Know which returns you need
The right preparer depends on what your business files. A single-member LLC that has not elected corporate treatment usually reports on the owner's personal return. A multi-member LLC files a partnership return. An S corporation files its own return and sends each shareholder a Schedule K-1. A C corporation files and pays tax at the entity level.
Most businesses also file in at least one state, and many have payroll tax returns, sales tax returns, annual reports, and information returns for contractors. Ask each firm to list the returns it expects to prepare for you in the first year. If the list is shorter than yours, you have found a gap.
Preparation is the smaller part
A firm that only enters numbers into software leaves most of the value on the table. Good preparers also ask about elections and entity choice, estimated tax payments, retirement contributions, owner compensation, fixed asset purchases, and state nexus. Ask when in the year they will talk to you. If the answer is only after the books are closed in March, planning is not part of the service.
Ask about extensions, because they come up often. A firm should say who files the extension, how the estimated payment is calculated, and when you will receive the final return. An extension gives more time to file, not more time to pay.
What a preparer should ask you for
Expect a request for reviewed financial statements, a trial balance, your prior-year return, payroll and contractor reports, loan and equity activity, fixed asset purchases and sales, and any notices you received. A preparer who asks for none of these is working from the numbers you hand them and not from your records.
That is also why the books and tax work fit together. Tax preparation goes faster and costs less when it starts from reconciled books, so ask how the firm receives your numbers and whether it will work from your bookkeeper's file.
How the right firm shifts by business
S corporation owners should ask how the firm sets and documents owner compensation, because the IRS expects reasonable pay before distributions. Companies with employees in several states should ask who tracks registrations and payroll filings in each. Online sellers should ask how sales tax is handled across states. Startups that raise money should ask about the qualified small business stock rules, R&D credits, and equity records. Foreign-owned companies should ask who prepares the information returns that apply to them.
A firm that works with businesses like yours will say what goes wrong in your situation without being asked.
Questions to ask
These tend to separate firms that file returns from firms that look after clients.
- Who prepares and who reviews each return? Who signs?
- Which federal, state, and local returns are included in the quote, and which are extra?
- Do you handle extensions, estimated tax payments, and notices?
- How do you handle an IRS or state notice, and is that included or billed by the hour?
- How do you prepare 1099s and W-2s if we need them?
- What do you need from us, and by when?
- When will we speak outside of filing season?
- What happens if the return is amended or audited later?
Reading the price
Prices are usually quoted per return, per year, or as a monthly retainer that includes advisory time. Ask what is included in the number: state returns, additional states, multiple entities, quarterly estimates, and one or two planning conversations. A low base fee that excludes state returns, extensions, or notices can cost more than a higher fee that includes them.
Be wary of firms that set their fee as a percentage of your refund or promise a particular result. The IRS warns against both.
Check credentials
A paid preparer must have a Preparer Tax Identification Number, and only CPAs, enrolled agents, and attorneys have unlimited rights to represent you before the IRS. The IRS maintains a directory of federal tax return preparers with credentials. Check the credential of the person who will actually sign your return.
A note on bias
Institution prepares business tax returns too, which means we have a stake in this choice. Use the questions with every firm you consider.
Frequently asked questions
When should I hire a business tax preparer?
Early enough to plan, not just to file. If you can hire before the end of your tax year, the firm can advise on estimated payments, purchases, owner pay, and elections. If you are already late in the year, hire sooner than the filing deadline anyway so there is time to gather records.
Is it better to use the same firm for bookkeeping and taxes?
It is often more efficient, since the preparer starts from reviewed books. The trade-off is independence and specialization, so check that the firm is strong at both rather than good at one and adequate at the other.
What happens if I get an IRS notice later?
Send it to your preparer immediately, because notices have response deadlines. Confirm before you hire whether notice response is included in the fee, and whether the preparer is authorized to represent you.