Small Business Taxes: What Tax Preparation by a CPA Costs

Hiring a Certified Public Accountant (CPA) can offer numerous benefits for your small business. CPA services include business tax return preparation and filing assistance, tax planning, and other tax accounting solutions. 

When you hire a CPA for your small business taxes, you’ll save time on tedious paperwork and confusing forms. You can also achieve the following tax compliance benefits:

• Tax savings

• Improved accuracy and compliance

• Timeliness of tax filings

• IRS audit defense and ongoing assistance

• Proactive documentation in case of future audits

Your CPA can offer you peace of mind and monetary benefits, but how much do CPAs charge? Average CPA fees depend on the complexity of your business and the condition of your books and records. Certain other factors can impact CPA tax preparation service fees.

This article will explain how much you should expect to spend on CPA services for your small business taxes. 

Average Cost of Tax Preparation Services for a Small Business

CPA tax service fees vary depending on several factors. Small business tax return preparation costs can range from $500 to $2,500, with hourly rates averaging $150 to $500 or more.

Some CPA firms charge flat-rate fees, eliminating guesswork in tax service costs.

For example, 1-800Accountant offers small business tax return preparation. The budget-friendly package includes a dedicated team of accountants, a secure online portal, and business tax return preparation. Small business owners benefit from transparent pricing with no hidden charges or surprise fees.

Factors Affecting CPA Tax Preparation Fees

Complexity of Your Business Tax Return

The complexity of your small business tax return depends on your entity type, business activities, and compliance history.

For example, a sole proprietor reports business activity on IRS Form 1040 Schedule C. The sole proprietorship Schedule C is generally more straightforward than a C corp, S corp, or partnership tax return.

CPA tax preparation services generally include the following: 

• Compiling business income and expense activity

• Determining business tax deductions and credits

• Calculating federal taxable income and tax liability

• Preparing federal and state income tax return(s)

• Filing federal and state returns along with supporting schedules

CPA tax preparation services for a simple sole proprietorship return could cost approximately $200 to $800, depending on the status of the company’s bookkeeping and the CPA firm’s pricing structure.

Federal tax forms for C corporations and passthrough entities generally require additional effort. The entities must report ownership information, detailed tax deduction support, and balance sheet schedules (depending on size). C corps and passthroughs can expect to spend $1,000 to $2,000 or more for CPA tax preparation services.

Large, complex businesses may incur higher fees or require additional services. The following additional factors can increase return complexity: 

• Tax elections, such as an entity classification election or a fiscal tax year election

• Multiple or inconsistent income streams

• Numerous passthrough entity owners

• Complicated business transactions

• The volume of property and assets owned

• Foreign activity 

• Ongoing IRS audits

If your small business has one or more of the above, your CPA may charge additional fees for your business tax prep services. Complex sole proprietor returns could cost $1,000 to $1,500. C corps and passthrough entities with complicated business activities could spend $2,000 to $4,000 or more.

State of Your Business Bookkeeping

CPAs rely on up-to-date books and records when preparing income tax returns. Maintaining accurate bookkeeping helps lower your tax preparation costs. 

Business owners can take the following steps to prepare for tax season.

• Follow proper accounting principles.

• Keep copies of invoices sent to clients and customers.

• Maintain receipts from business purchases, especially high-cost items.

• Organize bank statements and tax forms received after year-end.

• Have information available for the entire tax year, not just a few months.

• Automate transactions or outsource bookkeeping services to industry professionals

You'll incur lower tax prep fees if you can provide your CPA with clean financial statements for your small business tax return preparation. 

Business owners who fail to maintain proper bookkeeping could incur $500 to $1,000 of additional costs, depending on the business's complexity and recordkeeping status.

CPA Fees: Flat Rate vs. Hourly Billing

Most CPAs bill clients using one of the following fee structures: 

• Flat fee: The CPA provides an up-front cost for each return or bundled service package. The CPA generally does not charge additional fees for spending extra time preparing returns. However, the business could incur additional charges for providing incorrect or incomplete information. Average flat fees range from $500 to $2,500 for small business tax return preparation.

• Hourly rate: The accounting firm charges per hour (or part of an hour) spent preparing tax returns. The CPA is responsible for tracking their time, billing appropriately, and proactively communicating unexpected hiccups. Businesses with simple returns and clean bookkeeping incur lower overall fees. Alternatively, higher complexity or disorganization increases the total cost of services. Average hourly rates range from $150 to $500.

