What a small business should look for in a professional tax preparer

By Reed Richardson


Despite the seeming ubiquity of tax-prep software like TurboTax, using a paid professional remains the most popular form of tax preparation-roughly six in ten Americans are expected to use a local accounting firm or a nationwide franchise like H&R Block to prepare their individual tax returns this year. That number is even higher for businesses. For most, the choice to use a tax preparer is one based on convenience and peace of mind. Just as you wouldn't try to perform a root canal or bring a lawsuit by yourself, many entrepreneurs feel the same analogy applies to doing their taxes-let the pros handle it.


"If you have rental property or get a Schedule K-1 because of a business partnership or own a second home, it would probably pay to have a tax pro or C.P.A.," advises Tom Ochsenschlager, vice president of the American Institute of Certified Public Accountant's (AICPA) taxation division. Additionally, he suggests that anytime you experience what he calls a "major lifestyle change"-get married, move, have a child, get divorced, start a business-it is probably a good year to consider having a professional handle all your taxes. "They are going to suggest ways to structure your finances and minimize your taxes, such as setting up a 529 college savings plan for a new baby, that you're just not going to get to from a software program," he says.


Another reason to consider a tax preparer for 2009 specifically, involves the host of tax law changes that have occurred this past year. "The tax code becomes more complex every year-especially this year with so many new tax credits and other rules as the federal government attempts to provide some taxpayers with relief during the economic downturn," notes National Society of Accountants president Robert Cross. With all these constant changes and new provisions, Cross explains that it pays to have a professional tracking all the potential tax breaks for which you may qualify. "Even one extra deduction or tax credit can more than cover the fee paid to a professional tax preparer."


But what's the best way to find a reputable tax preparer? "Word of mouth," answers the AICPA's Ochsenschlager. "Talk to friends to see what their experiences have been like, or failing that, try contacting your state C.P.A. society to get some referrals." He adds that, if you are thinking about hiring an accountant, most C.P.A.s should agree to an initial interview free of charge so you can get a sense of whether or not their expertise matches your particular tax situation. " You'll get a real feel for what they know very quickly just by the questions they ask you," he says. "But, in the end, it comes down to comfort level. After all, if they prepare your taxes, they're going to find out a lot about you so you have to pick someone you're comfortable with." (To find a nearby C.P.A. or tax preparer, see the online search tools at the end of this article.)


So just how much can a small business owner expect in the way of costs if they choose to go with a tax professional? According to a biennial survey just completed by Cross's NSA this past December, the average fee charged by a C.P.A. to prepare a business tax return (1065, 1120, or 1120S) for the 2009 tax year will be between $142 and $148 an hour. According to the survey, most small business returns take four to five hours to complete, making the average total cost of preparing a 1065, 1120S, and 1120 tax return this year approximately $551, $665, and $692, respectively. These costs are relatively unchanged from what the same survey found in 2007.


And while tax professionals are typically the most expensive option for a small business owner, many feel it's the costs you don't see that make them worth it. Claiming a highly dubious deduction and risking an expensive audit, for example, is a trap that a C.P.A. is unlikely to fall into. "C.P.A.s have to go through 40 hours of continuing education every year," Ochenschlager points out, "and they also don't want be breaching the industry's ethical rules and earning a poor reputation with the IRS because that jeopardizes their livelihoods."


Tip: If you do end up using a storefront tax preparation service like Jackson-Hewitt or H&R Block rather than an accountant, you might consider requesting that your preparer be an "enrolled agent." They may cost a bit more, but they will have passed rigorous IRS exams and can represent you in the event you get audited later.



Try these online search tools o find an accountant or professional tax preparer: http://www.nsacct.org/professional.asp



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