Do you need a CPA to prepare taxes for your business? By the end of this article, you’ll be able to answer that question.
When it comes to managing your taxes, one important financial decision you’ll make is choosing who will handle your tax preparation. This applies if you own a small business with or without a partner, you’re an entrepreneur, or you’re a sole proprietor. Making the wrong decision can be costly in terms of overpaying for services or receiving a poorly prepared return that makes you miss out on deductions.
While you may be familiar with the term “CPA” (Certified Public Accountant) and “tax preparer,” understanding the differences between the two— especially when you’re deciding what’s best for your business—is empowering and a great way to save money.
In this article, we explore what sets tax preparers and CPAs apart, and why tax preparers may be the ideal choice for small businesses, entrepreneurs, and sole proprietors.
What is a Tax Preparer?
A tax preparer is someone who helps individuals and businesses prepare and file their tax returns. Their primary focus is on ensuring that the proper necessary forms and documents are chosen, filled out, and submitted accurately. Tax preparers typically possess tax knowledge and are trained to follow the rules and regulations set by the IRS.
Some tax preparers are also licensed by the IRS as Enrolled Agents (EAs) (Gutsy Money Tax Preparers are EA licensed) which means they have passed a rigorous exam. This designation authorizes them to represent clients in front of the IRS. However, even non-Enrolled Agents can prepare and file taxes for clients as long as they meet basic requirements such as completing the IRS’s Annual Filing Season Program (AFSP) to maintain their credentials.
Tax preparers are generally ideal for more straightforward tax situations, including preparing personal tax returns, small business taxes, or corporate tax filings.
What is a CPA?
A Certified Public Accountant (CPA) is a licensed professional who has passed the CPA exam, met the education and experience requirements, and completes ongoing continuing education to maintain their certification. CPAs typically do more than tax preparation—they can offer a wide range of financial services.
They are known for their comprehensive understanding of accounting principles, tax law, and financial regulations. Their expertise makes them a great choice for large businesses and more complex financial situations.
What are the Differences Between a Tax Preparer and a CPA?
Level of Expertise and Training:
- Tax preparers have basic or intermediate knowledge of tax laws and regulations. Many have the Enrolled Agent certification.
- CPAs have advanced education and specialized training, passing a rigorous exam to earn their designation. They also have extensive experience in accounting and business finance beyond just taxes.
Range of Services:
- Tax preparers typically focus on preparing tax returns, filing forms, and offering advice on basic tax questions. It is not their job to ensure the business’s books are set up and categorized properly. (This is why Gutsy Money offers comprehensive bookkeeping and financial education services, which support effective tax preparation.)
- CPAs can provide other services, including financial audits, business planning, and limited investment guidance.
Regulatory Oversight:
- Tax preparers are primarily overseen by the IRS and must comply with federal tax regulations, but they are not subject to state-level licensure.
- CPAs are licensed by state boards and must meet both state and national requirements for their practice, including ethical standards and continuing education.
Cost:
- Tax preparers typically charge affordable fees because they are handling one aspect of business: tax return filings.
- CPAs come with a significantly higher price tag due to their broad skillset and ability to provide high-level financial services.
Why Should a Small Business, Entrepreneur, or Sole Proprietor Choose a Tax Preparer?
While CPAs offer advanced services that are highly valuable for large corporations or complex financial needs, many small businesses, entrepreneurs, and sole proprietors find that a tax preparer and bookkeeper is the right fit for their needs. Here’s why:
Cost-Effective Tax Preparation
Small businesses and sole proprietors often have limited budgets, and the higher fees associated with CPAs may not be justifiable for basic tax preparation. Tax preparers can help you file your tax returns at a fraction of the cost, offering a more affordable and completely comparable solution for your needs.
Straightforward Business Tax Filings
For most small businesses and entrepreneurs, tax preparation typically involves straightforward tasks like filing an income tax return (Form 1040, Schedule C) or a basic business return (such as an LLC or S-Corp). Tax preparers are more than capable of handling these filings.
Small Business Tax Expert
Tax preparers are well-versed in the forms and tax deductions commonly used by small businesses and sole proprietors. From mileage deductions to home office expenses, they understand how to maximize your return within the scope of tax law.
Timely and Efficient Tax Prep
Tax preparers often work on a seasonal basis, which means they are typically available and focused on tax-related work during tax season. This allows them to process your tax filings quickly and efficiently, ensuring you meet deadlines without delay.
No Unnecessary Overpaying
Small businesses, entrepreneurs, and sole proprietors often don’t need the kind of deep financial analysis and long-term planning that a CPA might provide. If you simply need help preparing your taxes, accounting for write-offs, and ensuring compliance, a tax preparer is the right fit.
As a Business Owner, When Do You Need a CPA to Do Taxes?
While tax preparers are a great option for many small businesses, there are times when a CPA may be more appropriate, such as:
- If your business is growing quickly and requires advanced financial planning.
- If you are facing an audit or have complex tax issues that require professional representation.
- If you need strategic advice on investments, business structure, or long-term financial goals.
- If you require business valuations or forensic accounting.
In these cases, the expertise and broader services of a CPA should be considered.
The Bottom Line
Hopefully you now feel empowered to answer the question, “Do I need a CPA for my taxes?” You may join many small businesses, entrepreneurs, and sole proprietors who choose a tax preparer as a cost-effective and efficient solution for handling tax filings.
Quality tax preparers are trained in tax laws and are equipped to ensure your taxes are filed accurately and on time—without the higher cost for a CPA’s full range of experience.
Ultimately, the decision between a tax preparer and a CPA boils down to your business’s specific needs, budget, and long-term goals. By understanding the distinctions between these two professionals, you’ll be better equipped to make the right choice for your business’s tax needs.
If you are looking for support with your taxes, Gutsy Money’s tax preparers are experienced and 100% equipped to prep and file your business (and even personal) taxes. Learn more here.
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