Who this is for
- US business owners holding a draft bookkeeping or accounting engagement letter
- Owners asked to prepay a year of fees or to pay hourly for work outside a flat fee
- Owners whose books sit in a bookkeeper's own software account
Not covered here
- What a monthly bookkeeping fee should be
- Canadian engagement terms and quotes
- State contract, consumer or accountancy-board rules on prepaid fees and liability caps
- Whether a particular clause is enforceable
What should a bookkeeping engagement letter spell out before you sign?
An engagement letter, also called a service agreement or retainer agreement, is the written contract between your business and the bookkeeper or accountant. No federal tax rule writes most of its terms. It should settle ten things:
| Term | What the letter should say |
|---|---|
| Scope | Each job included and each left out, by name |
| Dates | The monthly close day, the report delivery day, and who meets each filing and payment date |
| Fees | The flat or hourly amount, the extra-work rate, cleanup pricing and any yearly increase |
| Billing | When each payment is due, and what comes back if the work ends early |
| Responsibility | Who files, who pays, who sends proof, and who covers a penalty the bookkeeper causes |
| Records | That the business owns its books and software file, and what is handed over on request |
| Speaking to the IRS | Whether the bookkeeper holds any IRS authorization, and which kind |
| Data | Who holds which login, how data is protected, and what happens to it at the end |
| Ending | The notice period, the final bill and the handoff of unfinished work |
| Renewal | Whether the letter renews by itself, and how to stop it |
A letter needs a closer read if it:
- asks for a year upfront
- bills "additional services" by the hour without listing them
- renews on its own
- keeps your books in the bookkeeper's own software account
- sets no close date
The same goes if there is no letter at all, a bill has already surprised you, the books are behind, a notice has arrived, or the business has payroll or sales tax in more than one state. Those cases usually call for a professional to read the letter against your books.
Gather the draft letter, a list of every bank, card, payroll and sales tax account, your entity type with each return and its due date, and last year's returns.
What if the accountant has no engagement letter?
Ask for one before you pay or share logins. The IRS rules cited on this page do not require a bookkeeper to give you a letter, so without one the scope, the price and the return of your records rest on what was said. If the person will not sign one, get the work, the fee and the start date in an email and keep it.
Ask for the credential in writing too. Treasury's Circular 230, the rules for practice before the IRS, governs mainly attorneys, CPAs and enrolled agents. Keeping books alone is not named in it, so do not assume those rules protect you. Anyone paid to prepare a return needs a preparer tax identification number (PTIN), but only attorneys, CPAs and enrolled agents have unlimited rights to represent you. The IRS directory lists credentialed preparers. State contract and licensing rules, which this page does not cover, can add more. For who does what, see bookkeeper, accountant or CPA.
Which work is in scope, and what does the letter leave out?
The scope is the list of jobs the monthly fee covers. A job missing from it is either someone else's or billed extra, so name each one.
| Job | The letter should state | Why it matters |
|---|---|---|
| Bank and card reconciliations | Which accounts, how often, and by what day after month end | Defines what a "closed" month means |
| Payroll | Who runs payroll, makes the deposits and files Forms 941, 940 and W-2 | The employer stays responsible for deposits even when a provider makes them; late deposits carry a penalty, see behind on payroll taxes |
| Sales tax returns | The states covered, and who prepares, files and pays | Each state sets its own dates; see filing sales tax returns |
| Forms 1099 | Who collects Forms W-9 and who files each form (Form 1099-NEC has its own early-year deadline, below) | A late or missing form carries a penalty per form; see late 1099s and W-2s |
| Income tax return | Which returns are included (the business return, K-1s for a partnership or S corporation, state returns), who prepares and signs each, and at what price | A return needs a preparer with a PTIN; see bookkeeper, accountant or CPA |
| IRS and state notices | Who receives them, who answers them and how that work is billed | For payroll, the IRS sends correspondence to the employer's address of record, which should stay yours |
| Back years and cleanup | Which periods the monthly fee leaves out, and the separate price | See catching up on overdue books |
For what a monthly service should deliver, see what a monthly service includes.
What dates should the letter state?
