Do you need a bookkeeper or a CPA? Don’t wait until March to learn the difference between the two. You don’t want a crash course at tax time, when your CPA opens up a year's worth of your unreconciled bank statements and starts billing you $250/hour to clean them up.
A good bookkeeper can help you maintain clean books all year, and spare you from that Spring Surprise. They also help prepare your financial records before handing them off to a CPA for tax prep.
Here, I’ll explain what the bookkeepers in our Bellingham, Washington office do, what our team of remote CPAs do, and when to hire one (or both.)
I’ll also let you in on a little secret:
You may not need a CPA at all. An EA (Enrolled Agent) can sign your tax return and represent you before the IRS, often at a fraction of what you’d pay for a CPA.
Don’t Make this Expensive Mistake
What’s the best way to avoid paying $250 per hour in cleanup costs to a CPA? Have a bookkeeper manage your daily, monthly and year-end accounting tasks. At the end of the year, you’ll have clean books ready to deliver to your tax professional, with no mad scramble to pull everything together at tax time.
If you don’t reconcile your accounts each month and make sure you’re categorizing your expenses correctly, you could spend $1500-$3000 EXTRA in cleanup fees before your CPA can even begin to prepare your tax return.
Don’t waste money paying CPA rates for tasks that belong with a bookkeeper.
What’s the Difference between a Bookkeeper and a CPA?
Bookkeepers organize and record your daily financial transactions. They can also reconcile your monthly bank, credit card and loan accounts, close your books each month, and prepare your records for your CPA or Enrolled Agent (EA) to file your business tax return.
CPAs are licensed by the state to file your tax returns, and can represent you before the IRS. They can create and sign your audited financial statements and provide strategic tax advice.
You may need a bookkeeper year-round, but a CPA (or Enrolled Agent) only at tax time.
Hiring the wrong financial pro for the wrong job is one of the most expensive mistakes you can make for your business.
What Bookkeepers, CPAs and Enrolled Agents (EAs) Can Do for You
Sources: US Bureau of Labor Statistics, American Institute of Certified Public Accountants, IRS Enrolled Agent Information,
What a Bookkeeper Can Do for Your Small Business
Bookkeepers record your daily transactions and make sure your expenses are recorded in the correct category for tax purposes. They also reconcile your loan, bank and credit card accounts each month and handle monthly closing. At the end of the year, they prepare your books for tax filing and hand them off to your CPA or Enrolled Agent (EA).
But bookkeepers can’t legally give you tax advice, sign your tax return or represent you before the IRS. Enrolled Agents and CPAs are the tax specialists.
Learn more about the daily, monthly and year-end tasks bookkeepers can help you with.
What a CPA Does
CPAs are licensed tax specialists. While bookkeepers can help you with many tasks, you may need a CPA to handle more complex matters that require licensing or specialized training, including:
- Reasonable compensation studies for S-corp owners
- Audited and reviewed financial statements
- Unlimited IRS representation
- Making an IRS Offer in Compromise (settling for less than the full amount owed) or voluntary disclosure work (self-reporting unfiled returns, unpaid taxes, etc. to the IRS)
- Strategic tax planning and/or complex tax returns (multi-state, K-1/K-3, international, or crypto)
- R&D tax credits, cost segregation, QSBS planning, 409A valuations, or high-margin service work
What an Enrolled Agent Does
Enrolled Agents (EAs) are federally licensed tax practitioners authorized by the U.S. Department of the Treasury. EAs have the same unlimited IRS representation rights as CPAs and attorneys. That means they can represent you before the IRS on tax matters (See IRS Circular 230 for details).
Enrolled Agents CANNOT sign your audited or reviewed financial statements. Only CPAs can do that, but for most small businesses, that distinction never matters. An Enrolled Agent does the same tax work as a CPA, but at a significantly lower rate.
At Clarity Tax Group, our tax returns are signed by Caroline Sporer, our Enrolled Agent. Caroline has over 30 years of tax experience, including 20 years with a CPA firm outside Seattle before joining Clarity.
If your tax situation calls for an audit, attestation work, or a CPA-specific specialty (like cost segregation or a 409A valuation), we can reach out to one of the remote CPAs in our network to assist you.
But for routine business and personal returns, an EA may be all you need.
When to Hire a Bookkeeper
Do you need to hire a bookkeeper? Not everyone does. We usually recommend bookkeeping services if any of the following apply:
Sound familiar?
