How to Choose an Accountant for a Small Business

When you choose an accountant for a small business, the word "accountant" on a profile tells you very little. It isn't an IRS credential. What matters is the credential behind the title and what it lets the person do for you before the IRS. The wrong choice can cost more than any fee.

The law doesn't require a small business to hire an accountant. At first you may keep your own books and file simple returns yourself. But taxes get harder as the business grows. Most small businesses benefit from an accountant once their taxes stop being simple. That usually happens when you have one of these:

• two or more owners
• an S corp or C corp election
• employees
• an owner who lives outside the US

For tax returns and IRS matters, the safest choice is an enrolled agent (EA), a CPA or a tax attorney. The IRS allows them to represent you on any matter. Typical quotes run about $200 to $1,200 a month for bookkeeping. A business tax return costs roughly $750 to $5,000, depending on the type of company and how messy its books are.

The moment the books stop being simple

You don't need any of these people on day one. A small business with one owner can run on software for a while. In our work, small startups usually begin with an online bookkeeping service and run it themselves. Then something changes, and it's usually one of these:

1. You take on a partner. A multi-member LLC files its own partnership return, Form 1065.
2. You want the LLC taxed as an S corp or a C corp. That means an election and a separate corporate return. We compare the options in LLC vs S Corp.
3. You hire employees or contractors. That brings payroll and contractor forms with their own deadlines.
4. You sell in several states, and each can have its own filings.
5. You apply for a loan or bring in an investor who wants financial statements.
6. An IRS letter arrives, and you need someone who's allowed to deal with the IRS for you.
7. The owner isn't a US resident, which brings special forms and large penalties.
8. Your books have fallen months behind.

So you decide to look for help. And the first thing you notice is that everyone calls themselves an accountant.

The first search: what an accountant for a small business does

"Accountant" is a job title, not a license. The word has no special meaning at the IRS, so it's hard to know whom to hire. In everyday use, it covers several kinds of work. One person may do all of them or only one:

• Bookkeeping: recording income and expenses, reconciling bank statements and keeping receipts.
• Tax preparation: completing and filing federal and state returns.
• Tax planning: choosing how the business is taxed, estimating payments and timing large expenses.
• Payroll: paying employees and filing payroll tax forms.
• Financial statements: the profit and loss statement, balance sheet and cash flow statement that lenders and investors often ask for.
• Representation: dealing with the IRS for you when a letter, an audit or a bill arrives.

Since the title can mean any of these, the credential tells you more than the job title does. So when you hire, ask which credential the person holds and what it lets them do for you.

Sorting the candidates: bookkeeper, tax preparer, EA and CPA

As you read profiles, you'll see very different credentials. The IRS recognizes enrolled agents, CPAs and attorneys as tax professionals. It also recognizes participants in the Annual Filing Season Program (AFSP). The last group is preparers who hold only a PTIN (Preparer Tax Identification Number). Bookkeepers and "accountants" without one of these credentials aren't on that list.

AFSP participants can't handle appeals or collection. For attorneys, the designee is usually the state bar. Unlimited representation means the professional can handle audits, collection matters and appeals for any taxpayer.

Who can stand up for you with the IRS

Some guides you'll find say only CPAs can represent you in IRS matters. One of them comes from a large accounting software company. The IRS says otherwise: enrolled agents and attorneys have the same unlimited representation rights as CPAs.

Enrolled agents are licensed by the IRS itself. To become one, a person goes through these steps:

• gets a PTIN
• passes all three parts of the Special Enrollment Examination
• applies with Form 23 for a $140 fee
• passes a suitability check

The three exam parts cover Individuals and Businesses. The third part is Representation, Practices and Procedures. Each part costs $317, has 100 questions and lasts 3.5 hours. After enrollment, an EA must complete 72 hours of continuing education every three years. That includes at least 16 hours a year, with 2 hours of ethics.

A CPA is licensed by a state board of accountancy. The candidate must pass all four sections of the Uniform CPA Exam. They must also meet the board's rules on education and experience. Character and continuing education count too.

A CPA or an accountant without a license

For tax work, a CPA or an EA is safer than an accountant without a credential. CPAs, EAs and attorneys can represent you before the IRS on any matter. A PTIN-only preparer can't represent you at all. For day-to-day bookkeeping, a bookkeeper without a license is often enough.