State the close day, the delivery day and who meets each tax date. The close and delivery days are the letter's to set, since no tax rule sets them. Pick a close day early enough that the books are ready before the first tax date that depends on them, such as a sales tax return.
| Date | Deadline |
|---|---|
| Payroll tax deposits, monthly schedule (semiweekly depositors deposit earlier) | the 15th day of the following month |
| Form 941 | the last day of the first month after each quarter |
| Form 940 | January 31 after the wage year |
| Forms W-2 | February 1, 2027 |
| Forms 1099-NEC | February 1, 2027 for this tax year (IRS instructions) |
| Partnership and S corporation returns | The 15th day of the 3rd month after year end: March 15 for a calendar-year partnership (Form 1065), March 15 for a calendar-year S corporation (Form 1120-S) |
| C corporation return | April 15 of the following year for a calendar-year filer (Form 1120) |
| Sole proprietor's return | April 15 for calendar-year filers (IRS) |
| Sales tax returns | The date each state assigns to the account |
A due date on a weekend or legal holiday moves to the next business day. For this tax year's forms, January 31 falls on a Sunday, so Form 940 and the fourth-quarter Form 941 move to February 1, 2027. An employer that made every deposit on time may file both by February 10 (Form 941, Form 940). The letter should also say who requests an extension and by when. Form 7004 generally gives business returns an automatic 6-month extension and must generally be filed by the regular due date (instructions). Individuals use Form 4868. Neither extends the time to pay (individuals; business returns).
How should fees be written so the deal is fair?
Each fee should state an amount, what it covers and what triggers more. A fee with no stated trigger is where surprise bills start.
| Fee | The letter should state |
|---|---|
| Flat monthly | The amount, the scope list, the volume it assumes (accounts, transactions, employees) and what happens above it |
| Hourly | The rate, the billing increment, an estimate, and your written approval before the estimate is passed |
| One-time cleanup | A separate fixed price or estimate, the periods and accounts covered, and that it is not billed on top of the monthly fee unless named |
| Extra work | One rate for anything outside the scope, and who must approve it first |
| Late or missing records from you | The date your records are due each month, what happens if they come late (an hourly rate, a rush fee, or the work moves to next month), and whether you are told before it is billed |
| Fee based on a refund or savings | What the fee is based on. Circular 230 generally bars a practitioner from a contingent fee for a matter before the IRS, including one based on a percentage of a refund or of taxes saved (section 10.27); exceptions include an examination of an original return and a court case under the tax code. Whether it reaches a given fee depends on the work and the person |
| Yearly increase | The date it can start, the notice you get, and a cap or your right to end the letter instead |
| Software and filing fees | Who pays for the software, the payroll provider and filing, and in whose name each account is held |
For what a monthly fee should be, see bookkeeping cost per month.
Can a bookkeeper make you pay for the whole year upfront?
A bookkeeper can ask. The federal rules cited here set no billing schedule, so a year upfront is a term you can accept, change or refuse. Prepaying moves the risk to you: if the work stops in month five, the unused months are money you must collect.
If you agree, the letter should say:
- which months the payment covers
- that unused months are refunded if either side ends the letter, how fast, and by what method
- that any setup charge is itemized, and which part is non-refundable
Billing monthly or quarterly keeps less money at risk. How a prepaid fee is deducted and booked is in prepaid expenses at year end.
Who is responsible if a return or payment is late?
As far as the IRS is concerned, the business is generally the responsible party, and a letter between you and the bookkeeper does not change that. The IRS does not generally accept reliance on a tax professional as a reason to excuse a late filing or payment: you are generally responsible for complying with tax law even if someone else handles your taxes. For payroll, the employer is ultimately responsible for deposits. An owner, officer, partner or anyone else who controls which bills get paid can also be personally assessed the trust fund recovery penalty, equal to the unpaid withheld tax, for willfully failing to pay it over (section 6672; IRS). The usual time limit is 3 years from the April 15 after the payroll year, or from the filing date if later: trust fund recovery penalty.
What the letter may do is divide the cost between you and the bookkeeper. Whether a court enforces that split depends on state law, which this page does not cover. The letter can also set controls:
- Name who files and who pays each item, with its date.
