Are you asking yourself the question, “Do I need a CPA?” Or in other words, “Should I be having an accounting professional look over my financials and taxes?” The answer may be yes or it may be no. It all depends on your current business situation, the size of your investments, and your accounting competency. For many, a CPA can be really helpful. And in most cases, it can be well worth the cost!
What Is a CPA?
What is a CPA? What does CPA stand for?
A CPA is a Certified Public Accountant.
According to Investopedia, the below are key criteria for becoming a CPA:
- A certified public accountant (CPA) must meet education, work, and examination requirements—including holding a bachelor’s degree in business administration, finance, or accounting, and completing 150 hours of education.
- Other requirements for the CPA designation include having two or more years of public accounting experience and passing the Uniform CPA Exam.
- CPAs generally hold various positions in public and corporate accounting, as well as executive positions, such as the controller or chief financial officer (CFO).
What Does a CPA Do?
Alright. So a CPA is someone that knows about accounting principles, but what does that really mean? What does a CPA actually do?
Put more simply, a CPA is able to properly classify revenue, spend, capital, and taxation. And, they tie out accounts for you.
In other words, if you spend money or make money, they can help you account for it all and make sure everything is in the appropriate place.
So what’s the point? Why do you need a CPA?
Believe it or not, there is actually a bit of gray in accounting. And, if you move spend from one side of a gray area to another, it may help your financials. It could even reduce your tax liabilities!
An Example of When a CPA Can Be Helpful (Beyond just doing your taxes)
In your business, you might spend money and immediately count it as a capital spend, which means you’ll depreciate the spend over a number of years. However, let’s say you had an amazing revenue year…which means you’re in a high tax bracket.
Instead of capitalizing and depreciating an asset, perhaps you can expense your spend and take the hit all in the current year. That spend might reduce your profits enough to put you into the lower tax bracket and save you from paying a high tax rate this year.
Boom! A good CPA can save you money!
That’s just one reason why you might need a CPA. Check out all the reasons below for why simple investors might need a CPA!
Do I Need a CPA? Why Many Investors Need a CPA…
If you’re still scratching your head wondering, “Do I really need a CPA?”. If you’re not a business owner, but you’re an investor, the answer may be yes!
In prior posts, I have talked about many different investments because I know that investing in various assets is a great way to build wealth. I know that with a bit of educated trial and error, investing will likely yield a return, and often a large one over time.
One of the things that budding investors don’t consider is how their investments will change their tax liability. This can get them into some big trouble come tax season.
A good CPA is one of the best secret weapons that investors can have.
Investors often keep trained professionals at hand so they can pass along all their complex financial data for the CPA to make sense of.
When they ask, “Do I need a CPA?”, their answer is a resounding “yes!”.
What is your response?
Take a look at the advantages of having a CPA below. Once you understand the benefits, you can then answer the question of if you truly need a CPA or not.
1) CPAs Save You Time
Tax time is hard enough as it is. Hiring a CPA maximizes your time.
All you do is gather the documents relating to your finances and investments, and the CPA does the rest.
You may need to respond to inquiries, but some accountants provide quality service that includes completing all the filing on your behalf. For some people this can mean that upwards of 20 hours or more can be spent doing something more important or exciting than filling out and review your taxes.
Sounds like money well spent to me!
2) CPAs Save You Money
The old adage that says you have to spend money to make money is true here. You need to spend money to save money.
- Tax professionals like CPAs know the tax code.
- They are informed of changes and most tax software they use automatically provide updates.
- They know what items you can deduct and which ones you can’t as it relates to investments.
Even though a good CPA will cost you a bit, you’ll often make up for it in the reduced bill you end up owing the government in a tax return.
Did you know that if you don’t pay the government in taxes what you initially owed, they can come for not only that amount, but more in interest?
And the interest is based on how long ago you owed it.
That bill can be pretty painful, so it’s best to avoid costly mistakes as an investor and get a CPA instead. You can check out a CPA website in your area to find who specializes in working with investors. You’ll avoid costly mistakes especially if your accountant gives a guarantee.
4) CPAs Study How Your Business is Doing
Investors are running a small business.
When you’re new to it you may not realize that’s what you’re doing. But a great accountant will produce some important business documents that can tell you how you’re really doing.
These are the:
- income statement,
- the balance sheet,
- and the cash flow statement.
The income statement simply shows the overall profit and loss. The balance sheet will tell you how your business is fairing on a specific date. And the cash flow statement shows how much money you have coming and going at any given moment.
