Short answer
The California Board of Accountancy says an engagement letter should cover the scope of work (what the CPA will and won’t do), who performs it and whether any is outsourced, your responsibilities, the cost and when the work will be done. Bring last year’s returns and every income and expense record to the first meeting.
The first meeting with a new CPA usually ends with two things: an engagement letter to sign and a list of documents to gather. Both deserve a few minutes of attention. The letter sets expectations for the whole relationship, and the documents decide how smoothly the first return goes.
Part one: the engagement letter
The California Board of Accountancy recommends receiving an engagement letter before any work is done. According to its consumer guide, the letter should include:
| Item | What to look for |
|---|---|
| Scope of the work | Exactly which returns and services are included, and what is not, such as amended returns, payroll filings or responding to notices |
| Who performs the work | Whether the CPA, staff or an outside service does it, and whether any work is outsourced |
| Client responsibilities | What you must provide, by when, and that you are responsible for the accuracy of your information |
| Cost | A fixed fee, an hourly rate or an estimate, and what triggers extra charges |
| Timing | When the work will be completed and what happens if records arrive late |
Questions to ask before signing
- Is year-round help included, such as questions about estimated payments or a letter from the IRS or the Franchise Tax Board?
- If my records arrive late, will you file an extension, and is that included?
- How will you send me drafts and final returns, and how do you protect my information?
- If you use outside help, is my information disclosed to them, and how?
The Board notes that the law requires California CPAs to keep client information confidential, with narrow exceptions such as a subpoena or an official regulatory inquiry. It is still fair to ask how the office handles your files.
Part two: what to bring
A CPA can only work with what you provide. For a first meeting, gather the documents below. Not every item applies to every household.
For everyone
- last year’s federal and California returns, and the year before if you changed preparers recently;
- all wage statements, 1099 forms and statements for interest, dividends and retirement distributions;
- records of estimated tax payments to the IRS and the Franchise Tax Board, with dates;
- any letters from the IRS or the Franchise Tax Board.
If you farm
- sales records from packers, processors, cooperatives and auction yards;
- agricultural program payments and crop insurance proceeds;
- invoices and receipts for feed, seed, fertilizer, chemicals, fuel, repairs and custom work;
- payroll records for farmworkers and any crew leader details, covered in What Federal Payroll Taxes Apply When I Hire Farmworkers?;
- purchase and sale records for equipment, livestock and land.
If you run a business or rent property
- a profit-and-loss summary or your bookkeeping file;
- bank and card statements for business accounts;
- sales tax returns if you hold a seller’s permit;
- mileage records and receipts for larger purchases;
- for an LLC, records of the annual tax and fee payments to the Franchise Tax Board.
How organized do records need to be?
IRS guidance for farmers and businesses asks for a summary of transactions plus the supporting documents behind it, kept in an orderly way, for example by year and type of income or expense. Your CPA can work from a shoebox, but you will pay for the time it takes. Sorting receipts by month and category before the meeting is the cheapest way to lower the bill. How long to keep each type of record is covered in How Long Should I Keep Tax and Business Records?.
Tip: Ask the CPA for their own checklist after you sign. Most offices have one, and it will match how they build the return.
What should I ask at the end of the first year?
After the first return is filed, spend ten minutes reviewing the year with your CPA. Ask what records were missing or late, what would make next year faster, whether your estimated payments should change and whether anything in your situation, such as a new employee or a new LLC, needs attention before year end. A good CPA will have notes ready. The answers usually belong in next year’s engagement letter.
What if the relationship ends?
Sometimes a CPA relationship does not work out, or the CPA retires. Before you sign, ask how you would get copies of your returns and the schedules the CPA prepared for you, and whether there is a fee for that. When you change CPAs, give the new one your prior returns and depreciation schedules; they are the pieces most often missing. A clear engagement letter each year makes the handover simpler, because it shows what the previous CPA was and was not responsible for.
Many CPAs send a new engagement letter every year. Read it each time instead of signing by habit. Fees, scope and responsibilities can change, and the letter is your record of what you agreed.
If you have not yet picked a CPA, go back to How Do I Choose a CPA in Los Banos?.