Do You Need an Accountant for Your LLC?

Most small business owners eventually question whether they need an accountant for their limited liability companies (LLCs). Many owners address this financial work early on as a cost-saving measure, but as calculations become more complex and tasks take longer to complete, the value of professional support becomes more apparent.

Use this guide to gain a better understanding of what an accountant can do for your LLC, timing considerations, and what to look for in the professional you'll partner with. By the end, you'll have the information and insight you need to select your small business accountant with confidence.

Do LLCs Need Accountants?

Hiring an accountant or certified public accountant (CPA) is not required for any entity or status, but almost every successful business in America uses an accountant or team. The do-it-yourself accounting software or free mobile applications that were fine to use in the beginning no longer meet their needs. So, generally, yes, growing LLCs need accountants and CPAs.

Accountants and CPAs are financial experts who prepare and file tax returns and identify valuable deductions that reduce your taxable income and overall liability. They produce financial reports to help you better understand your LLC's profitability, cash flow, and financial path. Owners often work with accountants to gain a more granular understanding of their business finances, alongside a high-level view for tax planning, forecasting, and year-round advice.

Your LLC might use an accountant or CPA for the following functions:

• Analyzing financial information. Your accountant or CPA reviews your income statements, balance sheets, and cash flow to identify trends, strategic cost-saving opportunities, and areas of improvement.

• Financial modeling. They create projections, such as a cash flow forecast, to help you make informed decisions about future investments, long-term growth, or potential risks.

• Tax preparation and filing. Your accountant ensures your LLC maintains IRS tax compliance by filing accurate federal and state tax returns by each deadline.

• Financial advisory. Your CPA or accountant provides year-round strategic guidance for tax planning, business entity structure, and financial management.

• Preparing financial statements. Your tax professional or team will generate accurate profit and loss statements, among other GAAP-compliant documents, to provide a clear picture of your LLC's financial health to any stakeholders, lenders, or investors.

When to Hire an Accountant for your LLC

The early decisions you make about business structure and bookkeeping setup have long-term tax consequences, making timing critical. It's best to hire an accountant as soon as you launch, not after your business's first tax season, but that's not always possible. Some owners hold back due to a lack of budget, while others may take a wait-and-see approach because of the likelihood of new business failure. Roughly 20% to 25% of new businesses fail within two years of launch, with nearly half failing during the first five years of operation.

Signs that it might be time to hire an accountant for your LLC include:

• You own a multi-member LLC. Managing partnership allocations and separate member capital accounts is complex and requires specialized knowledge for the best results. An accountant ensures accurate tax reporting for every partner.

• You cover health insurance premiums for your employees. Providing employee benefits introduces complex tax reporting requirements and strict compliance regulations. A professional helps manage your payroll taxes and deduction eligibility.

• You recently altered your business tax classification. Switching from a sole proprietorship to an LLC increases your obligations. An accountant ensures you take advantage of any new benefits while ensuring year-round compliance.

• Your LLC earns $75,000 to $100,000 annually. At this revenue level, the potential to reduce your taxable income with tax deductions often outweighs the cost of professional tax services, which are also deductible. An accountant helps maximize these deductions, ensuring you keep more of what you earn.

• You’re upgrading to new bookkeeping systems. Migrating to software like QuickBooks requires an accurate setup to ensure financial data is properly tracked and reported. A tax expert ensures integrations are correct, providing a smooth transition.

• You have concerns about maintaining strict financial records. If your records are fragmented or you struggle to reconcile accounts regularly, your financials will be in disarray. An accountant organizes your books, providing clarity for taxes and difficult business decisions.

Steps for Hiring an Accountant for Your LLC

A couple of steps are required to identify the accountant that's right for your LLC. If you're not sure where to start, review the following steps and incorporate them into your search.

1. Identify your accounting needs. What are your LLC's financial pain points? Identify accountants who can cater to your business's unique requirements, while ensuring they cover the basics.

2. Do research. Seek word of mouth from other LLC owners in your region and read reviews to help find reputable accounting candidates familiar with the potential peculiarities of doing taxes in your state and industry. A traditional generalist may be able to handle some of the work, but you should favor full-service support tailored to your business.

