will probably make you decide on the spot not to hire them. Here are some red flags to look out for:
- They’re not transparent about their pricing: If they can’t give you an exact price quote, they should at least be able to give you a ballpark estimate or a range. If they hem and haw and say “it depends,” you may end up with a big bill you weren’t expecting.
- They like to push the envelope with creative tax strategies: This is fine if it’s within your own risk tolerance, but if it’s not, you may need to find someone else.
- They’re too focused on how large your tax refund will be: Refunds are great, but in my opinion, they’re not the thing to focus on. Plus, a preparer who’s laser-focused on getting you a large refund may be willing to bend the rules, which could lead to trouble with the IRS.
- They refuse to sign the tax return: If they won’t sign the return as the paid preparer, it most likely means they don’t have a PTIN and therefore aren’t allowed to prepare returns for compensation. This is what’s called a “ghost preparer,” and you should avoid them at all costs. Because they’re not signing the return, you will be entirely on the hook if anything goes wrong.
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When DIY or bookkeeping software is actually enough
So how do you know if it’s okay to continue to DIY your taxes and bookkeeping, especially with the help of software? If you’re just starting out and revenue is on the smaller side, you’ll probably be fine doing things on your own, especially if you’re comfortable working with numbers and spreadsheets.
As your business grows, though, you may find that you’re spending more of your time on bookkeeping and taxes and less on the business itself. If it’s not your area of expertise, and you’re spending nights and weekends managing the finances of your business, it’s probably time to look for someone else to help shoulder the load.
One Redditor was facing a similar issue
“I formed a single-member LLC for a professional services business. No employees, no inventory, just income and standard expenses. A CPA quoted me in the ‘high hundreds’ for my first year. Is this just the cost of doing things right, or can I reasonably handle this myself with tax software?”
Can a single-member LLC handle its own taxes with software?
This business owner could probably handle the tax returns themselves as long as they’re comfortable with the software and understand what goes where on the tax return, especially if they have good records of business income and expenses. It’s also an advantage that they’re a sole proprietor (what the IRS will consider them for tax purposes as a single-member LLC), because it means they don’t have to prepare and file a separate tax return for their business. Instead, they’ll include Schedule C as part of their personal tax return (Form 1040) to calculate taxable business income and the related taxes.
Hiring a CPA can make good business sense
Pairing a trusted CPA with the right tools, like an intuitive payroll and HR platform, can transform the way you run your business. If managing your finances is holding you back from your big-picture goals, it’s time to bring an expert on board. A great CPA doesn’t just file your taxes; they act as a strategic advisor for the life of your business.
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Peggy James is a certified public accountant (CPA) currently based in Durham, NC. Peggy loves numbers and has her own firm providing accounting and tax services to small businesses and individuals. She contributes to publications including RetireGuide, Investopedia, and The Balance.