You may also see a PTIN on someone's profile and take it as a license. Every paid preparer must have a PTIN and enter it on the returns they prepare. But the number is an identifier, not a license or a credential, and it doesn't make someone a CPA.

The CPA education rule has changed

While reading, you may see that every CPA needs 150 semester hours of education. That's now one of three options. In 2025, NASBA and the AICPA updated the model Uniform Accountancy Act with these pathways:

1. a graduate degree plus one year of experience
2. 150 semester hours (a bachelor's degree plus 30 hours) plus one year of experience
3. a 120-hour bachelor's degree in accounting plus two years of experience

Each pathway also requires passing the CPA Exam. Each state must pass its own law, so the dates when the new pathways apply differ by state.

For you as a business owner, this changes little. The license is the same whichever pathway the CPA took. But a guide that mentions only the 150-hour rule hasn't caught up with the 2025 change.

What your type of LLC means for the choice

Now you look at your own company, because the right person depends on the type of LLC you have. The IRS doesn't require an LLC to use a CPA to file a standard return. But some LLC types file forms where a mistake or a late filing costs a lot. The table shows how the IRS treats each type by default.

If you're the only owner

By default, the IRS treats a one-owner LLC as a disregarded entity. The LLC itself generally files no income tax return. Its profit goes on your Form 1040, usually on Schedule C.

Say your net earnings on Schedule C are $400 or more. Then you also file Schedule SE for self-employment tax, which we explain in Self-Employment Tax: How It Works and How to Calculate It. For employment taxes and some excise taxes, the IRS still treats the LLC as separate from you. It uses its own name and EIN for those.

If a partner joins

An LLC with two or more members is a partnership by default and files Form 1065. The return is due on the 15th day of the third month after the tax year ends. For a calendar year, that's March 15. For 2025 returns, the date is March 16, 2026. Form 7004 gives an automatic extension, generally of six months.

The late-filing penalty is $255 per partner for each month or part of a month, for up to 12 months. So with four partners, that's $1,020 a month. The IRS can waive the penalty if you show reasonable cause. But that relief isn't automatic.

If you're thinking about an S corp or C corp

An LLC can elect to be taxed as a C corp with Form 8832 or as an S corp with Form 2553. It then files Form 1120 or Form 1120-S. After a change, the LLC generally can't change its classification again for 60 months. So talk the election through with a CPA or an EA before you file it.

If you live outside the US

The IRS treats a US single-member LLC owned by a foreign person as a reporting corporation. It may have had reportable transactions with a related party, like the owner putting money in or taking money out. If so, it files a pro forma Form 1120 with Form 5472 attached. This return can't be filed electronically, and Form 7004 extends the deadline.

The penalty for failing to file a complete and correct Form 5472 is $25,000. Say the form is still missing 90 days after the IRS sends a notice. Then another $25,000 is added for each 30-day period, with no maximum. The full rules are in Form 5472 for Foreign-Owned US LLCs: Who Must File, Due Date and Penalties.

The first quotes: what a small business accountant costs

Once you know whom you need, you start asking for prices. There's no official price list for accounting services. The ranges below come from accounting firms, software companies and finance blogs, checked in October 2026. They're market quotes, not survey results, and they disagree at the edges.

The Schedule C row is a personal return with Schedule C. The business return row covers Form 1065 or 1120-S.

Chain offices publish their own prices. H&R Block, for example, lists assisted business filing "starting at $250" plus $75 per state. It lists full-service bookkeeping at $50 an hour.

Why two quotes for the same work differ

The sources point to the same factors:

• Entity type. A partnership or S corp return costs more than a Schedule C.
• States. Each extra state return adds work.
• Volume. More bank transactions and invoices mean more hours.
• Condition of the books. Messy or missing books cost more than current ones.
• Location. Beancount.io says prices in big cities run 20 to 40% higher.

Beancount.io also estimates total yearly accounting spending for very small businesses. It puts a solo owner or freelancer at $500 to $2,500. A business with 1 to 10 employees lands at $1,500 to $6,500. The source gives no data behind these figures. So treat them as a rough guide, and ask for a written quote based on your own books.

The quotes also come in different shapes. Accountants usually charge a flat fee for a return or a month of bookkeeping. For one-off questions they bill an hourly rate. Some offer a monthly retainer covering bookkeeping and questions during the year. Older IRS guidance tells taxpayers to avoid preparers whose fee is a percentage of the refund.

