Do you need help with tax planning and preparation, business accounting, financial statements, or other business strategies? Consider hiring a Certified Public Accountant, also known as a CPA.
Hiring a CPA costs more than do-it-yourself solutions like TurboTax or QuickBooks, but often these professionals can ultimately save you money by using their expertise to find tax-saving strategies or helping you gain access to funding opportunities the average person isn’t aware of.
Hiring a CPA vs. DIY
The cost of hiring a CPA or other professional tax preparer averages anywhere from $188 for a Form 1040 without itemized deductions to $1,784 for an estate tax return, according to the National Society of Accountants’ 2018-2019 Income and Fees Survey.
However, fees can go much higher depending on the experience level of your preparer, where you live, and the complexity of your tax return.
Many individuals and business owners seek to avoid those fees by going the DIY route. Individuals with simple returns and income below $69,000 can file returns for free through the IRS Free File program.
Using online tax software like TurboTax can cost anywhere from $60 to $120 for a federal return, depending on complexity, plus an additional $50 per state return.
Anyone can prepare their own tax return, but just because you can doesn’t mean you should. If your tax situation is complex, preparing your tax return could take a lot more time and effort than you bargained for.
Here are a few scenarios that might justify the expense of hiring a professional:
- You’re Self-Employed. Self-employed taxpayers don’t have an employer withholding taxes on their behalf. If you need help tracking income and expenses, making estimated tax payments, and figuring out which deductions you can take, you might want to hire a CPA or other tax professional.
- You Have Foreign Income, Investments, or Bank Accounts. In the U.S., taxpayers who earn income from a foreign country, have foreign investments, or have signature authority over foreign bank accounts have special reporting requirements — and being unaware of the rules doesn’t exempt you from penalties if you fail to meet these requirements. If you have any foreign income or assets, it’s best to work with a CPA who has expertise in this area.
- You Had a Major Life Event. Getting married or divorced, having a child, starting a business, buying or selling a home, or moving out of state can have a big impact on your taxes. If you don’t know how these types of events will impact the tax deduction and credits you can claim, you might want to hire a pro.
- You Own Rental Property. Preparing a tax return with rental income can be tricky. There are a lot of rules about claiming losses, deducting expenses, and depreciating property. If you’re not familiar with the rules and don’t have the time or inclination to research these topics, you’re better off hiring a CPA.
- You’re Being Audited. Tax law is complex, so anyone can make a mistake on a tax return. If you notice an error, you can fix your mistake by filing an amended return. However, if the IRS selected your return for an audit, you might want to work with a CPA. The CPA can represent you at meetings, help you gather or prepare documentation to support your tax return, and negotiate with the IRS on your behalf.
How to Choose a CPA
If you’ve decided that hiring a CPA is the way to go, the next step is selecting one. Because you’ll give a CPA access to a lot of sensitive financial information, you want to make sure you hire the right person.
To hire the right CPA for you, take these steps.
Step 1: Compile a List of Potential CPAs
As with most service providers, a great way to find a CPA is to ask for referrals. Check with friends, family members, business associates, coworkers, your attorney, or your banker. This way, you’ll know you’re getting involved with an experienced CPA with a good reputation.
If asking around for a referral doesn’t yield any results, check with your local state board of accountancy or state CPA society. Many of these organizations maintain online directories of members or will provide a list of professionals in your area when asked.
Don’t just go with the first name you get. You want to compile a short list of potential professionals to choose from.
Step 2: Consider Your Needs
CPA firms come in all shapes and sizes, from sole practitioners working from a home office to huge accounting firms with hundreds of professionals.
Your wants, needs, and budget will determine which size firm you hire. If you just need to have your tax return prepared once a year, a small firm or a self-employed CPA may be the right choice.
On the other hand, if you have a growing business and need year-round help, a large accounting firm with a dedicated team at your service may be a better fit. Just keep in mind that large firms tend to charge higher fees than smaller CPA firms.
