So, you’re a small business owner. You’re busy juggling your monthly overhead, inventory, jobs, and employees— and suddenly, April 15th is right around the corner. That’s right, it’s time for taxes. There are many options for small business owners and individual taxpayers to file, but have you ever wondered what tax filing option is best for you and your small business? Whether you’ve handled your own taxes in the past or you’re looking for an alternative option to help you prepare for that fast-approaching filing deadline, you’re in the right place!
We’re breaking down the average cost of tax prep and giving you some other tax tips to help you get ready to file and pay forward those government contributions. Looking for a specific tax tip? Use the links below to navigate.
- Average Small Business Tax Prep Fees
- Tax Prep Pricing Methods
- What You Should Know Before Hiring a Tax Prep Professional
- Setting Your Business up for Success Before Tax Season
- Main Takeaways: Tax Prep for Your Small Business
Average Small Business Tax Prep Fees
Many business owners opt to hire a tax professional to help them file and prepare their taxes. Each tax preparer may structure their service pricing differently, but according a survey from the National Society of Accountants, in 2014 the average cost to hire a tax prep professional to complete an itemized IRS Form 1040 was $273. Business owners will want to keep in mind that they may need to file other forms in addition to Form 1040, which may impact how much you can expect to pay for tax preparation services.
In addition to the cost of preparing Form 1040, the National Society of Accountants reported the average cost of hiring a tax professional to file the following IRS forms:
- $174 for a Form 1040 Schedule C (business)
- $634 for a Form 1065 (partnership)
- $817 for a Form 1120 (corporation)
- $778 for a Form 1120S (S corporation)
- $457 for a Form 1041 (fiduciary)
- $688 for a Form 990 (tax exempt)
- $68 for a Form 940 (Federal unemployment)
- $115 for Schedule D (gains and losses)
Again, keep in mind these fees are averages and may vary depending on your region, industry, and business size. Consulting with a tax professional can help you determine which IRS forms apply to your small business.
Who Can Help Me File My Business Taxes?
According to the Internal Revenue Service (IRS) there are four categories of tax professionals that are qualified to help you file your taxes.
- Registered Tax Return Preparers (RTRPs): A Registered Tax Return Preparer must pass a competency exam issued by the IRS. The exam covers individual tax returns including Form 1040 and related schedules, but it does not cover business returns. In addition, RTRPs can only represent clients in an audit if they have prepared and signed the return in question. RTRPs may be helpful when filing your personal return, but not necessarily for your small business.
- Enrolled Agents (EAs): An enrolled agent is a professional who is licensed by the IRS and trained in federal tax matters. EAs have unlimited practice rights, so they can represent any type of client and any tax matter. EAs have to pass a 3-part exam from the IRS that tests their knowledge on individual and business tax returns, taxpayer representation, and IRS recommended practices and procedures.
- Certified Public Accountants (CPAs): CPAs must pass the Uniform CPA Examination and must be licensed by their practicing state board of accountancy, the District of Columbia and U.S. territories. CPAs are held to specific board requirements that enforce continuing education, ethical standards, and experience. Like EAs, CPAs also have unlimited practicing rights and can represent any client for various tax matters, including: tax audits, IRS payment and collection issues, and appeals).
- Attorneys: Tax attorneys must be licensed by a state court or the state bar. Attorneys generally hold a law degree, pass the bar exam, and stay up-to-date with continuing education programs. Many attorneys are also CPAs— focusing on tax planning and preparation. Attorneys also have unlimited representation. So. like EAs and CPAs, they can represent any client for a variety of tax matters.
Average Cost to Hire a CPA
A CPA or Certified Public Accountant is the most common tax professional used for filing personal and small business taxes. CPAs wear many hats in the finance field, functioning as: auditors, business advisors, decision makers, tax consultants, and accounting consultants. So if you’re looking for a tax professional that can help you more than just filing those forms for April 15th, a CPA may be right for you.
How much do CPAs charge? CPA charges may vary depending on your state, the services you need, and amount of experience. According to the National Society of Accountants, a CPA may charge between $68 and $800 depending on the forms you need to file, as well as how detailed they are, and how difficult it is to gather the appropriate information from your books.
For small businesses, tax preparation actually starts months and months before the official “tax season” is in full swing— which is why many business owners opt to hire a professional to keep things in order from the start. A professional finance expert can help you keep all of your books in order throughout the year so you’re always ready for tax season! This helps ensure your information is well-organized for a tax preparer like a CPA to file.
Maintaining a proper record of your business’ transactions, itemized deductions, and additional fees throughout the year is important to help you:
- File your taxes properly
- Be prepared in case of an IRS audit
- Keep employment costs organized
- Track tax deductions and credits
- Streamline your budget
What Tax Prep Services Should Include
Now that you know what to expect cost-wise when you hire a professional to prepare your taxes, let’s talk about what kind of services should be included. Tax preparation services packages may vary depending on who you’re hiring, but here are some common service items to give you an idea of what level of service to expect.
