Why all Small Businesses Need a CPA

By SurfYourName   |    With 7 Comments    |     Tags:

Every business, no matter how small, needs a financial and tax advisor. But your business needs a Certified Public Accountant (CPA) , not just an accountant.

CPA vs. Accountant
“Accountant” is a general term, referring to financial and tax professionals who follow specific rules and regulations, including Generally Accepted Accounting Principles (GAAP), which are rules and standards set forth by the Financial Accounting Standards Board (FASB).

CPAs are accountants who have passed a licensing examination in a state. So, you could say that all CPAs are accountants, but not all accountants are CPAs.

Many small businesses use the services of an accountant, and there are many competent accountants serving small companies. For a very small business, an accountant may fill some of the accounting needs, but there are specific circumstances in which using the services of a CPA has advantages.

Advantages of a CPA for Your Business
Even if you have a very small business or a single-person business, you probably need the services of a CPA, for several reasons:

CPAs are licensed; accountants are not
A CPA is licensed by a state, and must keep current with tax laws in order to maintain a license in that state. Accountants aren’t licensed. The CPA exam is a rigorous process over several days, including many facets of financial and tax expertise.

After they are licensed, CPAs also must comply with continuing education requirements in order to maintain their licenses; accountants don’t have this requirement. You can learn more about the standards that CPAs must follow by checking out the CPA professional organization, the American Institute of CPAs (AICPA).

CPAs are more familiar with tax laws
While not all CPAs specialize in small business taxes, almost all CPAs are more familiar with tax laws than are accountants. Knowledge of the tax code is a big part of a CPA’s licensing exam and many CPAs take tax courses every year to keep up to date on the Tax Code. An accountant also may be able to prepare and sign tax returns, but the designation of “accountant” does not provide assurance of certification, nor does it give the accountant the ability to represent you before the IRS, even if this person has signed your tax return. Accountants are classified by the IRS as “unenrolled preparers.”

The IRS requires all tax preparers to have a preparer tax identification number. and the IRS distinguishes between preparers who are enrolled agents, CPAs, or attorneys, and other preparers (considered unenrolled preparers. Accountants who are not CPAs are considered unenrolled preparers. An unenrolled preparer’s ability to represent a client in a tax matter before the IRS is very limited.

Read more from the IRS on Understanding Tax Return Preparer Credentials and Qualifications

CPAs do financial analysis
Bookkeepers perform routine tasks of records input (input of business income and expenses into a financial software program, for example); accountants review this input and prepare and analyze the financial reports (balance sheet and P&L).

CPAs do more detailed and thorough analysis and they advise on tax and financial matters. Although the designation of “CPA” doesn’t mean this individual is giving you the best advice, a CPA is more prepared and puts his or her license on the line by giving tax and financial advice.

A CPA can support you in an IRS audit
Probably the biggest reason to use a CPA for your business taxes is that a CPA is eligible to represent you before the IRS in an audit, while an accountant is not. As noted above, accountants who are not CPAs can only represent clients in a very limited manner. (Enrolled agents may also represent you with the IRS.) If you are paying to have a professional do your tax preparation, make sure this person has full authority to represent you in an audit and to execute claims on your behalf.

In other words, accountants do the routine work and they can complete tax returns, while CPAs can analyze the work, represent you at a tax audit, and help you make more high-level business and tax decisions. Sure, CPAs charge more, but you get what you pay for.

Working with CPAs:
Find a CPA firm that includes a bookkeeper and accountant. Then you can separate the more routine financial jobs from the tax and financial analysis done by the CPA. Or hire a bookkeeper for those monthly, quarterly and yearly financial reports, then periodically consult with your CPA and have your CPA do your business taxes. You can also ask that the CPA review and sign off on your tax return that may have been prepared by an accountant working under the CPAs direction.


7 Comments On This Post

  1. Rosie Beckett

    It is good to know that Certified Public Accountants have passed a licensing exam in their state because this is a good indication that they will be qualified and knowledgeable to help with my taxes. My husband and I will be paying our taxes together for the first time this year and neither of us knows much about it, so that fact that a CPA knows all every detail about the tax laws would definitely give us peace of mind. Also, I think that hiring a CPA would help us to save money in the long run because we will get a bigger tax return.

  2. Tim Yaotome

    I never thought that hiring a CPA can give a business owner helpful advice when it comes to finances and taxes. Reading this convinced me to find one for my grandfather, who wants to put up an online antique swapping business. With that, what should we look out for when looking for one? Thanks!

  3. Ridley Fitzgerald

    I can see why hiring a CPA is a good idea. I like how you said that these professionals are licensed by the state and have that experience. Knowing that, I almost think it’d be a good idea to have one for myself and my family!

  4. Bree Ward

    It’s true that all types of business should hire an accountant to effectively manage their financial operation. Thanks for providing the advantages of hiring one. If ever that I will put up my own business, I will make sure to hire an accountant to ensure the expert flow of financial management.

  5. Sam Li

    I appreciate what you said about tax knowledge of the tax code and how this is an important aspect of a CPA’s licensing exam. Working with a tax accountant is a simple way to boost the overall amount of your tax return. If I were to hire a tax accountant, I would first do some research online in order to find the best one for me.

  6. Millie Hue

    Thanks for pointing out that we must make sure that the person we will be hiring is someone who is authorized to represent us in an audit and get claims for us. I will share this tip with my partner so that we can hire the right person. This will be for the business that we dream of opening in the next few months after we have been approved with the loan that we are applying for to have the capital for it.

  7. Franklin White

    It’s good to know that CPAs have to stay up to date on state tax laws. Small businesses shouldn’t have to worry too much about these laws, in my opinion. They should hire CPAs to help them manage everything so they can focus on promoting their businesses.

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