- You're behind on reconciliations
- You have more than 20–30 business transactions per month
- You've ever paid a sales tax or payroll penalty
- Your CPA has billed you for "cleanup" in the past year
- You're a sole proprietor or single-member LLC with employees or contractors
- You're using a personal bank account for your business
- You can't quickly answer "how much did I make last quarter?"
When to Hire a CPA (or Enrolled Agent)
You could hire either an Enrolled Agent or CPA for help in the following scenarios, but EA rates are often much lower than CPAs:
- You need a business or personal tax return filed
- You owe back taxes and need to negotiate with the IRS
- You're under audit (EAs can handle most IRS audits)
- You're considering an S-corp election or LLC structure change
Hire a CPA if:
- A bank, investor, or government agency is requesting audited or reviewed financial statements from you
- You need a cost-segregation study, a 409A valuation, or an ESOP/M&A business valuation
- You're navigating a multi-state nexus issue, an international tax matter, or a heavy crypto reconciliation
- You're setting up a complex business structure (multi-entity, partnership with §754/§743(b) elections, cash-balance plan design)
- You need attestation or compilation services
The Most Common Small Business Setup Mistake
Starting an LLC? Did you know an LLC is NOT an entity, according to the IRS? Even if you file your LLC with the state, your federal tax is based on how your EIN (Employer Identification Number) application is completed, and which elections you make.
"The biggest question people ask when starting a business is about starting an LLC. Most people don’t realize that an LLC is not an entity as far as the IRS is concerned. Even if you filed your LLC with the state, that may not be enough. Your tax bill is based on what you put on your EIN application and the elections you make. We see this mistake constantly." — Caroline Sporer, Enrolled Agent, Clarity Tax Group
Average Costs for Bookkeepers, Enrolled Agents and CPA
- Bookkeeper: $25–$75/hour, or $300–$1,500/month retainer for most small businesses
- Enrolled Agent: $100–$200/hour; tax returns priced per return (typically $250–$1,200 for a small business return)
- CPA: $150–$400+/hour; tax returns $400–$2,500+; specialty engagements (audits, cost segregation, valuations, etc.) priced separately
The Right Setup for Most Small Businesses
For most small businesses, the right financial team includes:
- A bookkeeper handling daily and monthly recordkeeping year-round
AND
An Enrolled Agent or CPA preparing and signing your annual business tax return, with quarterly tax-planning check-ins if your business is growing.
Hire the bookkeeper first if you’re generating revenue and already behind on your books. Hire the EA or CPA first if you're choosing your business entity, setting up an EIN, or about to face a tax return for a business that didn't have books last year.
Frequently Asked Questions
Can a bookkeeper do my taxes?
Only if they hold a PTIN (Preparer Tax Identification Number) issued by the IRS— and typically only for simple personal returns. Business returns and complex personal returns should go to an Enrolled Agent or CPA.
Is an Enrolled Agent as good as a CPA?
For tax filing and IRS representation, yes. EAs have the same unlimited representation rights as CPAs (per IRS Circular 230). But EAs cannot sign audited or reviewed financial statements. Only CPAs can.
Do I need both a bookkeeper and a CPA?
Most growing small businesses do. But you need a bookkeeper year-round. You may only need a CPA (or EA) at tax time and when you need to discuss strategy.
Which should I hire first?
If you're already running a business and the books are messy, hire a bookkeeper first to clean them up. If you're just forming the business, talk to a tax pro first about entity choice.
Can a CPA do bookkeeping?
Technically, yes. But paying a CPA $250+/hour to categorize transactions is one of the most common ways small businesses overspend. If you don’t want the hassle of hiring people at different firms, choose a company that can help you access bookkeepers AND tax professionals. At Clarity Tax, we can help you with bookkeeping services and EA services through our office in Bellingham, Washington. If you also need a CPA, we can help you engage one of the remote CPAs in our network.
What's a fair monthly rate for a bookkeeper?
$300–$1,500/month for most small businesses, depending on your transaction volume, payroll complexity, and how clean (or messy) your books are when you start.
At Clarity Tax & CPA’s, we provide bookkeeping in-house and handle tax preparation through our remote team of Enrolled Agents and CPAs so you don't have to coordinate three different professionals yourself. If you're trying to decide whether you need a bookkeeper, a CPA, or both, request a free consultation and we'll help you figure out the right setup for where your business is right now.
Author
Tiffany van Duker, bookkeeper at Clarity Tax & CPA’s and IRS-authorized PTIN holder with over four years of bookkeeping experience. Tiffany works in our Bellingham office with many farm, construction and retail clients in Whatcom County and throughout the state of Washington.