Does Your Business Need Tax Preparation Services?

Advantages of professional services

Tax professionals can do the following:

• Identify deductions and credits
• Stay current with tax law changes
• Inform you of industry-specific opportunities
• Provide strategic planning advice
• Offer audit support and representation
• Bring peace of mind
• Save time you time

Benefits of the DIY approach

Meanwhile, a DIY approach has its own benefits:

• Provides complete control over the process and timing
• Allows you to file as soon as you're ready without waiting for professional availability
• Gives you the chance to develop deep knowledge of your tax situation
• Saves money in the short term 

When should you consider professional tax preparation?

Below are three common signals that your business would benefit from professional tax preparation services.

1. Complex business structures or operations

If your business operates across multiple states, maintains several related entities, or has undergone significant changes in ownership or structure during the tax year, it's wise to consider professional help.

• Multi-state operations must adhere to each state's tax laws and filing requirements, and recognize potential double taxation issues that can be costly if handled incorrectly.
• Complex ownership structures face complex tax reporting requirements that demand specialized knowledge. This applies to entities like partnerships with multiple members or S-corporations with various shareholder agreements.
• Recent changes in ownership or structure, such as adding new partners, converting business structures, or acquiring other businesses, can create nuanced compliance obligations that professionals know how to navigate effectively.

2. Limited tax law knowledge or experience

If you lack prior experience with business taxes or find yourself struggling to understand current tax regulations, a professional can help protect your business from costly mistakes and potential scrutiny from the IRS, as credentialed tax experts stay current with tax law changes as part of their ongoing education requirements.

Tax laws change frequently, and staying current with new regulations, deductions, and compliance requirements can take up significant time and attention that you could otherwise spend growing your business.

3. Time constraints and deadline pressures

Business tax preparation requires substantial time investment that can be hard to invest during busy quarter-end and year-end periods. If you find yourself rushing through tax preparation or filing extensions due to time constraints, give yourself permission to ask for help.

Professional services can ensure timely, accurate filing. Professional preparers have systems and expertise that allow them to complete these tasks more efficiently while maintaining higher accuracy standards.

How tax preparation services benefit small businesses

Professional tax preparation services offer strategic advantages that can significantly impact your bottom line and long-term success.

Below are a few ways that small business tax assistance can be particularly beneficial.

Maximizing deductions and credits

Tax professionals possess specialized knowledge of legitimate, industry-specific deductions for business expenses, equipment purchases, travel costs, and other operational expenses that you might not realize are tax-deductible.

Many small business owners miss valuable tax credits such as:

• Research and Development Credit
• Work Opportunity Tax Credit
• Energy-efficiency incentives

Professional preparers are familiar with the nuances of business expense categorization, depreciation schedules, and timing strategies that can optimize your tax liability across multiple years. They can recommend when to accelerate or defer certain expenses to maximize tax benefits based on your business's financial situation.

Risk mitigation and compliance protection

The IRS has increased audit rates and penalty assessments in recent years, which makes accuracy and compliance more important than ever. Professional tax preparers significantly reduce the risk of errors that could trigger audits or result in penalties and interest charges that far exceed their service fees.

According to recent IRS data, businesses that use professional tax preparers have substantially lower error rates and face fewer compliance issues than those filing independently. Professional preparers carry errors and omissions insurance and often guarantee their work, providing additional protection for your business.

Strategic tax planning opportunities

Beyond annual tax return preparation, professional tax services may offer ongoing strategic planning that can reduce your tax burden over multiple years, such as the following.

• Model different scenarios for business decisions to help you understand the tax implications of expansion plans, equipment purchases, or changes in business structure.
• Advise you on timing strategies for income recognition and expense deduction, retirement plan contributions, and other decisions that significantly impact your tax liability.
• Help you make tax-efficient business decisions throughout the year, which can save far more than the cost of professional services.

How much do tax preparation services cost?

Fees vary significantly based on complexity, location, and the level of service you require.

• Simple entities like single-member LLCs or sole proprietorships typically cost between $300–$800, depending on your location and the preparer's experience level.
• Small business corporations (S-Corps) and partnerships generally cost $800–$2,500 for tax return preparation, due to the additional complexity of these business structures and their required forms and schedules. Multi-member LLCs taxed as partnerships fall into this range as well.
• Complex business situations can cost $2,500–$10,000 or more. These situations require specialized expertise and significantly more time to prepare accurately.

Factors affecting preparation costs

• The number of income sources
• Types of deductions claimed
• Special tax situations, such as inventory/depreciation schedules and complex asset transactions
• Geographic location
• What time of year you hire the preparer

Evaluating return on investment

• Deduction savings. Professional tax preparation often pays for itself through identified deductions, credits, and strategic planning opportunities that you might miss handling taxes yourself.
• The value of your time. If tax preparation takes you 40 hours at a $50 per hour opportunity cost, the $2,000 value of your time often exceeds professional preparation fees while delivering better results and reduced risk.
• Risk mitigation benefits.The cost of IRS penalties, interest, and professional representation during audits can far exceed annual preparation fees, making professional services a valuable insurance investment.