• Retainer: The business pays the CPA a fixed fee for ongoing assistance, typically if year-round tax advisory is necessary. The firm establishes a set schedule or number of hours per month to assist the business with accounting and tax services. Retainer fee structures may benefit large companies with ongoing tax planning. Monthly retainer fees could range from $1,000 to $6,000 or more.

1-800Accountant offers year-round tax advisory for all business types — at rates that won’t break your budget. Consider consulting with tax experts for tax planning and return filing services. 

CPA Experience Level

Your CPA’s experience and specialization impact their hourly and total fees.

CPAs with more experience often charge higher fees for tax prep services. However, greater experience also leads to increased efficiencies and less time spent on research. Additionally, skilled CPAs can help you find more credits and deductions to lower your tax liability. You could spend less overall by working with an expert tax professional.

Your CPA’s experience level can significantly affect your tax preparation fees. For example, a newer CPA might charge $200 per hour, while a more tenured professional could charge $500 or more per hour (more than double the cost). 

Businesses with complex income streams or transactions could benefit from hiring a seasoned tax professional. However, sole proprietors and owners of simple companies likely find hiring a less experienced CPA or accountant more efficient.

CPA Firm Location

Your CPA’s location can affect your business tax preparation costs.

CPAs practicing in areas with higher costs of living generally charge higher fees because they need to cover higher expenses of rent, employment, taxes, and other business inputs. 

Conversely, CPAs or practices in areas with a lower cost of living have lower overhead expenses and can charge lower fees.

Location is often a less significant factor in CPA tax preparation service fees but generally impacts smaller practices. Larger CPA firms or national providers like 1-800Accountant can offer consistent budget-friendly pricing for customers in all geographic locations.

Timing of Correspondence

CPAs manage high client loads during tax season and can sometimes offer lower-priced services to clients who submit tax return information early. 

As the tax deadline approaches, CPAs have more returns to manage and charge higher rates. Many accounting firms add price increases for return prep if clients fail to submit their information on time.

Additionally, if your CPA asks questions or needs more information, quick and thorough responses will help avoid delays and additional costs. 

Small business owners can save hundreds of dollars by preparing early for tax season. Many CPA firms add a surcharge of up to 20% of the tax prep fees for providing information at the last minute.

Additional Tax and Accounting Services

CPA firms generally offer numerous business tax and accounting services beyond tax return preparation. For example, freelancers and self-employed taxpayers can benefit from individual tax return preparation and quarterly estimated payment services. 

Consider the following list of CPA service offerings:

• Personal tax returns for business owners

• Tax advice and consulting

• Financial planning

• Business accounting and bookkeeping 

• State tax form preparation and state return filing

• Quarterly estimated tax payments

• Audit defense

Depending on your CPA’s fee structure, additional services could represent add-on charges or require a separate contract. Entrepreneurs can save money on professional services by bundling business and personal tax returns or adding on quarterly estimated tax calculations.

Prices for CPA services vary depending on the technical expertise required. For example, individual tax return prep could cost an additional $200 to $500 or more, depending on the complexity of the person’s taxes. Ongoing tax consulting and financial planning range from $2,000 to $10,000 or more per year.

1-800Accountant offers cost-efficient accounting services to fit your business needs. For example, the Core Accounting package costs $249 per month. Core Accounting includes business tax return preparation, bookkeeping and accounting software, year-round tax advice, and more.

CPA vs. Accountant: Which One Does Your Small Business Need?

Business owners needing limited tax support could save money by hiring an accountant instead of a CPA.

Certified Public Accountants often earn advanced degrees and complete rigorous exams to earn a CPA license. Licensed professionals can sign returns and speak to the IRS on your behalf. Accordingly, CPAs generally charge higher fees than accountants charge.

Hiring a CPA makes sense for businesses needing assistance with tax laws, complex returns, or IRS audit assistance.

Accountants and CPAs can perform many of the same responsibilities. However, accountants without a CPA license cannot discuss your return with the IRS. Hiring an accountant could benefit businesses with simple returns and minimal complexity.

Save Money on Small Business Tax Preparation and Filing Services with 1-800Accountant

1-800Accountant offers business tax preparation and a range of accounting, bookkeeping, and advisory services.

Your small business can choose from multiple budget-friendly packages, depending on your needs. 1-800Accountant provides personal income tax preparation and filing, quarterly estimate support, and year-round advisory.

Hiring tax experts can help your business improve tax compliance, maximize deductions, and lower its tax liability. Schedule a call with 1-800Accountant for small business tax preparation services.