How Can a Tax Advisor Benefit My Business

You started your business, and when it comes to taxes, you have no idea what you’re doing. So, you might wonder if hiring a tax advisor is the right step for you. However, you also struggle to understand what a tax advisor is and how they can help you.

In this piece, learn the basics of tax advisors – what they are, what they do, the benefits to solopreneurs, and how tax advisors differ from other financial professionals. 

What is a tax advisor?

Similar to a financial advisor, a tax advisor is a certified professional who specializes in tax law and can provide expert advice on tax planning and compliance.

They are well-versed in the intricacies of the tax code and can help businesses navigate complex tax situations. Their main goal is to ensure you are paying the right amount of taxes while also looking for legal ways to minimize your tax liabilities.

What does a tax advisor do?

There are several key tasks that a tax advisor might perform for your business. For example:

• Prepare and examine various tax returns, including individual, corporate, sales, property, franchise, and business taxes

• Provide strategic advice to reduce tax liability through various deductions and credits, including business-specific deductions like the QBI deduction
• Calculating self employment tax and assisting with estimated tax payments
• Be a representative in front of tax authorities during audits, appeals, or dispute resolution
• Assist with tax forecasting and planning to align with business strategies and objectives
• Keep abreast of the latest tax law changes and advise on implications for the business
• Help with structuring business transactions to be tax-efficient
• Provide guidance on retirement plans, employee benefits, and owner compensation from a tax perspective
• Work to ensure compliance with all federal, state, and local tax regulations and filing requirements

Benefits of a tax advisor for solopreneurs

Being a solopreneur often means juggling multiple roles, and tax matters can quickly become overwhelming. A tax advisor can provide valuable insights into managing your business’s day-to-day operations or strategizing for growth. When you’re unsure about tax deductions, how to optimize your tax situation, or how to prepare your business taxes, professional advice can save the day.

A tax advisor can help streamline your tax processes, assist in figuring out tax liability, identify potential savings, and ensure compliance with tax laws. This support is especially beneficial for solo entrepreneurs who don’t have the time and expertise to handle complex tax issues.

How much does a tax advisor cost

Prices for tax advisory services can vary widely depending on factors such as the complexity of your tax situation, the advisor’s level of experience, and geographic location. 

Advisors with specialized knowledge in a particular industry or tax area may charge more for their expertise. Additionally, larger firms or those located in metropolitan areas tend to have higher rates than smaller or rural practices. 

It’s important to consider these variables when budgeting for a tax advisor’s services. For example, individual entrepreneurs may find that a tax advisor with specific experience in their field can offer more tailored advice, which could lead to higher costs.

When considering hiring a tax advisor, it’s also worth noting that the initial consultation might be free, but the actual services will incur a fee.

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How to find a tax advisor

When selecting a tax advisor, it’s essential to look for someone with the appropriate qualifications and skills, namely hard skills and soft skills. 

Hard Skills

Hard skills refer to the technical expertise and knowledge required for tax advisory. This includes having relevant licenses, such as being a Certified Public Accountant (CPA), having an Enrolled Agent (EA) designation, or being a license attorney specializing in tax law. 

It’s important that your tax advisor has a strong understanding of current tax laws and the ability to apply them effectively to your business’s specific situation.

In addition to certifications, a tax advisor should have a solid track record of experience. This experience can be a good indicator of their capability to handle diverse tax scenarios. It’s also beneficial if they have specific knowledge in your industry, as this can provide more customized tax strategies.

Soft Skills

Soft skills encompass the interpersonal attributes that a tax advisor should possess. Trustworthiness is paramount, as you’ll be sharing sensitive financial information with them. 

A good tax advisor should also have excellent communication skills to explain complex tax concepts in understandable terms. They should also demonstrate strong industry knowledge and be able to adapt to the ever-changing tax environment.

Some quick tips to find a tax advisor include:

1. Asking for referrals from colleagues or industry peers who have had positive experiences
2. Utilizing professional networks or online directories that list certified tax advisors
3. Check with professional associations such as the American Institute of Certified Public Accountants (AICPA) or the National Association of Tax Professionals (NATP) for a list of members in good standing
4. Online platforms like LinkedIn, where you can review profiles and recommendations for tax advisors, can also be useful resources
5. Consider attending local business events or tax workshops to meet advisors in person

Also read: How to Choose an Online Bookkeeping Service as a Business-of-One

Getting the most out of working with a tax advisor

When you have finalized your decision to work with a tax advisor, it’s crucial to be proactive in your collaboration. Here are a few tips:

