The knowledge of a Certified Public Accountant (CPA) can be quite helpful when it comes to managing your money and ensuring you comply with intricate tax requirements. However, both people and corporations are frequently concerned about the cost of employing a CPA. This article delves into how My tax team affects a CPA’s fees and clarifies the value they add to your financial stability.
What is a CPA?
A CPA is different from an accountant. In fact, anyone who does any accounting function – even someone without a degree – can call themselves an accountant. A certified public accountant (CPA), however, is someone who has earned a professional designation through a combination of education, experience, and licensing. In addition to completing a program of study in accounting and acquiring professional work experience in public accounting, a CPA candidate also must sit for and pass the Uniform CPA Examination. The American Institute of CPAs (AICPA) develops and grades the exam itself. Licensing, however, is done by state, district, and county Boards of Accountancy. After licensing, the person may only use the designation and present themselves as a CPA.
What does a CPA do?
CPAs understand accounting, the language of business. This understanding enables CPAs to serve as trusted financial advisors who work with businesses, individuals, schools, and other organizations and assist them in reaching their goals and objectives. CPAs appear throughout the business and financial world, working in public accounting, business and industry, government, not-for-profit, and education. Regardless of size, every organization requires the skills, knowledge, and experience provided by CPAs via public accounting firms or working directly for the entity, e.g., Controller, CFO, or Senior Accountant. Public accountants provide services to a variety of individuals or businesses and can specialize in areas like tax or forensic accounting.
Some of the responsibilities are:
Overseeing financial records
- Preparing financial statements
- Creating, maintaining, and reviewing budgets
- Ensuring compliance with local, state, and federal tax requirements
- Strategic planning
- Cash management
- Monitoring and improving financial management systems
CPA vs. Accountant: Is There a Difference?
CPAs have completed the necessary levels of education, professional experience, and the CPA exam to be eligible for licensing. According to the AICPA (American Institute of Certified Public Accountants), earning the CPA designation has professional advantages such as greater trust, opportunity, and financial reward.
CPAs are acknowledged as professionals who are required to uphold higher standards, such as safeguarding the public interest, abiding by an ethics code, and completing ongoing continuing education requirements. Accountants sometimes get different respect than professionals.
As mentioned earlier, CPAs must pass the Uniform CPA exam.
The CPA exam requires you to demonstrate mastery of the following:
- Auditing & Attestation (AUD)
- Business Environment & Concepts (BEC)
- Financial Accounting & Reporting (FAR)
- Regulation (REG)
Most applicants decide to use a CPA review course to assist them in getting ready for the CPA exam. With tools meant to save you time and help you catch up quickly, Wiley offers the greatest CPA review course available.
How much should I expect to pay a CPA to help me?
It depends on what you want to accomplish and the size of your current portfolio or business.
Tax Preparation
My tax team will charge the typical landlord between $1,800 and $2,500 for tax preparation. If your portfolio is small, you’ll be closer to the $1,500–$1,800 level. If you have a sizable portfolio, you may frequently see bills that are greater than $3,000. The number of states that must be reported, as well as other sources of income, affect price.
Non-single member LLCs are required to file their tax returns independent of your tax return. The number of states, the number of partners, the quantity and amount of assets held, and commercial activities are all factors that determine price.
If your accounting could improve, you can expect to pay your CPA team extra to clean up your books and develop a presentable financial statement. Contrary to popular belief, accounting and tax preparation are two completely different services.
Accounting
The CPA charges for accounting services depend on the services you require. The lowest bookkeeping rates are offered due to the simplicity of the service. For the typical property, landlords can anticipate paying $200 per month per property. You may need much more than bookkeeping if you are managing a sizable landlord firm, flipping/developing properties, or syndicating deals. Most of our customers in this group spend money on virtual controller and CFO services.
A Virtual Controller will implement account controls, manage the bookkeeper(s), assist in cash flow management, and develop and deliver management and investor reports. An Outsourced CFO will help the management team with financial analytics, investor reporting, capital structure, and business planning. If you are running a syndication or a fund, we recommend budgeting 1.5-3% of your gross revenues as bookkeeper and controller fees. CFO fees will often run $180+ per hour.
My tax team sees syndications make huge mistakes when budgeting for accounting fees. We often see a budget containing only $800 for the entire year for all accounting and tax preparation services. This mistake will have horrible consequences if you can’t keep up with financial reporting on your own (because you will do it on your own with that budget). If there is one area you don’t want to skimp on when managing other people’s money, it’s your accounting fees.
We do a great job lowering accounting fees by outsourcing the data entry and bookkeeping, allowing our team to focus on Controller and CFO services for the client.
Tax Strategy & Planning
The rates that businesses charge for advising services vary greatly. While some businesses charge by the hour, others offer fixed monthly subscriptions. We experimented with the subscription model by giving a client a quote for a specified number of annual phone calls and then spreading out the cost over 12 months. Instead of providing the whole value upfront, which would have improved the customer experience, we provided a portion of it during each quarterly call. Although it wasn’t specified in the engagement letter, clients complained that they were paying us every month but not communicating with us every month.
