Questions to Ask an Accountant When Starting a Business
Short answer
When starting a business, essential questions to ask an accountant focus on choosing the right business structure, understanding tax responsibilities, setting up bookkeeping and payroll, identifying deductions, managing cash flow, ensuring compliance, and locating state-specific resources. These questions clarify legal and financial requirements and help build a strong foundation for your new business.
What business structure should be chosen and why does it matter?
Selecting the appropriate business structure impacts taxes, liability, and administrative duties. Common options include sole proprietorship, partnership, limited liability company (LLC), and corporation. Request a clear explanation from your accountant of each type’s pros and cons. For example, a sole proprietorship is simple but offers no personal liability protection, while an LLC shields personal assets and has flexible tax options. Corporations protect owners but involve more paperwork and potential double taxation.
To decide, consider questions like:
- Who will own the business and how many owners are there?
- What level of personal liability protection is needed?
- How will profits and losses be taxed?
- Are formal management structures desired?
Ask the accountant to provide specific examples of how structure affects tax filings, such as filing Schedule C for sole proprietors or Form 1120 for corporations. Since rules vary by state, verify state registration requirements with the Secretary of State’s office or a business attorney. This decision shapes regulatory responsibilities and tax outcomes, making thorough consultation vital.
What are the tax obligations as a new business owner?
Clarifying tax responsibilities prevents costly errors. Ask the accountant to outline all federal, state, and local taxes applicable to your business type and location. Important taxes include:
- Income tax: Paid on net profit, with forms depending on structure. For example, sole proprietors use Schedule C, corporations use Form 1120.
- Self-employment tax: Covers Social Security and Medicare contributions if you’re self-employed.
- Sales tax: Applies if selling taxable goods or services; rates and rules differ by state and sometimes by city.
- Payroll taxes: Required if hiring employees, including withholding income taxes, Social Security, Medicare, and unemployment taxes.
Request guidance on estimated tax payments. For instance, if quarterly income is expected, ask how to calculate and file quarterly estimated taxes using IRS Form 1040-ES. Discuss tax deductions commonly available such as startup costs, business mileage, and home office expenses.
Example wording for inquiry: “Can you explain how to calculate and submit quarterly estimated taxes for my LLC registered in my state?” or “What types of expenses can I deduct to reduce taxable income?”
Since tax regulations vary by state and change over time, confirm current rates and rules on the IRS website and your state’s revenue department site.
How should bookkeeping be set up and maintained?
Accurate bookkeeping is crucial for managing finances and preparing taxes. Ask the accountant for detailed advice on what records to keep and how often to update them. Essential records include sales receipts, expense invoices, bank statements, payroll documents, and tax filings.
Request specific recommendations for accounting software tailored to your business size and complexity. Examples include QuickBooks for comprehensive tracking or FreshBooks for invoicing-focused needs. If manual records are preferred, ask for sample ledgers and templates.
Steps to implement bookkeeping:
- Open a dedicated business bank account to separate personal and business finances.
- Categorize transactions using a chart of accounts customized by your accountant.
- Record income and expenses weekly or monthly to avoid backlog.
- Reconcile bank statements monthly to identify errors or fraud.
- Keep receipts and invoices organized in physical or digital folders.
Ask the accountant how long to retain records. Typically, IRS recommends keeping tax documents for at least three to seven years.
Example question: “What categories should I include in my chart of accounts and how often should I reconcile my bank statement?”
What payroll and hiring responsibilities must be prepared for?
If planning to hire employees, understanding payroll and employment law is critical. Ask about obtaining an Employer Identification Number (EIN), payroll tax withholding, and tax filing requirements.
Your accountant should explain the process of:
- Registering for payroll taxes with federal and state agencies.
- Calculating employee withholdings for income tax, Social Security, and Medicare.
- Submitting payroll taxes on time, often monthly or quarterly.
- Paying employer tax contributions such as unemployment insurance.
For example, if paying an employee $1,200 biweekly, confirm exactly how much to withhold and remit for taxes and when to file returns like Form 941 (Employer’s Quarterly Federal Tax Return).
Discuss compliance with wage laws, workers’ compensation insurance, and employee benefits, which vary by state. Your accountant may recommend payroll software like Gusto or ADP or suggest professional payroll services.
Sample question: “What forms do I need to file for payroll taxes, and how do I calculate the correct withholding amounts?”
Which business deductions and tax credits can be claimed?
