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How to choose a tax preparer for your small business

Posted by Kanika Sinha

June 22, 2021    |     5-minute read (933 words)

The last thing you want to do in the second week of April is to undertake a mad scramble for last-minute help completing your Form 1065, Schedule C and a plethora of other tax forms.

The complexity of IRS tax codes, coupled with paperwork and a dizzying array of forms, makes the process of filing tax returns a source of perpetual anxiety for most business owners.

Hiring a tax preparer can mitigate the chaos of this annual ritual, plus lift the pain of getting your quarterly estimates in on time. Because they have a sound understanding of the labyrinthine clauses of the IRS code, professionals can help you take advantage of various deductions and credits you may not be aware of. They can also spare you the ordeal of filing an extension or amendment or potentially paying penalties.

But how do you go about finding a tax preparation pro?  Google “best tax preparers near me” and randomly pick one from the top 5 search results displayed? Absolutely not! Read on to find how you can zero in on the best tax professionals to file your returns

Know your needs

The first step is to decide what kind of services you need. Revisit your firm’s goals and financial standing to determine whether you want someone to help with record-keeping, tax planning or finding the best ways to structure employee benefit plans and retirement programs for tax savings.

Types of tax professionals

There are three types of professionals who specialize in tax matters. Though all are qualified tax practitioners, you need someone who also understands the nuances and needs of your small business. 

  • Enrolled agents: 

Enrolled agents are required to either pass a comprehensive three-part exam covering ethics, corporate and individual taxes or to have at least five years of experience working for the IRS. They tend to have ample experience in dealing with complex federal taxation -- especially for cases in which businesses fall under IRS scrutiny. They have unlimited practice rights, meaning you can hire them to file your tax returns in more than one state.

  • Certified public accountants

CPAs are professionals who have studied accounting at the university level and have passed the Uniform CPA exam. They are licensed by their state to offer accounting services including tax preparation and can also represent taxpayers before the IRS, if required.

An essential task of most CPAs is to audit financial records and ensure compliance. Larger corporations or businesses with complex tax returns often seek the help of CPAs. However, they can tend to the tax needs of typical small businesses equally well.

  • Tax attorneys

A tax attorney is a lawyer who attended law school,  passed their state’s bar exam and focuses on tax matters in their law practice. As attorneys, they have an excellent understanding of the legal implications of complex matters pertaining to taxation. They can be helpful if you are stuck in a feud with the IRS, need legal representation in aU.S. court or are looking into business and estate planning.

What to look for in a tax preparer

If a tax professional tells you that they know everything about taxes, consider that a red flag. As you are well aware, the IRS code is a serpentine set of tax laws and it’s simply impossible for anyone to be knowledgeable about every piece of it. 

Conduct an informal background search or check with the IRS or your state’s Board of Accountancy to confirm that the professional or firm offering tax services is in good standing and has an active license to practice in the state.

Ensure that the tax preparer whom you reach out to holds an IRS-issued valid PTIN, as it is mandated by the federal agency when filing returns or claims for a refund.

Look for someone who not only understands your needs, but is also available when you have unexpected tax questions and can help you with planning or even responding to sudden IRS notices. You may find that some fly-by-night preparers set up their office only during tax season and close after April 15. If you find one, look elsewhere.

Where to find a trusted tax preparer?

  • Referrals: Ask your family, friends and fellow business owners for referrals to trustworthy and competent tax preparers. Some independent tax preparers may offer you a discount to referrals.
  • Local listings: You can easily find tax professionals in your area through listings on Google or social media pages. Check into their ratings and review to be sure they are a good fit for your business.
  • IRS website: Some professionals who do not fall in the category of CPA, EA or attorney get themselves registered with the IRS. A list of such paid tax return professionals recognized by the IRS is on the agency’s official site. 

Outsource your tax preparation services

If you can’t decide which tax preparer to go with or are looking for a more cost-effective tax solution, you may wish to consider outsourcing the task. 

Apart from helping you save time and energy,  outsourcing tax services gives you access to highly qualified tax professionals who are up to date with IRS regulations and offer immense expertise — that too at a fraction of the cost.

A successful tax outsourcing partnership will also give you greater flexibility with the ability to immediately scale up or down the resources allocated to your business, depending on your tax situation.

Finally, having impartial third-party checks in place will help you minimize the risk of internal fraud and enhance compliance.

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