- Tax form preparation: A tax professional will help an individual or business prepare the proper forms they need to file, in compliance with IRS standards.
- Tax resolution and representation: The IRS has a tendency to alarm individuals and businesses alike with surprise audits, tax penalties, and confusing notices. A tax professional can help figure out what a notice is requesting— and best of all, how to address it. Remember, not all tax professionals are able to represent you in an audit, so make sure you’re electing to work with an EA, CPA, or attorney if you need representation in an audit.
- Tax consultation and planning: Taxes can take a pretty big toll on small business profits. When there’s not a lot of overhead, and you’re hit with substantial business taxes, your personal finances can take a big hit. Planning for taxes in advance can help minimize the impact business taxes have on your business.
- Tax compliance: It can be challenging to keep track of the deadlines, forms, and fees associated with filing taxes for your business— let alone the state and federal regulations to follow. A professional tax preparer will help you make sure you’re operating in compliance with IRS standards for federal and state business tax regulations.
Tax Prep Pricing Methods
Tax preparers can work with small businesses throughout the year to help maintain your financial records, or many will prepare individual tax forms for you depending on your business’ needs.
Types of Tax Forms & Costs
Many tax preparers bill their services based on the type(s) of IRS tax forms you need to file. According to the National Society of Accountants (NSA) the average tax prep costs by form range from $63 for a federal unemployment IRS Form 940 and $806 for a C corporation IRS Form 1120. Of course, your small business is probably not a C corporation, so you can expect the cost of your tax prep to fall somewhere in between the two depending on the forms you need to file, and who is filing them for you.
Most Common IRS Forms for Small Businesses
Not sure which forms you need to file for your small business? Before you hire a tax preparation professional, you may want to consider which forms you need to file, if you can file any on your own, and which you’ll need help filing. Here are some of the most common forms you may need to file as a small business owner, or self-employed professional.
Tax Forms for New Business Owners
- Form 1040- ES: The Estimated Tax form is used to report taxable income such as self-employment, interest, dividends, rent, and alimony. These types of income are not subject to withholding, so rather than paying taxes throughout the year taken out of your paycheck, you will have to report this income using Form 1040-ES.
- Business Partnership Forms: If your small business includes other owners in a partnership, you may be required to file certain business partnership forms such as Form 1065, Return of Partnership Income.
- Sole Proprietorship Forms: If you are the sole owner of your small business, use the IRS tax form guide for sole proprietorships to determine which additional forms you will need to file.
General Business Expenses
- Form 1040 Schedule C: IRS Form 1040 is one of the most complex income tax forms taxpayers can use. Depending on the income and tax credits that apply to you, you may need to use a different version of the form. Form 1040 is due by the April 15th general tax deadline.
- Form 8829: If you run your small business out of your home, you may be able to deduct expenses for the business use of your home. However, the IRS has strict guidelines for what constitutes the business use of your home. If you just use a spare bedroom as your home office on occasion, you probably won’t be able to expense this cost. In general, the IRS says your home space must be used exclusively for business purposes if you wish to deduct this expense with Form 8829.
- Form 1099: If you’ve paid a temporary employee or contractor at least $600 in services, you will need to both issue a 1099 to said contractor, and file one for your business.
- Form W-2: This is probably the most familiar of all IRS tax forms for both employees and employers. If your employee has made $600 or more over the last tax year, you will need to issue and file a W-2 for each employee. This form lets the IRS know how much you paid each employee in a given tax year, as well as how much your employee made (as a taxpayer).
- Form 940: If you are liable for federal unemployment tax, you will need to file IRS Form 940 for your small business.
- Form 941 or 944: If your business is liable for Social Security and Medicare taxes withheld from employee income, you will need to file Form 941 or 944— due April 30th, October 31st, and January 31st.
Phew, now that’s already a lot of forms to think about! Depending on your business type, state, and amount of employees, you may be obligated to fill out all of these forms, some of them, or even more tax forms. Hiring a tax prep specialist can help you make sense of the tax forms you need to file— and better yet? They’ll help you file them accurately so that after tax season, you can get back business owning!
What You Should Know Before Hiring a Tax Prep Professional
You don’t want just any joe-schmo handling your business taxes, but you probably already knew that. But what exactly should you know about your tax preparer before you decide to hire them?
The Accreditation Council for Accountancy and Taxation recommends keeping these six tips in mind when hiring a professional tax preparer:
- The IRS requires that all professional tax preparers have a Preparer Tax Identification Number (PTIN), and that this number is included on the taxpayer’s filed return. Preparers must sign and provide their PTIN on your return and provide you with a copy of your completed tax return.