Maximizing deductions and credits reduces taxable income and tax liability. Ask your accountant to identify deductions and credits specific to your industry and business structure. Common examples include:
- Startup costs: Deduct expenses such as market research, legal fees, and advertising before opening.
- Home office deduction: If a dedicated area of your home is used exclusively for business.
- Vehicle expenses: Choose between actual expenses or standard mileage rates for business travel.
- Professional fees: Payments to lawyers, accountants, and consultants.
- Equipment and supplies: Purchases necessary for operations.
Tax credits, unlike deductions, directly reduce tax owed. Examples include credits for hiring veterans or investing in renewable energy equipment.
Use this comparison to discuss with your accountant:
| Item | Effect on Taxes | Example | Required Documentation |
|---|---|---|---|
| Deduction | Lowers taxable income | Office supplies, travel costs | Receipts, invoices |
| Tax credit | Directly reduces tax owed | Energy-efficient equipment | Certificates, receipts |
| Startup costs | Deductible pre-opening expenses | Legal fees, advertising | Contracts, bills |
| Home office deduction | Portion of home expenses | Dedicated room for business | Floor plan, utility bills |
Ask for exact wording to keep when documenting expenses and examples of acceptable proof. Your accountant can also explain depreciation rules for expensive equipment purchases.
How to manage cash flow and budget effectively?
Proper cash flow management keeps your business financially stable. Request assistance in creating a detailed budget projecting income and expenses. Your accountant will help identify fixed costs (rent, utilities) and variable costs (supplies, advertising) and develop realistic forecasts.
Example budgeting steps:
- Estimate monthly sales based on market research or past experience.
- List all expenses, categorizing them by fixed or variable.
- Calculate expected net cash flow (income minus expenses).
- Set aside funds for taxes and emergency reserves.
- Review and adjust the budget at least quarterly.
Ask about tools for tracking cash flow, such as spreadsheet templates or accounting software reports. Discuss how to monitor accounts receivable and follow up promptly on overdue payments to avoid cash shortages.
Example question: “Can you help me create a cash flow forecast and suggest strategies for managing slow-paying customers?”
What compliance risks should be considered and how can they be avoided?
Non-compliance risks include tax penalties, payroll errors, and legal violations. Ask your accountant to outline common compliance issues for your business type and how to prevent them.
Key areas include:
- Filing taxes and payroll reports timely to avoid fines.
- Properly classifying workers as employees or independent contractors.
- Obtaining necessary business licenses and permits.
- Keeping accurate financial records to support tax returns.
Request advice on setting up calendar reminders for deadlines and organizing documentation for audits. Your accountant may recommend consulting industry-specific regulatory agencies or legal counsel for complex compliance areas.
Example question: “What are the most common tax filing pitfalls for new businesses, and how can I avoid them?”
Where can definitive state-specific business information be found?
Because laws and tax rules vary by state, confirm state-specific requirements through official sources. Ask your accountant to recommend reliable resources such as:
- State Secretary of State websites for business registration and filing procedures.
- State Department of Revenue or Taxation for tax rates and payment instructions.
- State labor departments for employment laws and workers’ compensation requirements.
- Local Small Business Development Centers (SBDCs) or SCORE chapters for no-cost counseling.
For example, to register an LLC in Florida, consult the Florida Division of Corporations website for forms and fees. For labor rules in New York, check the New York State Department of Labor.
If unclear, consider consulting a licensed business attorney familiar with your state’s laws.
Frequently asked questions
How soon should an accountant be involved when starting a business?
An accountant should be consulted early in the planning stage to guide on structure, tax planning, and financial record setup, helping avoid mistakes and ensuring compliance from the start.
Can an accountant assist with business license applications?
While accountants can advise on what licenses or permits might be needed and the agencies to contact, the actual application must be completed through state or local government offices.
What records are required to be kept for tax purposes?
Maintain all financial documents such as receipts, invoices, bank statements, and tax filings for at least three to seven years to comply with IRS and state audit requirements.
How can the right accounting software be selected?
Choose software based on business size, industry, ease of use, and features like invoicing or payroll integration. Ask your accountant for specific recommendations based on your needs.
Is changing a business structure possible after starting?
Yes, but it requires legal filings and may have tax implications. Consult your accountant and a business attorney before making changes to evaluate costs and benefits.
Are there tax advantages to employing family members?
Employing family can offer tax benefits such as income shifting, but compliance with labor and tax laws is essential. Maintain proper employment documentation and consult your accountant about state-specific rules.