A small-business checklist for choosing a CPA

A small-business CPA is a hire for a specific entity, a set of books, and a return someone will sign. The checklist below is how to see whether a listing matches that work. It does not tell you which election to make.

This is educational information about how to hire, not tax advice. It does not tell you what to file, what you owe, or how to answer the IRS. Reading it does not create a client relationship with CPA Seek or with any CPA in the directory.

Name the entity the IRS already sees

Start with the federal classification, not the word on the door. The IRS explains business structures and LLC classification on limited liability companies and business structures. An LLC that elects a classification, or changes one, uses Form 8832. A corporation or other eligible entity that elects S corporation status uses Form 2553. Those are different filings. How to choose a CPA for an S corporation or LLC walks through the hiring conversation once you know which one you have.

An EIN is the federal tax ID. The IRS says you can get an EIN for free directly from the IRS, and that an LLC, a partnership, a corporation, and other entities need one. Apply on the EIN page. If someone offers to sell you the number, you do not need that service to get it from the IRS.

Bring the last return that was actually filed, the state formation document, and any election the IRS accepted. A CPA who will not look at those before quoting is quoting a blank page.

Books, records, and how long they last

The return is only as good as the records behind it. The IRS recordkeeping page says you must keep records as long as needed to prove the income or deductions on a return, and that employment tax records should be kept at least four years. Publication 583 is the IRS starting point for starting a business and keeping records. On IRS audits, the IRS says the law requires you to keep the records you used to prepare the return for at least three years from the date the return was filed.

Ask the CPA which of these they are being hired to do:

• Catch up a year that was never closed.
• Keep a monthly close from here forward.
• Take a file you already closed and prepare the return.
• Run payroll and the deposits that go with it.

Bookkeeping, payroll, and the business return can be one firm. They are still three scopes. How much a CPA costs for taxes is about comparing those scopes. It is not a price list. The IRS does not publish one.

Owner pay, when the entity is an S corporation

If the company is an S corporation, compensation is part of the hire. The IRS page on S corporation compensation and medical insurance says S corporations must pay reasonable compensation to a shareholder-employee for services before non-wage distributions may be made. The instructions to Form 1120-S, as the IRS quotes them there, say distributions and other payments to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services. The IRS says it can reclassify non-wage distributions as wages.

That page does not publish a salary table. A CPA should be willing to say which facts they would look at, including whether receipts come from the shareholder’s services, from other people, or from capital and equipment. A directory cannot answer that for your company. S corporations is the IRS overview of the return itself, Form 1120-S.

Estimated tax and the annual return

Owners who do not have an employer withholding tax often pay through the year. The IRS estimated taxes page says individuals, including sole proprietors, partners, and S corporation shareholders, generally use Form 1040-ES, and that the year is divided into four payment periods. Missing a due date can bring a penalty even when the annual return later shows a refund. About Form 1040-ES is the form page.

Ask whether the engagement includes those calculations or only the annual return. Year-end questions before December 31 is a separate list for timing. It is not a substitute for the IRS worksheet.

A sole proprietor reports business income on Schedule C. The IRS self-employed tax center explains that net profit becomes part of the individual return and that Schedule SE is how self-employment tax is reported. If that is you, the crypto and self-employed note is the other checklist: finding a CPA for crypto or self-employed taxes.

Questions for the first call

• Which return will you sign, and which returns will you not?
• Will you close the books, or am I bringing a closed file?
• Who files payroll deposits, and in which states?
• If we are an S corporation, how will you support owner compensation?
• If the IRS sends a notice later, is that included?
• What do you need from me before you can name a fee?

A useful answer names a form, a state, and a limit. “We do everything” is not a limit.

Where to look

Small business is the specialty filter. S corporation and LLC is the narrower one. Bookkeeping and payroll are the monthly work, when that is the actual hire.

City pages: Houston, Dallas, Chicago, Phoenix, and New York. State pages: Texas, Illinois, Arizona, and New York. Find a CPA when you want a radius. Read the services on the profile before you send a year of records.