Narrowing the list of small business accountants

Price is only one part of the choice. Start by writing down what you need. It could be bookkeeping, a tax return or planning. It could also be payroll or help with the IRS. That list decides which credential to look for.

Then check the credential. The IRS Directory of Federal Tax Return Preparers lists CPAs, EAs and attorneys with their credentials. AFSP participants are listed too. Preparers who hold only a PTIN aren't listed. For a CPA, also check the license with the state board of accountancy.

The IRS also suggests looking at membership in professional organizations. And it warns about "ghost" preparers who can disappear with a client's money or data.

Experience with your type of company matters as much as the credential. Partnerships, S corps and foreign-owned LLCs each involve different forms. Work on personal returns doesn't prepare someone for them. Industry experience helps for the same reason, since different industries have different costs and rules.

Before you commit, get the fee and scope of work in writing. An engagement letter is ideal, because it lists what's included, the price and the deadlines. Then check a few more things:

• The preparer will sign the return and enter their PTIN.
• They're available outside tax season.
• You know how documents such as bank statements and IDs are sent and stored.
• They work with your bookkeeping tool, if you already use one.

Xero suggests interviewing three to five candidates and checking two or three references. If you also need someone for daily records, read Do You Need a Bookkeeper for Your Small Business? Costs and What They Do.

The first call: questions to ask each candidate

Once you have a shortlist, a first call with each candidate helps you compare them. These questions cover the main points:

1. Are you a CPA, an EA or an attorney, and is your license in good standing?
2. How many clients do you have with my entity type and in my industry?
3. Have you filed Form 1065, Form 1120-S or Form 5472 before? (Ask about the ones that apply to you.)
4. Will you represent me if the IRS writes to me or audits me? Will you use Form 2848 for that?
5. Who will do the work: you or someone on your team?
6. How do you charge, and what isn't included in the fee?
7. Can I reach you outside tax season?
8. What do you need from me, and by what date, to file on time?
9. How do I send you documents securely?
10. Can you give me two or three client references?

Form 2848 is the IRS power of attorney. It lets a person who's eligible to practice before the IRS represent you. It also lets them receive and inspect your confidential tax information.

Warning signs when something on the call feels wrong

Their answers can also reveal problems. The IRS points to several warning signs. Some are in current guidance and some in an older 2012 fact sheet.

• The fee is a percentage of your refund.
• The preparer wants your refund paid into their own bank account.
• You're asked to sign a blank return.
• The preparer won't sign the return or enter a PTIN on it.
• The person claims to be a CPA or an EA but isn't in the IRS Directory and can't show a license.
• You can't reach the preparer after the return is filed.

A "tax pro" at a chain office also isn't automatically a CPA or an EA. H&R Block's own footnote says its staff member "may not be a licensed accountant". So ask. If a preparer behaves badly, you can report it through the IRS preparer misconduct page or on Form 14157.

Doing it yourself, hiring, or something in between

You may decide you don't need to hire yet, especially early on. Bookkeeping software on your own can work for a one-owner LLC with a simple Schedule C, few transactions and no employees. But any mistakes are yours to fix, and your time has a cost too.

A bookkeeper plus a yearly CPA or EA is a common middle option. The bookkeeper keeps the records current. The licensed professional files the return and answers tax questions.

Full service costs the most. It covers the books, taxes, payroll and planning. It makes sense when the business has partners or employees. Sales in several states or a foreign owner are good reasons too.

The mistakes that cost owners the most

Whichever option you choose, watch for these mistakes:

• Leaving bookkeeping until tax time, when catch-up work is quoted at $300 to $8,000 or more.
• Choosing on price alone. A cheap preparer without a credential can't help with an IRS letter.
• Hiring a PTIN-only preparer for an IRS problem, since they have no right to represent you.
• Missing Form 5472 as a foreign owner, at $25,000 per missed or incomplete form.
• Filing an S corp election without advice. A further change is generally not allowed for 60 months.

What to do this month

Start by noting which of your filings carry the biggest penalties, such as Form 1065 or Form 5472. Then look for a credential that matches that work. Check it in the IRS directory or with the state board of accountancy.

Ask your questions before you sign, and walk away if you see the warning signs. If your business is still simple, software and a yearly return may be enough for now. Other tasks that come after formation are covered in New Business Checklist: What to Do After Forming Your LLC.

An accountant keeps the filings right, and being visible to customers is a separate job. For new companies that job is ours: we set up the Google profile, the listings and a press release.