5) CPAs Ensure Compliance
When you’re investing, there are a lot of regulatory issues to consider. You probably don’t know all these regulations yet, so that’s why it’s best to use a professional accountant.
CPAs are held to high standards and are well-versed in all the regulatory statutes that impact investors.
If you don’t follow them correctly, it can become not only a financial issue but a legal issue as well.
(This is also where cases against people for insider trading come into play.)
6) CPAs Can Help You Make Big Changes
Investors are constantly on the move. A CPA will help you make changes big and small in your business to ensure you still grow and make a profit.
- CPAs offer valuable insight,
- can help you analyze financial data,
- verify all your assets,
- help you decide what to keep or sell,
- and they can also give you additional financial advice.
They are also available to assist you in planning for the future of your business to help you make financial decisions that will get you there.
Hiring a CPA is one of the most important financial decisions you can make as an investor.
While it’s important to make smart investments, it’s also critical to manage the financial health of your business with a knowledgeable and experienced accountant.
So when do you really need a CPA?
If you’re an investor and you have more schedules to file than just your 1040 and a few 1099s for interest-bearing account, then it’s probably smart to hire a CPA to do your taxes.
And, it would be wise to just have a conversation about your money once a year as well:
- What stage of life your family is in
- How much you earn and what tax bracket you’re in
- What other hobbies/businesses you have
- What you plan to do in the next 5-10 years
- And when you’re thinking about retiring!
All of the above topics are great conversation points to cover with a CPA once in a while! Just a few verbal sentences could end up saving you thousands of dollars! You never know!
Also, if you operate a business and accounting just isn’t your thing…then you almost certainly need a CPA to manage your books and file your taxes. Not only will it protect you from filing incorrectly, it will probably save you money in the end.
Related: How Freelancing Could Save Your Life
Is It Worth It To Have a CPA Do Your Taxes?
What does it cost for a CPA to do your taxes?
If you have a simple 1040 schedule and a couple other small things, expect to pay roughly $175 just for the Federal filing. If you also have State taxes to file, you’ll likely need to pay another $100 (for a total of $275).
If you own a business, have some rentals, have many paper investments…then you’ll likely pay $500-$600 for your taxes each year. Maybe even more. But, with more complexity comes more risk. Even though it’s more expensive, it probably still makes a ton of sense for a CPA to take on that risk for you.
Do I Need a CPA For My Small Business?
If you own a small business, you’re probably asking yourself that infamous question – the question that most tightwad small business owners ask themselves. And, like I stated before, the answer to the question of, “Do I need a CPA for my LLC?” …is “Probably!”
Unless you graduated with an accounting degree or you’re a CPA yourself, then it’s probably best if you have one. Thankfully, a good CPA doesn’t need to be all that expensive!
If I have actually convinced you that you likely need a CPA, your next question is no-doubt going to be something like, “How much does a CPA cost per month?”
Does getting a CPA need to be a full-time hire? Or can it be less involved?
Lucky for you, most companies really don’t need a full-time accounting professional. They just need someone to tie out all the spend at the end of the month, run some analysis on how the business is running, and maybe even take on the taxes each year!
How much does it cost for a part-time accountant to do all this?
According to AdvisoryHQ, it can cost between $75 to $175 a month for a CPA to tie out your bank accounts, provide you with reporting, and take the time to consult with you on the results. If you want them to provide tax services, that would obviously be more (based on the $500-$600 it costs to have a tax professional file your taxes each year, I suspect that this would cost an additional $50-$75 a month).
How to Find a CPA For Small Business?
If you have a small business, how do you go about finding a CPA?
The process of finding a CPA is actually pretty simple:
- Start with Google. Search, “Accounting firms in my area”
- Call up a few firms, explain to them what you need
- And then ask for a quote
Simply compare the quotes, look at some reviews for each of the firms, and get started with one!
Like I said, it’s not rocket science, and getting started can take just a couple of weeks!
So How About You? Do You Need a CPA?
Are you an investor?
Do you feel like you need help with your taxes?
Do you own and operate a small business?
If you answered “yes” to any of these questions, then you probably do need a CPA.
Thankfully, the cost isn’t all that much, and the value that they can provide could be HUGE!
And, if you get started and feel that the service just isn’t worth it, then you can always bring that work in house again!
What’s your take? Do you need a CPA? Why or why not?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.