How to choose the right tax preparation service

Following a systematic approach helps you identify the best fit for your situation and budget.

1. Verify credentials and qualifications. Start by confirming that any tax preparer you consider has a valid Preparer Tax Identification Number (PTIN) from the IRS, which is required for all paid tax preparers. Additional credentials include Certified Public Accountant (CPA), Enrolled Agent (EA), and a tax attorney designation.
2. Assess experience and specialization. Evaluate whether the tax professional has relevant experience with your industry and business type. Consider the size and resources of the tax preparation firm. Larger firms may offer more specialized expertise and resources, while smaller practices might provide more personalized attention and competitive pricing.
3. Compare pricing and service packages. Request detailed information about fee structures, including whether they charge flat fees, hourly rates, or fees based on return complexity. Then, compare the total cost of services against the potential value they provide through tax savings, risk reduction, and time savings.
4. Evaluate communication and support. Assess the preparer's communication style, responsiveness, and availability during both tax season and year round. Ask about their process for handling questions, providing updates on tax law changes that affect your business, and their availability for urgent tax matters.
5. Confirm security and privacy practices. Verify that the tax preparer follows proper data security protocols to protect your sensitive financial information. Ask about their document storage systems, data encryption practices, and procedures for secure document transmission.
6. Review their engagement letter or service agreement carefully to understand the scope of services, fee arrangements, and both parties' responsibilities. A professional tax preparer should provide clear, written agreements that outline all terms and conditions.

How LegalZoom supports your tax preparation needs

At LegalZoom, we understand that effective tax preparation begins with a solid structural foundation and ongoing compliance support. Our comprehensive approach helps ensure your business is positioned for tax efficiency while maintaining full legal compliance throughout the year.

• Business formation for your situation. When you form your business through LegalZoom, we help you choose the optimal business structure for your tax situation. The right business structure can significantly impact your tax obligations, available deductions, and overall financial strategy.
• Employer Identification Number (EIN) registration. LegalZoom also assists with obtaining your EIN, which you may need for tax reporting (especially if you have employees or a business bank account, or you are taxed as a corporation).
• Ongoing compliance and support services. Beyond initial business formation, LegalZoom provides ongoing compliance support that directly impacts your tax preparation process. Our registered agent and virtual mail services ensure you receive important tax notices and compliance deadlines, while our annual report filing services help maintain your business’s good standing status.
• Professional network and consultation services. Through our network of experienced tax attorneys, LegalZoom can connect you with a qualified attorney who can advise you on your specific situation.

Tax preparation services FAQs

What documents do I need to provide to a tax preparer?

You'll need to provide financial records and basic info about your business, including the following:

• Business information
• Profit and loss statements
• Balance sheets
• Bank statements
• Records of all business income and expenses
• 1099s and/or other income records
• Receipts for deductible expenses
• Payroll records, if you have employees
• Documentation for any major asset purchases or sales during the tax year.

If you operate in multiple states, provide documentation of business activities in each one. Your tax preparer will generally provide a detailed list to ensure you don't miss important documents.

Can I claim both business and personal deductions on the same return?

That depends on your business structure and how you file your taxes. Sole proprietors and single-member LLC owners report business income and expenses on their personal tax returns (Form 1040 with Schedule C). For that reason, they may need to claim both business and personal deductions on the same return.

However, corporations file separate business tax returns and can't claim personal deductions on business returns. Business owners who are employees of their corporations may be able to claim certain business-related expenses on their personal returns, but recent tax law changes have limited many of these deductions. Your tax preparer can help you understand which deductions are appropriate for your specific business structure and situation.

What happens if my tax preparer makes a mistake?

Professional tax preparers typically carry errors and omissions insurance and often guarantee their work. That means they'll cover penalties and interest that result from their errors. However, you remain ultimately responsible for the accuracy of your tax returns, so it's important to review returns carefully before signing and filing.

How do I verify that a tax preparer is properly certified?

Check the IRS Preparer Tax Identification Number (PTIN) database to confirm they’re authorized to prepare taxes. For CPAs, you can also verify their license through CPA Verify, which is part of the National Association of State Boards of Accountancy. Always ask to see credentials and don't hesitate to verify them independently before engaging services.

Are online tax preparation services secure for business use?

Reputable online tax preparation services use bank-level encryption and security protocols to protect your sensitive business information. Look for services that are IRS-approved e-file providers and follow industry security standards such as SOC 2 compliance. However, security levels vary among providers. Always research their specific security measures and data protection policies.

How can small businesses prepare for tax season effectively?

Start preparing for tax season early by maintaining organized financial records throughout the year, not just at tax time. Implement a system for tracking business expenses, maintaining receipts, and categorizing transactions consistently. Consider using accounting software that integrates with tax preparation programs to streamline the process.

Maria Murphy contributed to this article.