Step 3: Look for the Right Expertise
CPAs tend to focus on particular niches or specialties, such as small-business owners, high-net-worth individuals, or clients who work in certain industries.
Some CPAs focus solely on auditing financial statements, others specialize in tax compliance, and others may concentrate on wealth management or estate planning. You want to find a CPA that’s experienced in the area in which you need assistance.
Somebody who specializes in individual tax returns, for example, is not the right choice if you need help with business tax strategy. There’s a big difference between the way a CPA approaches preparing an individual’s tax return versus how they approach business tax planning.
How do you find out if a particular CPA has experience suitable for your needs? The best way is to ask. Arrange a quick phone call or send an email to ensure they offer the kind of services you need.
Step 4: Interview Prospective CPAs
Once you’ve narrowed down your list to a few prospects, ask for an in-person meeting. Just keep in mind that if you want to make an appointment in the middle of their busy season — usually February through April 15 — it may be difficult to find someone who has the time to sit down with you.
When you schedule the meeting, ask if the CPA would like you to bring any information with you. It might help for you to bring a copy of your most recent tax return or financial statements so they can get a better idea of your needs.
Come prepared to ask questions about how long they’ve been practicing and whether they’re available for questions year-round or just during tax season.
If you’re interviewing a partner in a big firm, ask who will be preparing your tax return or financial statements. Often in larger firms, more experienced CPAs hand off day-to-day work to less experienced associates.
That’s fine if the experienced CPA is reviewing their work and it keeps costs low, but it’s good to know who will actually be handling your file.
Step 5: Ask About Costs
During the interview, ask the CPA how they bill for their services. Some charge a flat fee, while others charge an hourly rate. Either method is acceptable, but you need to know if the clock is running every time you call with a question.
During the interview, the CPA should be able to give you an idea of what they will charge you. Steer clear of someone who can’t give you a ballpark figure, as that usually means you’ll get a large invoice later on.
Likewise, look out for anyone who promises a huge tax refund before looking at your records, or who charges a fee based on the percentage of your refund. These are signs of an unscrupulous tax preparer, according to the IRS.
Step 6: Consider Chemistry
Price isn’t the only consideration when choosing a CPA. Hopefully, the person you select will be working with you for years to come and you’ll be communicating on a regular basis. So make sure the CPA you hire is someone you enjoy working with.
You don’t have to be best friends, but they should be someone you feel comfortable asking questions of and seeking help from when necessary.
If you don’t get a good feeling after talking to someone, it will be difficult to build a good working relationship. Move on to the next person on your list.
How to Change CPAs
What if you’re already working with a CPA but you’re unhappy with their service?
Changing accountants might feel daunting. After all, your CPA knows your history and already has all of your information. However, it’s important to work with someone you trust and feel comfortable with. And changing accountants isn’t all that difficult.
Here’s how to make it happen:
1. Talk to Your Current Accountant
Be honest about why you want to leave. If you weren’t receiving the level of service you expected, their fees are too high, or the work they’ve performed has been full of errors, let them know.
You might be able to salvage the relationship. If not, at least they’ll know for sure why you decided to make a change.
2. Have Your Files Transferred to Your New CPA
Ask your old accountant how they prefer to send your files to your new CPA. If your old accountant has your original tax documents (such as bank statements, W-2s, or 1099s), they’re required to return them to you. Your old accountant is not required to provide copies of their own work papers or calculations.
Some CPAs will send your files over to a new CPA after you sign a consent form. Others might only release them to you, and you’ll have to deliver them to your new CPA.
3. Change Your Passwords
If your old CPA has passwords for your bank or investment accounts, Quickbooks file, payroll service, or other apps, be sure to change those passwords. Give your new passwords to your new CPA.
That’s it! You’re ready to start building a working relationship with your new CPA.
If you’ve gone through all of the steps above and still haven’t found someone you like, don’t be afraid to look outside of your geographic area. With the technology available today, it’s possible to work with a CPA in another part of the country almost as easily as you can work with someone in your city.