Here’s a look at what tax advisors are, what they cost, and if a tax advisor may be right for your small business.
What is a tax advisor?
A tax advisor is a financial professional with tax-specific expertise. These advisors, sometimes referred to as tax consultants, offer services to help individuals and businesses minimize tax liabilities and navigate complex tax situations like starting a new business or selling your old one.
If you’re looking to hire a tax advisor, find one with the proper credentials and experience for your specific tax advising needs. Tax experts focus on different areas, such as small business, estate, investment, retirement, or real estate taxes.
There is no specific tax advisor license. Tax advisors may also work as a Certified Public Accountant (CPA), tax attorney, enrolled agent, or financial advisor.
CPAs, Tax attorneys and enrolled agents are all Circular 230 personnel. Circular 230 is a hybrid document containing the rules, regulations, ethical/conduct provisions, and disciplinary procedures that apply to those who practice before the IRS.
Here’s a look at what each of those mean and what they are most likely to offer.
Certified Public Accountant (CPA)
A CPA is an accountant licensed by their state board of accountancy. The CPA exam is a 16-hour test focused on auditing and attestation, business environment and concepts, financial accounting and reporting, and regulation. Not all CPAs work with taxes, but those who do are likely qualified experts. CPAs may help you ensure your business is in compliance with tax regulations and maintains the latest accounting standards.
An enrolled agent is someone who has passed a three-part exam or has worked at the IRS in the past. This is the highest level of credential awarded by the IRS. Enrolled agents commonly help with tax planning, offer tax advice, prepare tax returns, and may represent you in an audit or other tax situation.
A tax attorney or tax lawyer specializes in working with taxes. Tax attorneys may help individuals or businesses manage federal, state, or local tax law issues.
A financial advisor is an expert in planning and managing a wide range of financial needs. Most financial advisors focus on investments and financial planning, though many offer additional services, such as tax advice and support. Small business financial advisors may also offer business-specific tax planning strategies and advice.
If you’re a small business owner, you’re probably best served by a business-focused tax expert. This may not be the same person or service who handles your personal taxes, so be sure to keep that in mind when looking for an advisor.
When should you hire a tax advisor?
Taxpayers can handle their own income tax returns when they are straightforward. For instance, an adult who has W2 income only, no assets other than a home, and who does not itemize deductions can probably DIY their tax return online.
If, however, you’re self-employed, run your own business, or own various assets, your taxes are likely more complex. A tax advisor could be a good investment.
Here are a few financial situations where hiring a tax advisor may be smart:
- You own a small business
- You don’t have enough time to do your taxes and research questions
- You own one or more rental properties
- You’ve made mistakes on prior year taxes
- You want an expert to help you legally reduce your tax bill
Of course, this isn’t an all-encompassing list. Personal and business taxes vary from household to household and business to business. A good tax advisor can help you understand where you may save on taxes and offer unique insights you likely wouldn’t find on your own.
What does a tax advisor do?
Tax advisors offer services ranging from a one-time consultation to full-service tax preparation to defending your tax return in an IRS audit. These are common tax services small business owners may want to take advantage of from a tax advisor.
Remember, not all tax advisors will offer all tax-related services—you should look for an advisor who will suit your needs.
Most people in the U.S. who are under the age of 65 and earn at least $12,550 in gross income have to file a personal tax return. All businesses except partnerships have to file a tax return. And even partnerships file a return—it’s called an information return instead of a tax return, but it’s all about taxable income. If you’re reading this, taxes are probably a reality for you.
Many common business situations can make your taxes more complex, such as growing the business, acquiring a business, taking on investors, or changing your business structure. Some situations call for one-time help, while others may create the need for ongoing professional tax advice. As your taxes become more complex, hiring a tax pro can save you time and improve the accuracy of your return.
A tax advisor might find significant financial savings for you compared to the result you can achieve handling your tax return yourself. This is true even if you have used tax preparation software in the past.
Help lower your tax payments
A tax advisor may find deductions and credits to lower your tax burden that you didn’t know existed.
The United States tax code is available in two books from the Government Printing Office. According to the Tax Foundation, those total roughly 2,700 pages and have an estimated word count similar to the entire Harry Potter series…but you’ll likely find the tax code far less engaging.
Most business owners want to focus on running a successful business, not learning the tax code. You can expect that expertise from a tax advisor because that’s their business.
Planning for taxes in retirement
Self-employed business owners have different retirement savings options than salaried employees. Because you likely don’t have a human resources department to pick and manage a 401(k) plan for you, for example, you can work with a tax advisor to choose the ideal combination of retirement and other financial accounts that can help you reach your long-term goals.
Learn more: Small Business Employee Benefits (An Employer’s Guide)
Managing major one-time events
Some life events, like marriage, divorce, or receiving a financial windfall, can have tax repercussions. Similarly, starting a business, closing a business, acquiring a business, or merging multiple firms can trigger one-time and ongoing tax changes. An experienced tax advisor can help you navigate the ins and outs of infrequent life and business changes that impact many taxpayers.
How much does a tax advisor cost?
Tax advising and preparation fees vary widely based on your needs and your preparer. As your business grows and your taxes become more complex, costs are likely to go up. According to the National Society of Accountants, you can expect to pay this much, on average, for common tax forms:
|Tax Form||Average Fee|
|Form 1040 - Not Itemized||$220|
|Form 1040 - Itemized||$323|
|Form 1065 (Partnership)||$733|
|Form 1120S (S Corporation)||$903|
|Form 1120 (Corporation)||$913|
|Form 940 (Federal Unemployment)||$78|
|Form 941 (Employer’s Quarterly Tax Return)||$96|
Of course, your tax advisor bill will depend on the services you need. You may pay flat rates for each form, hourly rates, or a combination.
Learn more: How Much Does a CPA Cost?
How Bench can help
If you’re looking for one-stop bookkeeping and tax support, Bench can help. Your Bench bookkeeper provides accurate and up-to-date monthly financials, offering you and your tax advisor the insights you need to make better budgeting, forecasting, and tax filing decisions.
Streamline your financial management with Bench’s tax-specific services. When you upgrade your monthly bookkeeping plan, you can take advantage of personalized tax expertise, including unlimited tax advisory, one-on-one tax strategy planning, and annual tax filings for your business. Learn more.
Is a tax advisor right for your business?
It’s hard to overstate the amount of money a good tax professional could potentially save you over the course of your life as a taxpayer—if you’re running a business or you have multiple assets, you can probably benefit from a tax advisor.
Many businesses recover the cost to hire a tax advisor in reduced tax liabilities (and then some) each year. That’s a huge potential win-win scenario for your business.