As the yearly stress associated with tax season rolls around yet again, many small businesses are not taking full advantage of the opportunities presented by hiring a bookkeeper for day to day financial operations and a tax professional to manage tax returns and tax planning. There are many reasons small businesses should hire a bookkeeper, and it’s also important to have a different person handle your taxes.
The Difference between a Bookkeeper, Enrolled Agent, and CPA
A bookkeeper is someone who is focused on the day to day financials of a business such as managing accounts payable and receivable, monitoring available cash, and running payroll. Depending on their level of experience and education, bookkeepers tend to be cheaper than an enrolled agent or a CPA.
An enrolled agent (EA) is someone who has been certified by the IRS to prepare taxes for individuals and businesses. They tend to cost more than a bookkeeper but less than a CPA.
A certified public accountant (CPA) is someone who has an undergraduate degree in accounting, has spent 1 to 2 years as an apprentice under another CPA, and has passed extensive testing to achieve their certification. Not all CPA’s are capable of handling your taxes as many spend their entire career focusing on performing audits.
When it comes to tax preparation and planning, a CPA well versed in taxes is typically the best choice for a business. CPA’s are also a great resource to use once or twice a year to assess the overall financial health of your business and to give strategic financial advice. On average, a CPA is about twice as expensive as a bookkeeper.
Do You Need a CPA or an EA?
If your business needs financial advice or a plan for how you are going to approach your tax liability going forward, a CPA is your best bet. If your business’s tax situation has remained the same as previous years, and you just need someone to prepare and file your return, then it might be worth going with a more cost-effective enrolled agent. Either way, make sure to determine your tax professional’s competency and that they are a good fit for working with your company.
The Benefits of Having Both a Bookkeeper and a Tax Professional
It will be much more effective for your business to have someone who handles day to day operations and someone else focused on your taxes. Whatever tax professional you decide to use to file your business’s tax return, they are going to need to look at your books. If your books aren’t accurate and up to date, the CPA or EA you hire will have to spend time organizing them before they can begin to prepare your return. This is not ideal, especially when you consider that a more expensive CPA or EA will be doing the tasks that could have been done by a bookkeeper at a much more reasonable rate.
It’s also a good idea to have both a tax professional and bookkeeper because it provides another set of eyes to look over your finances. When you deal with something on a daily basis as a bookkeeper does, tunnel vision can easily set in which makes it easy for the big picture to become obscured. This is why it’s important to have a fresh take every once in a while from somebody else. CPA’s are not only accustomed to giving tax advice but to providing financial advice as well, and their view of your business’s financial health might vary from your day to day bookkeeper.