Regardless, we changed our model. My tax team’s tax strategy engagements now last 12 months days and can cost as much as $10,000. We do not onboard anyone for tax strategy unless we can provide value over the cost of the engagement. That’s a bit different than other firms, but we are focused on maximizing value and experience as quickly as we can.
How much does a CPA cost per month?
Although CPA rates differ by area and level of experience, in 2020 and 2021, the hourly rate for tax services was, on average, $174. The cost of hiring a CPA for your small business often relies on how much work you need to be done and their hourly fee. Your honest accountant’s fees will be significantly influenced by the assistance you require. Fortunately, small firms rarely require a full-time CPA. The majority of people may manage by paying for CPA services on an as-needed basis throughout the year, such as at year-end, during tax season, and before important decisions.
Costs For Additional Services
Remember, the hourly cost of hiring a CPA depends significantly on the type of work you need them to do. As you might expect, the more complex and involved the work, the higher the hourly rate is likely to be.
As a simple example, it costs more for a CPA to complete your IRS Form 1040 if you itemize than it would if you were to take the standard deduction. In 2020, the average hourly rate was $161.34 for an itemized return and $153.74 for a non-itemized return.
Here’s what you can expect to pay per hour for the services above:
- Tax planning: $174
- Financial planning: $170
- Compilations, reviews, and audits: $164
Fortunately, there are some services that a public accounting firm won’t charge clients for if they’re paying for something else. For example, 58% of CPAs don’t charge a fee to file a tax return extension.
Because accounting fees vary significantly between providers, you should shop around before committing. Ask each CPA how they bill for services and try to get a quote for your expected needs.
Is Hiring A CPA Worth It?
Whether or not it makes sense to hire a CPA for your business depends primarily on the complexity of your financial situation. Here are some times when hiring one makes sense.
1. Your Tax Returns Are Complex
The more intricate your tax position becomes, the more probable that employing a CPA will benefit you. For instance, if you’re a lone proprietor with just one source of revenue and no investments, accounting software won’t be necessary.
However, you’ll probably need to engage a tax preparer if you own three businesses and four rental properties spread throughout different states.
2. You’re Considering Significant Financial Decisions
It’s best to consult a CPA first if you’re going to make a change that could substantially impact your taxes and financial condition. They can lead you through the procedure and discuss any potential consequences.
Ask a CPA for advice, for instance, if you’re thinking about moving to a different state, changing your legal status in a relationship, or bringing a partner into your firm.
3. You’re in Trouble with The IRS
Dealing with the IRS is a major headache, but having a good CPA makes it a lot easier. They can guide you through the interactions and serve as a middleman to take most of the work off your plate.
For example, hiring a CPA is a good idea if you have multiple delinquent returns or are undergoing an IRS audit.
4. You Need Assurance Services
If you need to verify that your financial statements are accurate so a third party can use them, you’ll need to hire a CPA. They’re the only ones authorized to issue an opinion on financial statements.
For example, if you want to take your company public, you must hire a CPA firm to audit your statements.
How can I lower the cost of preparing my tax return?
Although it may feel like the cost of your return is adding up, there are ways to lower the cost of working with a CPA firm to prepare your taxes.
Keep your books clean.
Your tax return may cost more if your books are a mess. You can eliminate that chance by keeping your books as organized as you can throughout the year. You may organize your records by balancing your accounts, making the necessary adjustments to your income statement and balance sheet, and using accounting software.
This simplifies filing your tax return because a CPA can see an exact and current reflection of your company’s revenues, liabilities, and other financial information. Your CPA will have to complete the work on your behalf and charge you if your books need to be more accurate and up to date. To keep your books organized throughout the year, your company probably has a bookkeeper you can work with.
Invest in strategic tax planning.
Making a higher-level tax strategy with a CPA throughout the year can make tax season much simpler. The CPA will already know your financial history, so you won’t have to pay for their time to explain it. To help you save the maximum money on taxes, tax strategy includes timing purchases, structuring your firm, choosing when to pay taxes, and more.
Making those choices all year can reduce the expense of your tax return in a few ways. One approach is to make you eligible for more credits and deductions than you otherwise would. Additionally, it will take less time and money for your CPA to process your tax return because they already know what to do with it.
Can a CPA firm help me save money?
Yes, a CPA can help you save money in the long run.
A CPA can assist you in claiming greater tax deductions and applying for credits you weren’t aware you were eligible for. You can save thousands of dollars by reducing your tax obligation, especially over a number of years. When filing your tax return, you can deduct certain expenses. Still, many small business owners fail to do so nearly as much as they ought to simply because they are unaware of all the available deductions.
Conclusion
The cost of employing a CPA varies widely depending on the services needed, the location, the complexity, and the competence. Considering this expense as an investment in your long-term success, compliance, and financial security is critical. You may make an informed choice that supports your financial objectives and assures a solid relationship for your financial success by carefully evaluating your needs, comparing costs, and taking my tax team CPA’s experience into account.