Small Business Taxes & Management^TM--Copyright 2006, A/N Group, Inc.

Looking for a tax preparer or CPA? If your personal or business return is fairly simple and you don't require financial statements that have been signed by a CPA, you may only need a tax preparer. The advantage is that a non-CPA preparer will be cheaper. If you're looking for a preparer, here are some points to consider:

Be careful with tax preparers who claim they can obtain larger refunds than other preparers.

Avoid preparers who base their fee on a percentage of the amount of the refund.

Use a reputable tax professional who signs your tax return and provides you with a copy for your records.

Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.

Review your return before you sign it and ask questions on entries you don't understand.

No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.

Find out the person's credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.

Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received? Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.

There's more than one time in the life of a business that you may be faced with selecting a CPA. It may be at the start of the business, when the business has expanded in size or complexity beyond the capability of you or your bookkeeper to handle the work, or perhaps you're just dissatisfied with your current accountant. How do you pick a CPA? It's not as it was even 10 years ago. Accounting, taxes, computers, and a host of other issues have all become more complex. That means your CPA has to be sharper. It also means you'll probably rely on him more heavily.

Here are a number of points that should be useful in checking out a prospective CPA.

Is he competent in your business area? Does he have other clients in that same line? How many? There are many areas of taxes and accounting that require specialized knowledge. For example, accounting and taxes for a construction firm involves a number of special rules. Even in general retailing, a CPA who has several clients in this area will become familiar with your business more quickly. Obviously, the more at home the CPA is with your business, the more he can help you, not only with accounting and taxes, but general business issues. And there are more specialized tax rules than most people realize.

Type of service desired. If you're interested only in accounting services, there are three levels of financial statements CPAs can issue--a compilation, review, and an audit. Most CPAs will do compilations and reviews. Some, however, shy away from audits. The amount of work involved and the potential liability may be more than the CPA wants to undertake. Most small firms don't need audited financial statements, except if required by a bonding company, a bank or other lender, a government agency or other outside source. However, the larger your business becomes, the greater the chance audited statements will be needed. Make sure the firm can do the work.

Range of competency. Some accountants specialize in taxes, viewing accounting as a necessary evil. Others are crackerjack accountants, but may not be able to handle sophisticated tax issues. You need a firm that's competent in both areas. Moreover, most business owners rely on their accountants for a lot of other information--advice in buying or selling a business, valuing a business, pensions, general business issues, etc. The CPA chosen need not be a expert in all areas, but he should be able to wear more than two hats. A good CPA can be your primary source of outside advice.

Size of the firm. Generally, you don't want to be the firm's largest client, nor do you want to be one of the masses in a large firm. You should choose a firm where you're an important client. That can insure good service. The large national CPA firms have been aggressively pursuing small firms in recent years. They may not be a good choice. While they have the resources to deal with many questions, that can be expensive. More than likely you'll only deal with a partner occasionally. Finally, the staff of most large firms don't have the entrepreneurial expertise many small firms possess.

What's the makeup of the staff? If your business is small, a sole practitioner (no staff) may be all you need. However if your business is bigger or growing rapidly, you should check out the staff. How many of the employees are CPAs? Often, less than half will be. That's ok. However, there should be at least one non-partner CPA to every three or four accounting staff employees. If there are no non-partner CPAs, you'll pay partner rates for some work that may not require a partner's expertise. Also inquire as to how long employees have been with the firm. Turnover in the industry is usually high, but the average stay should be two years or more.

Number of partners. If your business is specialized and/or relatively large, a firm with more than one principal is preferable.

Years in public practice. Look for a CPA who has been in public practice for at least five years.

Age. You want someone with experience, but avoid a practitioner who is nearing retirement.

Rates. In most cases, you get what you pay for. A CPA who charges much lower rates than the competition is either adding hours or buying business. Don't forget, comparing services is difficult. That's not to say there aren't some true bargains, but they are difficult to find. The issue is somewhat different if your business is located in a more urban environment. If office rates, living expenses, salaries, etc. are high in the neighborhood of your business, consider using a CPA further out of town.

Bids and caps. If you want an audit or similar work done, you can put the job out to bid. The value of that approach is open to question. (We've heard of bids on the same job ranging from $2,000 to $6,000; something has go to be wrong with one or more of them.) The same can be said for an unreasonable cap. The CPA may agree to do the job a his hourly rate, with the cost not to exceed a certain amount. When there's a cost overrun, something will have to give; that could be the quality of the work, the failure of the accountant to bid your job again, etc. That's not to say you shouldn't price shop; just be reasonable.

Versed in computers. Even many old-time CPAs, while slow to react, have embraced computers. Make sure the firm you pick is well versed in this area. Your CPA can be a good source of advice on hardware, software, using computers in your business, etc. Moreover, a firm that uses computers extensively in accounting and tax work can save you money by reducing billing hours.

Check out the firm's library. Every practitioner today needs tax and accounting reference materials. A well-stocked library doesn't guarantee competency. An ill-equipped one does reflect poorly. (Checking out the library is now more difficult than in the past. Many reference sources are now on CD-ROM or on-line, so you may see few books.)

Check the firm's affiliations. Almost every firm will be a member of the AICPA (American Institute of Certified Public Accountants) and a member of a state society of CPA's. If the firm isn't a member of both, ask why.

Distance from office. All other factors being equal, choose a firm that's relatively close to your office. You'll get better service.

Ask for references. Talk to several current clients. Don't forget, you're buying expertise and service. Make sure you can get along with the CPA and that he or someone knowledgeable on staff is available to answer your questions.

The list above is not exhaustive, but should be a good guide. You may find that no firm meets all the requirements. If that's the case, make sure the critical ones are satisfied.

How do you find a CPA? Ask a business associate or inquire at your local Chamber of Commerce or your bank. You should be able to come up with some names. You might also try your state society of CPAs. We've got a link to all the state societies at www.smbiz.com/sbrl041.html. Many provide listings of local CPAs. If all else fails, you can just use the yellow pages. But if you pick a CPA at random, use more screening techniques to make sure it's a good fit.

--Last Update 03/06/06