- Avoid tax preparers who base their service fee on a percentage of your tax refund, or those who claim that they can get a higher refund than possible.
- Do not sign a blank or incomplete tax return form.
- Your refund should be addressed to you, not your tax preparer. Make sure your refund will be deposited directly into your bank account or mailed to you from the IRS.
- According to IRS regulations, your tax return must be filed using your W-2 (not your last paystub). Do not rely on a tax preparer who offers to file based on your last paystub.
- Always review your tax return before signing— and feel free to ask questions! Your tax preparer should be able to clearly answer your questions and you should feel comfortable that your return is accurate and complete.
Taxes are serious business— and when your business and personal finances are involved, you don’t want to take any chances! If you decide to hire a professional tax preparer, make sure to do your due diligence and make sure that they’ve got the proper accreditations, ethos, and experience to ensure your business taxes get filed properly.
Benefits of Hiring a Tax Prep Professional
If you do find a great tax preparer you can trust with your business finances, congratulations! Here are some of the benefits you may expect when you hire the right tax prep professional:
- Save money on taxes: A diligent, detailed tax professional could help you find a tax deduction or credit that can end up saving you money on your tax return. Plus, filing your taxes accurately could mean you avoid costly mistakes like missing a deduction or triggering an IRS audit.
- Save time: If you’re like most small business owners, you’re probably pretty busy. And if you’re like most taxpayers, you dread the thought of spending hours figuring out your taxes. Tax professionals are well-versed in tax code and can help you file quickly and accurately.
- Personalized tax advice and help: The tax system can be complicated— especially when you’re managing multiple accounts, deductions, and trying to interpret state and federal taxes for your business. A tax professional is able to answer your questions with up-to-date information from the IRS and help you strategize for success when filing your taxes.
- Reduce risk of audit: Sometimes the IRS decides to perform an audit if they notice improper filing, and other times they perform audits “just because.” While you can’t necessarily predict when the IRS will audit, you can hire a tax pro to help you navigate the audit process.
- Stay organized all year: For small businesses, tax season is practically year-round. It’s important to keep your books organized all year if you want to have a successful tax year without the headaches of digging up old paperwork and financial statements. If you want to save time on tax prep, you may want to consider hiring a professional bookkeeper or accountant to help you stay on top of your finances all year.
Setting Your Business up for Success Before Tax Season
The best way to prepare for tax season is to be, well, prepared. Hiring a bookkeeping and accounting professional is one way to keep your business finances organized and well-documented so that you have everything you need before April 15th rolls around.
Strategize and prepare your taxes
Finance Pal offers bookkeeping and accounting services to help small business owners get back to owning. Our finance experts ensure all of your books are in order and help you strategize to save as much time and money as possible when it comes to filing your taxes. And most importantly, we make sure you’re in compliance with business tax regulations so you and your business are always in good standing with the IRS and never worrying about unexpected additional fees. While we can’t always predict an IRS audit, Finance Pal can certainly help you prepare your books so you’re always ready with accurate bookkeeping and accounting throughout each tax year.
Access Your Finances with Digital Ease
When you file your taxes with a Finance Pal, you get easy online access to your business finances, transaction history, and more. Managing your business finances and taxes is easier than ever when you leave the nitty-gritty details up to us!
Finance Management Made Simple
Finance Pal offers subscription-based pricing for small business finance services— including tax preparation, planning, audit defense and consulting. Our dedicated accounting teams ensure your business finances are refined, strategized, and organized all year long. Not only does this help you prepare to file your business taxes, but it also helps you stay on top of your day-to-day finance services like payroll processing and budgeting.
Main Takeaways: Tax Prep for Your Small Business
Whether or not you decide to outsource your tax preparation services and hire a tax prep professional, the most important things to remember about filing taxes for your business are:
- Stay organized: Keep detailed records of all business transactions, deductions, as well as payable and receivable accounts.
- Be compliant: If there’s one pet-peeve of the IRS, it’s not following their rules. There are specific tax regulations that businesses need to follow that don’t apply to individual taxpayers, so make sure you understand federal and state-specific tax protocol before filing.
- Be on time: While it may be true that not all U.S. residents file their taxes on time, if you want to avoid a surprise audit or extra tax dues, it’s always recommended that you make that April 15th deadline. Better yet, file your taxes early and get back to business!
- When in doubt, seek out help: Taxes can get complicated. If you’re unsure about how to file your taxes correctly— let alone strategically, you may want to get help from a tax professional. Filing your taxes properly the first time can help you avoid potential headaches and even save you time and money!
Our expert financial team at Finance Pal is here to help! If you have questions about tax prep, sales tax consulting services and year-round bookkeeping for your small business, start your free trial today.