Business owners must file taxes yearly, and hiring a CPA can be a cost-effective solution to avoid the year-end tax filing scramble.
However, the cost of hiring a CPA can vary. It’s worth reviewing the factors that affect the cost of hiring a CPA to determine whether it’s worth it to hire a CPA for your business taxes.
How Much Does It Cost to Hire a CPA to Prepare Business Taxes?
There is no one-size-fits-all answer to this question, as the cost of hiring a CPA to prepare business taxes will vary depending on the business structure and the specific circumstances of the business in question. However, as a general rule of thumb, businesses can expect to pay between $200 and $3,000 for professional tax preparation services.
The range of $200 to $3,000 is a large one. Additionally, it’s essential to note that businesses will typically be responsible for any necessary taxes and fees associated with their tax return, regardless of whether they hire a CPA or handle the preparation themselves. So, how can you determine where your costs will fall in this range?
According to survey results from the National Society of Accountants, the average cost to hire a CPA to prepare an individual taxpayer form (Form 1040) and a state return without any itemized deductions added on is around $220. Adding itemized deductions brings that average total to $323.
Now, these costs are associated with filing personal taxes. As a business owner, you should prepare to pay more than this since you’ll need more tax preparation work done. The same publication shows filing Form 1065 for a partnership averaged $733, while an S corporation paid $903 to file Form 1120S and a corporation paid $913 for Form 1120.
A small business may not spend more than a couple hundred dollars on tax prep, but as they grow, that cost could increase well past $1,000, inching closer to the top end of the range listed above.
Factors That Affect The Cost to Hire a CPA
Several factors can affect the cost of hiring a CPA to prepare business taxes. These include:
Size and Complexity of the Business
Businesses with more employees, locations, and/or revenue will require more work to prepare their taxes than smaller businesses—the larger the entity, the more information the CPA needs to calculate.
As a result, businesses with more complex tax situations can expect to pay more for professional tax preparation services.
The business structure relates to its tax filing status, which also affects the cost of hiring a CPA.
For example, businesses with multiple owners or incorporated entities will have more complex tax situations than sole proprietorships. Additionally, businesses with employees can expect to pay more for tax preparation services than businesses without employees.
CPA Experience and Qualifications
Some CPAs have more experience in business tax filing, and some specialize in specific areas of tax law. As a result, businesses should expect to pay more for the services of a more experienced and qualified CPA with these specializations.
You might pay more, but hiring a specialist is worth it. They know the ins and tax advantages that you can use more than people who only have a general understanding of tax law.
You can ask your CPA about their credentials and qualifications to evaluate whether their fees make sense relative to their experience level.
Location of the CPA
This one is pretty self-explanatory. Businesses located in major metropolitan areas will likely pay more for professional tax preparation services than businesses located in more rural areas.
CPAs in major metropolitan areas tend to charge higher rates than those in other areas due to the increased cost of living.
Today, some CPAs work remotely, so they may be able to help you prepare your business taxes from somewhere else, even if you are in a metropolitan area.
The Time of Year
The time of year can also affect the cost of hiring a CPA to prepare business taxes. CPAs are generally the busiest during tax season, which runs from January 1 through April 15.
Businesses that need to have their taxes prepared during this period can expect to pay more than businesses that need their taxes done outside of tax season, such as for quarterly estimated taxes.
You should expect that your costs for estimated taxes will be less than the costs to file your taxes at the beginning of the year.
A CPA’s rate structure will impact how much you pay for professional tax preparation services. Some CPAs charge by the hour while others charge a flat fee, but charging per tax form is also extremely common.
The type of rate structure that a CPA uses will likely depend on the size and complexity of your business and their preferences.
Generally speaking, businesses with more complex tax situations will pay by the hour, while businesses with more straightforward tax situations will pay a flat fee. Businesses with more complex tax situations require more work; thus, CPAs should receive adequate compensation for their time. In these cases, however, they usually start with a flat fee and tack on additional hourly charges beyond that, depending on the time it takes to complete.
According to the NSA survey for 2020/21, most CPAs (37.8%) charge per form. Under that, 26.8% report charging a fixed fee for tax prep services. Then, 23.6% charge a fixed and hourly fee together, with just 7% charging hourly and 4.8% using another rate structure.
There are several other services you may want to tack on to your business tax preparation and filing services, such as a retainer for assistance in the case of an IRS audit, extension filing fees, and more. If you expect these premium services, you should also expect a premium cost.
Is Hiring a CPA to Do Business Taxes Worth It?
For many business owners, the answer is yes. Hiring a CPA to do your business taxes can save time, money, and stress.
A CPA can help you maximize your deductions, ensure you’re filing correctly, and save you from making costly mistakes. In addition, a CPA can provide valuable advice on financial planning, tax preparation, and more so that you can save in the coming year.
While the cost of hiring a CPA to do your business taxes may seem like a significant expense, it is often worth the investment. Business owners navigate a much more complex tax landscape than individual taxpayers. Hiring a professional CPA is almost always worth it to reduce the risk of an IRS audit while ensuring you’re filing correctly.
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A small business without many challenging tax dynamics can cost just a couple hundred dollars, while taxes for a large and more complex business may cost upwards of $1,000 or more. But these costs are worth it to plan for your financial security.
If you need a CPA specializing in business tax filing, call MI Tax CPA. Our experts will work to find every deduction for your business and help you save.