In the olden days, the solutions for tax preparation were either a self-service platform like TurboTax or hiring a CPA to take care of your taxes for you.
As a small business owner, it’s important to understand the costs associated with hiring a CPA and how much of your back-office work they really take on. The tax code is daunting, complicated, and stressful, so it’s understandable that you’d want to hand off your spreadsheets and receipts to a professional. The question really is — which is the right professional service for your business?
This article will cover the costs associated with hiring a CPA firm and will address a few alternatives.
Factors affecting CPA costs
Several factors can influence the cost of CPA services for small business owners and solopreneurs. While prices may vary, it’s important to consider the following factors when estimating the overall cost:
Business structure and tax return complexity
The way your business is structured has a direct result on the complexity of your tax return. Whether you are a sole proprietorship, partnership, LLC, or corporation, the number of business owners, employees, amount of transactions, revenue streams, investments, operating states, and deductions and tax credits will contribute to a more complex tax return.
Some industries (like construction, trucking, or manufacturing) have industry-specific tax reporting methods, additional forms and schedules and tax adjustments that can impact the time spent preparing a return.
Bookkeeping and accounting needs
Most CPA firms only offer tax preparation services. If they do offer bookkeeping, you’ll likely incur the cost of these services at the higher firm-rate, contrary to paying a separate bookkeeping service to maintain your financial records.
Frequency of engagements
The frequency of engaging a CPA for services, such as monthly, quarterly, or annually, can affect the overall cost. Tax planning meetings, phone consultations or stand-alone projects (like amending an old tax return) will all be additional costs billed separately.
Hourly meetings and consultations are usually subject to the firm’s hourly bill rates and are paid in addition to the cost of the tax return deliverable.
CPA experience and expertise
The experience and expertise of the CPA will influence their hourly rate or flat fee. Highly experienced CPAs, with industry specific knowledge and insight may command higher fees due to their specialized experience.
The cost of CPA services can vary based on the geographic location of your business. Urban areas with a higher cost of living may have higher CPA rates compared to rural regions.
On average, the CPA fees for preparing a small business tax return can range from $500 to $2,500 or more. This range is influenced by various factors and only includes the cost of the actual tax preparation, without the back-office support like bookkeeping and payroll.
Most firms bill their clients in either of the following fee structures:
- Hourly Rates: Hourly rates can vary significantly based on seniority, industry specialization or expertise and size of the firm. Hourly rates can range from $100 to $500 or more, depending on the CPA’s qualifications and location.
- Flat Fees: In certain cases, CPAs may offer flat fees for specific services, such as tax return preparation or monthly bookkeeping. Flat fees provide more predictability and can be beneficial if you have a clear understanding of your requirements.
Alternatives to CPAs
The industry is making huge strides in providing small business owners with options to successfully run their businesses. Thankfully, the old-school CPA firm isn’t the only way anymore.
Here are a few alternatives to hiring a CPA if you feel like you need some extra support with your tax compliance and back-office work.
Hire an in-house accountant
Instead of outsourcing your accounting and tax functions, you can hire an in-house accountant.
- Dedicated support and familiarity with your business’s specific needs
- Easy access to financial information and ongoing collaboration
- Higher costs associated with hiring, salaries, benefits, and training
- Limited expertise and resources compared to a full CPA firm
Engaging a freelance accountant can be a cost-effective alternative to a CPA firm.
- Cost-effective option with specialized expertise tailored to your needs
- Flexible engagements and potential for personalized attention
- Reliance on an individual with potential availability constraints
- Limited scope of services compared to a full-service CPA firm
DIY with various softwares and subscriptions
There’s a wide range of cloud-based accounting software, payroll platforms and self-service formation providers that you can purchase a la carte.
- Control of software and apps you use
- Can be cost effective*
- You own responsibility for software set-up, tax preparation and bookkeeping maintenance
- Learning bookkeeping and payroll can be complicated and frustration
- Limited knowledge and expertise in current and changing tax laws; missed opportunities for deductions
*One thing to note is that while the DIY approach can appear attractive when you list out the cost of various subscriptions, consider the sunk cost of the DIY approach. You’ll lose billable hours on the time it takes you to do the work yourself. Consider how much your bill rate is and multiply the hours you’d spend figuring out how to tackle all your back-office needs to see if a DIY approach is right for you
An all-in-one tech-backed solution
With the ever-changing landscape in the tech space, companies like Collective can offer an solution that combines accounting expertise with the convenience of a digital experience. It’s an ideal option for small business owners and solopreneurs who prefer a seamless and integrated approach to their accounting, payroll, and tax needs.
- Comprehensive platform offering entity formation, bookkeeping, payroll, and business tax filing in one subscription.
- Streamlined processes and automation through technology, saving time and effort.
- Cost effective with a one-login experience
- Limited customization compared to hiring a dedicated CPA firm, subscriptions may be built for niche businesses
Importance of value
While cost is an important consideration, it’s equally important to prioritize value and quality when engaging a team to support your small business. Selecting the right firm or subscription that can offer you the right level of expertise, the right bundle of services and at the right price point can make all the difference in setting up your business for success.
Marissa Achanzar is part of the sales team at Collective and doubles as a content writer based in Roseville, California. After a successful seven-year-stint in public accounting, Marissa decided to pivot and put her tax compliance and client engagement experience to use by creating practical, people-first educational content.
Marissa is also the founder of Something Good Co., a non-profit that supports foster and at-risk youth in the Sacramento region. In her spare time, she enjoys exercise, trying out new recipes, dabbling on piano or guitar and won’t say no to a good TV/movie marathon. You can find her on LinkedIn or contact her at [email protected]