3. Book consultations. Identify top small business accounting candidates and promptly book consultations. Be sure to have materials along with plenty of questions. Unsure how to prepare for your consultation? Use this guide to help get you ready.

Once you've selected the best accountant for your LLC, there will be an onboarding and setup process that helps ensure your ongoing accounting needs are met. Once complete, your accountant will deliver ongoing tax support and strategic advice throughout the year.

Benefits of Having an Accountant for an LLC

Using an accountant will help unlock numerous benefits for your LLC, including:

• Maximize deductions, including home office, vehicle, and health insurance costs. Strategic deduction selections reduce your taxable income and overall tax liability.

• Quarterly estimated tax calculations and submissions. If you expect to owe $1,000 or more in taxes for the year, your accountant will calculate and submit quarterly estimated tax payments in April, June, September, and January. Accurate and on-time submissions help your LLC avoid costly IRS penalties.

• S corporation election analysis. In terms of taxation, there's no difference between operating as a single-member LLC and a sole proprietorship. Real tax savings can be achieved by electing S corp status, particularly for the 15.3% self-employment tax that funds Social Security and Medicare. When you operate as an S corp, you can split your income into a "reasonable" salary that is subject to self-employment tax and distributions, which aren't.

• Year-round tax and financial planning vs. one-time filing. Your accountant can prepare and file your taxes at tax time and manage cash flow, minimize tax liability, and adjust strategy through year-round tax planning. This is particularly valuable when market conditions change suddenly or if you've experienced a rocky quarter.

• Financial reporting for long-term business growth decisions. Your accountant supports your long-term decisions with cash flow forecasts, income statements, and balance sheets that empower you to make difficult business decisions throughout the year.

These benefits help your LLC stay compliant while giving you the financial clarity you need to grow. Your accountant also keeps up on the latest changes to tax law that can impact your state and industry. But perhaps the most popular benefit is a minimal tax burden, allowing you to keep more of your income.

What Type of Accountant Is Best for Small Businesses?

Many CPAs and accountants are generalists who can serve the needs of a diverse range of clients, while others, including small business specialists, are more narrowly focused. When reviewing prospects, keep in mind that industry familiarity is important.

The best accountant for your LLC is experienced in serving the needs of owners like you, not LLCs in entirely unrelated industries. Your accountant will minimize your financial tasks while maximizing tax savings throughout the year, along with providing the financial services and expertise required for long-term growth.

As you interview prospects, you'll find that not every accountant or firm is created equally.

Bookkeeper vs. Accountant: Do LLCs Need Both?

The role of an accountant typically involves year-round strategic tax advisory, but they can also prepare your business taxes and handle other functions. Bookkeepers maintain business records, handle payroll taxes, and create invoices. They also handle the critical task of financial reconciliation, which ensures your bank statement matches the records in the general ledger.

While it's unadvisable, some LLCs operate without a bookkeeper, accountant, or both. Bookkeepers and accountants should work in tandem to deliver the best results for your LLC. If you only have enough budget for one professional, choose the accountant or bookkeeper who can address your immediate needs. If you need support with strategic budgeting to meet IRS requirements and complete your tax return, hire an accountant. Hire a bookkeeper if you need help with your general ledger or tracking your financials.

When searching for an accountant, identify one who specializes in small business accounting and your unique needs. They'll be able to help you improve aspects of your business, prepare and file taxes, provide tax advice throughout the year, help you establish a business bank account, and evaluate your business structure to identify additional tax savings.

Finding the Right Accounting Support for Your LLC

The right accountant for your LLC helps you navigate tax season while supporting your business throughout the tax year. They'll help you make better data-backed financial decisions for your operations, and handle many of those processes for you, so you can focus on day-to-day business tasks while your accountant handles the rest.

You never have to manage it all alone. Save more time and get better results with affordable, tax-deductible solutions from 1-800Accountant, America's leading virtual accounting firm. Explore our professional accounting services to identify the right level of support for your LLC, including our Small Business Bundle, featuring everything your business needs to maintain year-round compliance.