For many small businesses, you will be acutely aware of the financial year coming to an end in April. Tax preparation is essential for small businesses to be prepared for the year to come and be in the best possible position financially. As you begin to prepare your taxes, you might need to reach out to others to help, namely a tax preparer. So, what exactly is a tax preparer? What do they do? This article will help you to iron out any questions you might have, along with going into detail about the pros and cons so that you can decide what the best decision is for your business this upcoming fiscal year.
What does a tax preparer do?
Understandably, you will need to know, and probably want to know what it is that a tax preparer does. It can help you to work out whether or not it will be worth your time to employ one for your small business.
A tax preparer is an individual who is professionally qualified to calculate, file and sign income tax returns, on behalf of other businesses and individuals.
More than half of taxpayers hire a professional tax preparer when it’s time to file a tax return.
Essentially, a tax preparers job is to earn the trust of a client, as their responsibility is to prepare and finally submit an accurate income tax return to the Internal Revenue Service. If the preparer makes a mistake at any stage, the taxpayer can potentially incur fees and penalties. Tax preparers must do the following:
- Keep up to date with changing tax codes, which continuously change
- Have up to date knowledge of federal and state laws
For small businesses, a tax preparer can work with you to determine your annual income, exemptions, deductions, and expenses. It will include working out any acquisition loans or equipment loans, and will also take into account if you have taken out a commercial loan. Make sure you have considered interest rates on business loans, too.
To complete an income tax return, if you hire a tax preparer, they will collect and discuss the client’s current year financial information.
What information will this typically include:
- Income statements such as Form W-2
- Expense documents, such as receipts
- Names and social security numbers
Software will most likely be used in order to prepare income tax returns. Some may not use software, in which case, the IRS will provide forms that automatically calculates the data. However, software can be beneficial for tax preparers to use, because it will allow the tax preparer to search for tax-saving deductions or credits, and will ultimately try to eliminate the client’s tax.
Who will they usually work with?
They will typically work with those who have significant assets and business dealings. Essentially, they are tax specialists so are experienced with complex corporate matters, which can be a real help for small business owners, too, who need help ironing out their finances, no matter your situation. When working out sums of money owed and sorting out calculations to see whether you to get business loans to help see you through, a tax preparer can assist you.
So, what are the pros and cons of hiring a tax preparer?
Saves you time
A tax preparer can save you time, and that time can be invested elsewhere. The money and time saved by letting somebody else take the reigns can be put to better use in an area of your business you are more familiar with. A tax preparer will have the knowledge and skills to work quickly and efficiently to save you not only time but any confusion if you did it yourself.
Eases the process
Filing a tax return can be stressful, confusing and is a continually changing process. The federal tax code is adjusted each year which means it’s pretty much impossible for the average person to be aware of all the intricate changes. Some scenarios can complicate your tax return, especially if this is the first year of you being in business.
Can help to avoid mistakes
You can be diligent and take time filing your taxes, but we are all human, and mistakes can sometimes be made. Professional tax preparers use software that can double check the data and also prevent you from missing any errors.
Depending on how complex your tax return is, fees for hiring a tax preparer can be an expensive process. The average cost will start at around $100, and this will only increase the more complicated it becomes. Hourly fees can add up, as can costs caused by the complexity of each individual case.
When you chose a tax preparer, it’s essential to try and make sure they are registered with the Internal Revenue Service. You should also make sure they have suitable experience in preparing tax returns. You want to be able to trust and rely on the individual you hire, considering the personal information you will be sharing with them.
Requires serious planning
As should be expected, tax preparers are increasingly busy as the end of the financial year looms. What this means is that to find a professional who can give you their time, expertise and skills will require early communication so that they can prepare your tax return in time. It will mean you need to get on board with a tax preparer as early November of the previous year. This may seem excessive, but if you reach out to them in February, for example, you will likely find that they are booked up and unable to provide you with their services.
How do you find one?
There are many ways you can find a tax preparer. These include:
- A referral from your close circle of friends or colleagues
- Google/ directory listings
- The American Institute of Certified Public Accountants, where you can find a directory of CPAs who are also designated personal financial specialists
- National Association of Enrolled Agents
Make sure you do your research and compare so that you can get on board with the right individual for your small business.