• Organize your financial documents and have them ready for review. This includes previous tax returns, bank statements, invoices, and any other relevant financial records
• Make a list of your questions or concerns to ensure they are addressed during your meetings
• Be transparent about your business operations, as full disclosure can help your advisor provide the best guidance
• Schedule regular check-ins to adjust strategies as your business evolves and tax laws change
• Understand that a tax advisor’s role is to partner with you in financial decision-making. Be open to their suggestions and willing to implement recommended tax strategies.
• Keep communication lines open. If there are changes in your business, such as new income streams or significant expenses, inform your advisor promptly
• Utilize your tax advisor’s expertise during the year, not just at tax time, to take advantage of planning opportunities and avoid surprises

Other types of financial professionals for your business

Now that you understand the value of a tax advisor, it’s worth exploring other financial experts who can assist with your business needs.

CPA vs. tax advisor

A Certified Public Accountant (CPA) is a professional who has passed the CPA exam and met state licensing requirements. CPAs provide a range of financial services, including auditing, accounting, and financial planning, in addition to tax preparation and advice.

Key difference: CPAs often have a broader scope of practice, while tax advisors may specialize more deeply in tax law and tax strategy.

Enrolled Agent (EA) vs tax advisor

An Enrolled Agent (EA) is a tax professional who is federally authorized to represent taxpayers before the Internal Revenue Service (IRS). EAs specialize in tax matters and are required to demonstrate their proficiency by passing a comprehensive examination administered by the IRS or by having relevant IRS work experience.

Key difference: Unlike tax advisors who may offer a range of services, Enrolled Agents are specifically focused on tax representation, tax prep, and providing tax advice.

Bookkeeper vs tax advisor

A bookkeeper is responsible for maintaining accurate records of a company’s financial transactions. They typically handle day-to-day accounting tasks such as recording expenses, processing payroll, and reconciling bank statements.

Key difference: While a tax advisor provides strategic advice on tax-related issues and helps optimize tax liability, a bookkeeper focuses on the routine documentation and reporting of financial transactions, ensuring that records are up-to-date and accurate for various purposes, including tax prep.

Financial planner vs tax advisor

A financial planner is a professional who helps individuals and businesses create strategies to meet long-term financial goals, which can include investment management, retirement planning, and estate planning.

Key difference: Financial planners offer comprehensive financial advice that encompasses various aspects of an individual’s or business’s financial life, while tax advisors focus specifically on optimizing tax strategies and compliance with tax laws. Tax advisors may work closely with financial planners to ensure that tax planning aligns with the overall financial goals.

Hiring a tax advisor vs DIY

As a solopreneur or small business owner, you may be tempted to manage your taxes yourself to save costs. Google is rife with DIY tax software and guides that promise simplicity and affordability. 

However, the complexity of tax law and the potential for missing deductions for self-employed businesses can make the DIY approach difficult. 

A professional tax advisor can identify tax-saving opportunities, offer ongoing tax help and business tax filing, and ensure compliance, potentially saving you money in the long run.

When deciding whether to hire a tax advisor or do it yourself, consider the value of your time and the peace of mind that comes with professional assistance.

Tax advisor FAQs

Is a tax advisor the same as a CPA?

No, a tax advisor is not necessarily the same as a CPA. While all CPAs can offer tax advice and prepare tax returns, not all tax advisors are CPAs. Tax advisors may have different qualifications and certifications, such as being an Enrolled Agent (EA) or having specific tax-related training and experience. It’s important to understand the qualifications and expertise of the professional you are considering for tax advice to ensure they meet your specific needs.

What is the difference between a tax advisor and a financial advisor?

A tax advisor specializes in tax law and strategies, helping clients navigate tax-related issues and optimize their tax situations. 

A financial advisor offers broader financial guidance, including investment strategies, retirement planning, and wealth management. While they may provide some tax-related advice, their focus is on the overall financial health and long-term financial planning of their clients. 

Tax advisors often work with financial advisors to ensure that tax strategies complement the broader financial plan.

Are advisor fees tax deductible?

At the individual level, no. As of the Tax Cuts and Jobs Act of 2017, the deductibility of certain advisory fees, including those for tax preparation or planning, has been suspended for individuals. This change applies to tax years 2018 through 2025. Therefore, while hiring a tax advisor may provide significant benefits in terms of tax savings and compliance, their fees are not currently deductible on personal tax returns. 

Conclusion

As a solopreneur, you have a lot on your plate, and taxes shouldn’t be an additional burden. Collective understands this and supports solopreneurs with tax services, like filing the annual S Corp tax return and providing estimated quarterly tax calculations. A Collective membership also includes monthly bookkeeping support, payroll, and annual state compliance reminders, giving you the tools to focus on what matters most: growing your business.