This guest post is contributed by Alek Marfisi, owner of Upwind Strategies, a consulting firm that provides strategic advisement to small businesses and local development organizations, and lecturer in entrepreneurship.
Choosing the right professional to manage your small business tax provisions and filings might seem like an afterthought in light of the pressing daily demands of running your business. However, tax planning can positively affect business financial health in the long term.
The right professional can mean the difference between working in your business, constantly toiling day-to-day for the next paycheck while struggling to maintain cash flow, and working on your business, focusing on strategy while setting and achieving long term goals. The right licensed CPA or enrolled agent can also help you avoid headaches like audits and owing back-taxes.
Unlicensed vs. Licensed Professionals
Many small business owners assume that only CPAs can complete their tax returns, but this is not the case. In reality, anyone with a PTIN (Preparer Tax Identification Number) from the IRS is authorized to complete tax returns on behalf of a company. However, without a license like an EA or CPA, these paid preparers can’t represent your company in the event of an audit or in any ongoing correspondence with tax agencies.
Choosing a licensed professional is a much safer bet than using an unlicensed professional, and unless you have a strong understanding of their qualifications or your company’s finances, isn’t advised.
Enrolled Agents are licensed professionals that focus on reporting and interacting with tax agencies. They’re authorized by the IRS and state governments to represent you in the event of an audit. EAs tend to be a viable solution for businesses strictly looking to delegate the responsibility of preparing their tax information while continuing to handle all other financial matters on their own. While EAs can certainly offer advice to you on financial management and strategy, their license only guarantees their knowledge on tax matters and reporting. It’s up to you to gauge their qualifications in any other regard.
Certified Public Accountants (CPAs)
CPAs are the gold standard in accounting, and most accountants employed by businesses are CPAs. In addition to all of the capabilities of EAs, CPAs are also qualified (by virtue of the education requirements and testing to maintain their license) to advise your business on financial management and strategy. CPAs are a versatile option for businesses that have a regular need for tax reporting services but also need variable support on managing and organizing their company’s finances. Accordingly, CPAs tend to be more expensive than enrolled agents and unlicensed professionals.
Stay in Sync on Strategy
Delegating your small business finances and reporting to an accountant is just like delegating responsibilities to an employee of your company; it’s important to rely upon their judgement and knowledge, but if you don’t communicate clear strategic direction they will choose it for you.
For many contracted accountants, this means minimizing their clients’ tax liabilities by minimizing profitability. This might be in line with your company’s strategy if you’re operating a long term, stable operation with no plans to expand. If you plan to grow in the near future and take on investment or loan funds, this strategy is at odds with your goals.
A licensed CPA may charge $150 to $400 per hour; higher in New York’s metro areas and lower in less densely populated parts of the state. EAs and unlicensed professionals generally cost less per hour than CPAs. Ultimately, you as the business owner have control over what that equates to in annual fees.
If your accountant is providing a “turn-key” solution to all of your company’s financial matters, you’ll pay more in annual fees than if you just use them to prepare your federal and state tax filings. When designing how you want to manage your company’s finances, consider a solution that balances the cost of accounting with your ability to handle a portion of your own finances.
If you're still unsure as to which tax planning professional is right for your small business, look to other resources for support. Expert advisors at Excelsior Growth Fund can help you navigate all your options.
About Excelsior Growth Fund
Excelsior Growth Fund (EGF) helps businesses in New Jersey, New York and Pennsylvania grow by providing streamlined access to business loans and advisory services. EGF’s signature product, the EGF SmartLoan™, provides up to $100,000 in fast, transparent, and affordable financing through a secure online platform. Larger loans up to $500,000 are also available. EGF is a nonprofit organization and is certified by U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Learn more atwww.excelsiorgrowthfund.org.