- Require proof of each filing and payment within a stated number of days. The IRS says to know what your preparer files and get proof that it is sent on time.
- Keep the address on file with the IRS as yours. For payroll, the IRS strongly suggests not changing it to a provider's.
- Hold your own online access to payroll deposit records (EFTPS), so you can check payments yourself. A reporting agent must recommend in writing that you enroll, at the start and at least quarterly after that (Form 8655 instructions).
- Ask who repays penalties and interest that the bookkeeper's own error causes.
A draft may also carry clauses that limit your options. State law differs on which of them hold up, so read each closely:
- A cap on, or exclusion of, what the bookkeeper repays, such as only the fees you paid.
- A short deadline to bring a claim.
- Arbitration, or a chosen state's law, for any dispute.
- Late-payment interest and collection costs, and who pays them.
- A right to suspend work over an unpaid invoice, even when a filing is due that week.
For asking the IRS to remove a penalty or recovering it from the bookkeeper, see bookkeeper mistakes and who pays the penalties.
Who owns the books and the software file, and do you get your records back?
The letter should say the business owns its books. A practitioner under Circular 230, such as a CPA, enrolled agent or attorney, must, on request, promptly return any and all of your records needed to meet your federal tax obligations, and may keep copies (section 10.28). A fee dispute generally does not excuse it. If state law lets the practitioner hold records during a fee dispute, they need return only what must be attached to your return, and must give you reasonable access to review and copy the rest.
The rule has gaps. "Your records" means what you or others gave the practitioner, plus documents they prepared that you already received in an earlier engagement. Books they are building for you now are not named, and a document held until its own fee is paid is excluded. A bookkeeper who is not a CPA, enrolled agent or attorney is reached only through section 10.8, which covers an individual paid to prepare all or substantially all of a tax return, or a substantial portion of a document about a tax liability sent to the IRS. Whether it can bind such a preparer is unsettled: Loving v. IRS (2014) held that the IRS's power to regulate practice before it does not reach tax-return preparers, and the Annual Filing Season Program has such preparers consent to these duties (Rev. Proc. 2014-42). So a bookkeeper may not be bound. The letter is what you can point to. If a former accountant is already holding your files, see taking over books from a former accountant.
The letter should say:
- The business owns its books and every record it supplied.
- The software subscription is in the business's name with the owner as administrator, or the bookkeeper delivers a full copy of the file on request.
- Within a stated number of days of a request, or at the end, the bookkeeper hands over the file or a full export, the chart of accounts, ledger detail, reconciliations, payroll records, copies of filed returns and the supporting documents.
- Delivery does not wait on a fee dispute.
- How long the bookkeeper keeps copies, and how they are destroyed. For your own retention, see how long to keep business records.
Can your bookkeeper speak to the IRS for you?
Only with your signed authorization, and what the bookkeeper can do depends on the form and on the credential.
| Authorization | What it allows | Who can be named |
|---|---|---|
| Form 8821, Tax Information Authorization | Inspect and receive your IRS information for the taxes and periods listed. It does not let the designee speak for you, advocate your position or sign waivers | Any individual, corporation, firm, organization or partnership |
| Form 2848, Power of Attorney | Represent you before the IRS, and inspect and receive your information | Only individuals eligible to practice before the IRS |
| Form 8655, Reporting Agent Authorization | Sign and file the returns it lists, such as Forms 941 and 940, make deposits and payments, and receive duplicate IRS notices; it stays in effect until revoked and does not end a Form 2848 or 8821 | A reporting agent, such as a payroll provider |
| Third-party designee box on Form 941 or Form 940 | Talk to the IRS about processing that return, supply missing information and answer certain math-error notices; cannot bind or represent you, and ends 1 year after the return's due date | Any person you name on the return |
Attorneys, CPAs and enrolled agents have unlimited representation rights. Annual Filing Season Program participants have limited rights, and a preparer with only a PTIN generally has no authority to represent you.
The letter should say whether the bookkeeper holds any authorization, which form, for which taxes and periods, and that it is revoked when the engagement ends. Representing you in an audit, appeal or collection matter generally takes an individual eligible to practice before the IRS, named on Form 2848, under a separate agreement.
