Tax season is slowly approaching, and as a small business owner, you’ve probably spent some time contemplating whether to do your business taxes yourself or hire a professional. It’s also likely you’ve wondered why it would be valuable to work with a professional when there’s plenty of tax software available. To help you decide, we’ve put together 5 questions to consider before choosing to do your taxes yourself or hire a professional.
1. Is your business structure simple or complex?
Your business structure plays a big role in the complexity or simplicity of your tax filing. If you have a simple business structure, such as a Sole Proprietorship with one individual running the business, filing your own business taxes would be less problematic because your income and expenses from the business might be included on one schedule on your personal income tax return.
However, if you have a more complex business structure, such as a partnership, S corporation, or a multi-member Limited Liability Company, or if you have employees or depreciable equipment, it may be a good idea to hire a professional. Businesses with these characteristics will have more complex tax reporting requirements. It’s also important to understand your state’s tax reporting obligations in relation to your business structure. If your state has more complex reporting requirements, be sure to consider that before filing your own taxes.
Ultimately, your business and its needs are unique. It’s best to analyze your abilities, know where your knowledge lies and also know your limitations in terms of knowledge and time. If you’re unsure and want to lessen potential issues with the IRS or state taxing authority, it might be better to ask for help from a professional.
2. Are you up-to-date with the current tax laws?
Currently, the U.S. federal tax code is more than 2,500 pages, with the instructions for the 2017 1040 form taking up 107 pages alone. The U.S. tax code has grown significantly over the years, with the latest tax reform, the Tax Cuts and Jobs Act (TCJA) enacted in December 2017, primarily affecting tax years 2018 and beyond. One way in which business taxes will be affected is by the 21% corporate income tax rate for C Corporations. The law also decreased individual income tax rates which will affect owners of income pass-through businesses such as partnerships and S Corporations. Understanding your business structure will help in determining the types of taxes your business owes. If staying up-to-date on the latest tax reforms doesn’t sound appealing, hiring a professional to do your taxes may be the best choice for you and your business.
3. What do you value more, your money or your time?
As an entrepreneur or business owner, two of your most valuable resources are time and money. But which one do you value more, and what is the hourly value of your time? Typically, you can look to spend on average between $261 and $806 to have a professional file your business tax return, depending on your location. In contrast, according to the IRS, it takes business owners, on average, approximately 24 hours to file their taxes, including recordkeeping, completing forms, and any planning involved. If you choose to have a professional do your taxes, you will lessen your form completion burden, and that time can be spent on other tasks.
4. Do you know the deductions for which you might (or might not) qualify?
It’s always a great feeling when you can score some great tax deductions during tax season. But are you aware of all the tax deductions available to you and your business? Or the ones that may no longer be available because of the recent tax reform? There are plenty of resources available online to educate yourself, but it’s important to keep in mind that not every business structure can claim the same deductions. To be sure you’re not missing out on any tax deductions available for your business, it may be wise to work with a professional who has a better understanding of the area.
5. Are you prepared to deal with the IRS?
Once you sign your tax forms, you take full responsibility for the information you include on your forms. If you file your own business taxes, this means that the IRS will come to you with any questions. If you choose to have a professional prepare your taxes, you can direct the IRS to bring any questions about the filing to your tax preparer. You are also able to grant your CPA power of attorney to represent you before the IRS in case any errors do occur on your tax return.
At the end of the day, the complexity of your business and finances should be the key factors when deciding whether to do your business taxes yourself or hire a professional to handle them. If you choose to tackle them yourself, be sure to pay close attention to the details and have a good understanding of your business structure to know which tax rules to follow. Understanding the tax deductions for which you could qualify as well as the changing tax laws will help keep you from making any mistakes. However, if you value your time over your money, or you just don’t want to deal with the complexity of your business taxes this year, reach out us. We’d be happy to help you and your business!