I have the greatest admiration for small business tax preparers. They often work ungodly hours with clients who have poor record-keeping practices, despite the online QuickBooks world we now live in.
However, I’m estimating I’ve upgraded the CPA firms for more than half of the 130+ clients I’ve served since 2001. Interestingly, the cost is not much higher, yet it provides expansive new knowledge and resources for short- and long-term tax planning.
Should you make the change to a new tax partner, be prepared to provide several critical pieces of documentation — hopefully, your current CPA has this information.
Tax Documents Your New Tax Partner Needs
Let’s just cut to the chase with the list below. I’ve added some commentary for each item.
- SS-4 Confirmation Letter (your current CPA firm should have this in their PERM File.
- Operating Agreement or Shareholder Agreement, depending on your legal entity. Most of my clients are LLCs taxed as an S-Corporation, so we always provide the operating agreement during the onboarding process.
- If an S corporation, you must file Form 2553. Your current CPA will have this when they filed this form with the IRS.
- If you’ve made an accounting change, they will want Form 3115. Personally, this has been rare. It comes up when a retailer or eCommerce business moves from a cash basis to an accrual basis for tax reporting.
- Section 174 Capitalized Costs will only come up if your business is R&D-centric. If so, the new partner will need to know what costs have been capitalized.
This is not a complete list, as most firms have their own unique onboarding checklists. However, this list probably meets more than 90 percent of their requirements to get started.
Additionally, I automatically provide the new CPA firm the Articles of Organization, knowing they will want it for their PERM File, but it’s generally not a show-stopper for them to get started.
Let’s Revisit That Operating Agreement
You’ve provided your new tax partner with your operating agreement. Are you done yet?
In far too many cases, that operating agreement is overly boilerplate and contains too much generic language.
As with moving clients to new tax partners, I also help them find new attorneys who can serve as their legal general practitioner. My preference in these cases is for the new law firm to do a soft legal audit of our corporate documentation. That includes going over our current operating agreement and looking for unintended gotchas that could come back to haunt us.
Accordingly, use this time to transition to the new tax partner to handle the same with external legal services.