How should the letter protect your bank logins and financial data?
The letter should say who holds which login, how the bookkeeper protects your data, and what happens to it when the work ends.
The IRS tells tax professionals to use multi-factor authentication for anyone accessing customer information, unique passwords, limited access, encryption and backups. It says tax return preparers must have a written information security plan under the FTC Safeguards Rule, and that a preparer's contracts should require outside service providers to keep safeguards. That publication is written for tax professionals. A bookkeeper who prepares no returns may not be covered, but the letter can ask for the same controls.
Ask the letter to say:
- Which logins you keep and which the bookkeeper holds, with view-only bank access where possible. See giving a bookkeeper access to your accounts.
- Each person at the bookkeeper's firm uses their own login, with a second sign-in step.
- Any outside contractor or firm that touches your data is named and held to the same controls.
- The bookkeeper tells you promptly if your data is lost or stolen.
- At the end, access is removed and copies are returned or destroyed by a stated date.
How do you end the engagement, and what happens to unfinished work?
The letter should let you end it by written notice, give the bookkeeper the same right, and say what is owed and handed over. Your tax dates keep running whoever holds the books.
- Notice: a stated period, such as 30 days. If the letter renews by itself, the last date to give notice before it does.
- Final bill: fees for work done through the end date, and a refund of any unused prepaid fee.
- What gets handed over: months closed and reconciled, open items in writing (unreconciled accounts, unfiled returns, pending deposits and their due dates), plus the records and logins described above.
- Unfinished jobs: for each one, whether it is finished at the agreed price, handed over as it stands, or dropped.
- Authorizations: revoke any Form 2848, 8821 or 8655 in writing, as the instructions for Form 2848 and Form 8821 describe, and end any Designated User access in Business Tax Account. Write "REVOKE" across the top of a copy (the first page of Form 2848), add a current signature and date, and send it to the IRS, or for one specific matter to the office handling it. With no copy, send a signed, dated statement giving each name and address revoked, and the matters and periods for Form 2848 or 8821. The IRS also tells tax professionals to withdraw authorizations for people who are no longer clients.
For the full switch, see replacing your bookkeeper and taking over books from a former accountant.
Example
These examples are illustrative, in US dollars.
A year upfront
A food-truck LLC is offered US$300 a month if it pays US$3,600 for the year upfront. The letter lets the LLC end the arrangement after June but is silent on the other six months. The LLC asks for one added line: unused months, US$1,800 here, are refunded within 30 days of the end date.
A flat fee that leaves out two jobs
A landscaper pays a flat US$400 a month. The letter lists bank reconciliations but not sales tax returns or Forms 1099, and bills extra work at US$90 an hour. Two hours of sales tax work each month adds US$180, so the real cost is US$580 a month, and no one is named for the 1099s due after year end. The landscaper asks the letter to name both jobs, say who files and pays, and either include them in the flat fee or price them.
Books in the bookkeeper's subscription
Two co-owners' books sit in the bookkeeper's own software subscription. The letter should say the company owns the file, holds an administrator login and can ask for a full export. Without those lines, leaving means asking for the history after the working relationship has ended.
Different for you?
- You hold a draft letter with a prepayment request, vague scope or an hourly clause, or a past bill already surprised you: which work the business needs monthly versus once, what the fee should include and which clauses to change depend on your books and entity type. See bookkeeping services.
- Your books are behind or years are unfiled: a catch-up is usually quoted and scoped apart from monthly work. See catching up on overdue books and bookkeeping services.
- A penalty or notice came from the bookkeeper's miss: an open notice has its own reply date. See bookkeeper mistakes and who pays the penalties and bookkeeping services.
- Payroll or sales tax in more than one state, or an owner living abroad: who files each return, and what the letter should cover, change with the states and the entity. See filing sales tax returns, bookkeeping for a foreign-owned US company and bookkeeping services.
- You are switching bookkeepers mid-year: follow replacing your bookkeeper.
- You are deciding whether to hire at all: compare doing your own books or hiring a bookkeeper and the questions to ask before hiring.
- You need to know which professional does what: see bookkeeper, accountant or CPA.
