Hiring someone else to do your taxes lets you focus on what you do best
Should you do your own taxes? Is it a good idea to crunch the numbers yourself? The answer is subtle and complex, dependent on a range of variables. And if you just finished filing your taxes, you may already know the answer to the question.
Michael Bremmer speaks for many when he explains his rationale for avoiding IRS paperwork each year. "It’s not worth the stress of hoping we get it right internally. It used to be days of hell trying to figure out our taxes, both personally and corporately. Now I pay $1,000 and they’re both done in two hours, with no stress," says Bremmer, CEO of Moreno Valley, California-based Telequotes, a four-person shop that generates telecommunications quotes for its clients.
"I believe in paying experts to do their job," he said. "That’s my business model, after all."
A recent NFIB survey found that 91% of small businesses hire someone to do their taxes. Why do they outsource the accounting? At cloud accounting site freshbooks.com, CPA Wray Rives blogs three good reasons:
Because you don’t know enough.
"There are inevitably questions that come up during the year and you need to have a relationship with someone who knows your business and can offer advice when you have questions," Rives writes. "I don’t know many business owners that have a strong accounting background, so it takes time away from doing what they really love to do."
RELATED: NFIB's Guide to Small Business Taxes
Because numbers are scary.
"I have some clients who honestly have very simple returns, but their personality is such that when you mention numbers and the IRS, it completely stresses them out. It is worth their peace of mind and their time to have someone do their taxes for them."
Because you have an unusual transaction.
Have you bought or sold real estate, drawn rental and royalty income? Professional help can be significant. Tax software isn't designed for these situations, and likely won’t guide you through the subtleties.
At Carefulcents.com, a site to help business owners manage their finances, financial strategist Carrie Smith takes the argument further.
It’s time to hire a pro, she writes, when:
You’re fresh out of the gate.
"Starting a new business or hobby venture takes expert knowledge. You wouldn't jump off a diving board without swimming lessons, so you shouldn't try to do your business taxes without some guidance." Tax experts can help you find lots of deductions and prevent you from getting into trouble.
You’re not a CPA.
Professionals can do things you can’t do. While you are baking or fixing bikes or simply trying to schedule the next shift, they are keeping up-to-date on changing tax laws, ferreting out obscure deductions, and giving tax guidance throughout the year, so that you are in the best possible position come tax time.
All that being said, there are some times when doing it yourself can make sense for a small business owner.
"If you enjoy keeping track of all the numbers, transactions and receipts, then by all means you’re the best person for the job. You know the ins and outs of your situation the best, and can control everything accurately," Smith notes. Likewise, a solid understanding of tax laws may lend itself to a DIY approach. "If you can browse the IRS website, comprehend their tax jargon, and stay up-to-date with changing tax laws, then go for it."
For those who decide to take the plunge, a number of software tools are available to help. TurboTax Business, for instance, is tailored to the entrepreneurial situation. Other programs such as TaxACT and FreeTaxUSA will serve a similar purpose.
Still, most small business owners feel safest in the hands of a professional.
"We love our accountant," says Evanna Shaffer, director of consulting services at LTS - Legal Technology Staffing in Redondo Beach, California. "As a small business owner, I have enough on my plate. We know what we're good at, and we hire professionals who excel in their field to handle the rest."