- Your corporation is Canadian, or the engagement is in Canada: see Canadian corporation quotes and engagement terms.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| US monthly payroll tax deposit deadline New Form 941 employers generally start on the monthly deposit schedule; next-business-day rules apply | The 15th day of the following month | IRS: Publication 15 Checked |
| Form 941 quarterly filing deadline Normally April 30, July 31, October 31 and January 31; next-business-day and timely-deposit extensions may apply | The last day of the first month after each quarter | IRS: Instructions for Form 941 Checked |
| Form 940 annual filing deadline Next-business-day and timely-deposit extensions may apply | January 31 after the wage year | IRS: Form 940 filing and deposit requirements Checked |
| 2026 Forms W-2 and W-3 filing and furnishing deadline File 2026 Forms W-2 and W-3 with the SSA and furnish W-2 to employees by this date | February 1, 2027 Tax year 2026 | IRS: General Instructions for Forms W-2 and W-3 (2026) Checked |
| Form 1099-NEC filing and recipient deadline for payments made in 2026 The regular January 31 date falls on a Sunday in 2027, so the due date moves to the next business day | February 1, 2027 Tax year 2026 | IRS: General Instructions for Certain Information Returns Checked |
| Form 1065 due date for a calendar-year partnership 15th day of the 3rd month after the tax year ends; a Saturday, Sunday or legal holiday moves it to the next business day. A 6-month extension is available. | March 15 | IRS: Instructions for Form 1065 Checked |
| Ordinary calendar-year Form 1120-S deadline Following year-end; weekends and legal holidays can shift this date. | March 15 | IRS: Ordinary calendar-year Form 1120-S deadline Checked |
| Calendar-year C corporation Form 1120 due date Generally the 15th day of the fourth month after the tax year; weekends, holidays, and extensions can shift the filing date | April 15 of the following year | IRS: Instructions for Form 1120 Checked |
| Ordinary calendar-year Form 1040 deadline Following the tax year; weekends, legal holidays and special taxpayer rules can shift the date. | April 15 | IRS: Ordinary calendar-year Form 1040 deadline Checked |
| General trust fund recovery penalty assessment period From the succeeding April 15 for timely employment tax returns, or actual later filing; exceptions apply | 3 years | IRS: Trust fund recovery penalty assessment period Checked |
| Deemed annual employment-tax return filing date for assessment In the succeeding calendar year; actual later return filing starts the assessment period later; exceptions can suspend or eliminate the limit | April 15 | IRS: Trust fund recovery penalty assessment rules Checked |
Primary sources
- 31 CFR 10.8, Return preparation and application of rules to other individuals (GovInfo)
- 31 CFR 10.27, Fees (GovInfo)
- 31 CFR 10.28, Return of client's records (GovInfo)
- US Court of Appeals, D.C. Circuit: Loving v. IRS, No. 13-5061 (2014)
- IRS: Rev. Proc. 2014-42, Annual Filing Season Program (Internal Revenue Bulletin 2014-29)
- IRS: Office of Professional Responsibility and Circular 230
- IRS: Annual Filing Season Program
- IRS: Understanding tax return preparer credentials and qualifications
- IRS: Choosing a tax professional
- IRS: Penalty relief for reasonable cause
- IRS: Outsourcing payroll duties
- IRS: Employment taxes and the Trust Fund Recovery Penalty
- 26 USC 6672, Failure to collect and pay over tax (US Code)
- IRS: Publication 15, Employer's Tax Guide
- IRS: Instructions for Form 941
- IRS: Instructions for Form 940
- IRS: Instructions for Forms 1099-MISC and 1099-NEC
- IRS: Instructions for Form 1065
- IRS: Instructions for Form 1120-S
- IRS: Instructions for Form 1120
- IRS: About Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns
- IRS: Instructions for Form 7004
- IRS: When to file
- IRS: About Form 8821, Tax Information Authorization
- IRS: Instructions for Form 8821
- IRS: About Form 2848, Power of Attorney and Declaration of Representative
- IRS: Instructions for Form 2848
- IRS: Form 8655, Reporting Agent Authorization
- IRS: Manage access in Business Tax Account
- IRS: Publication 4557, Safeguarding Taxpayer Data
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.