Do you really need a tax preparer for your business?
I get asked all the time: ‘Do I really need to hire a tax preparer to pay my business taxes?’ Well, it is tax time, and this question is coming up more and more often. Today, I want to go over some things that will tell you the difference between DIY and hiring a preparer, as well as a few things that you should look for when you are outsourcing your business tax returns.
Maybe you're wondering things like, ‘Is it worth the investment to hire a preparer?’ Or maybe, ‘Is my business even big enough to need a tax preparer?’ Another thing I hear is, ‘Is it really that hard to fill out a tax return?’
So, what's the difference between DIYing your taxes versus hiring a tax preparer? Well, first of all, when you DIY, it simply means that you do it yourself - it's all on you. You will log in to an online software and answer all the questions that come up. You'll enter your income and your deductions and try to go through the questions in the software as best as you know how to. You will be responsible for everything from the start to the finish of your return.
There will be no professional set of eyes on your tax return, and when you hit submit, that’s it. You're going to be doing everything, and it can be extremely time-consuming. And don't forget, before you even begin to get started in the software, you need to figure out all your numbers, gather all your documents, and make sure that you have all of the tax deductions that you deserve.
Hiring a preparer is a little bit different. By hiring a preparer, you're going to have someone that's going to handle everything for you. You are going to literally hand them your tax documents and they will complete the return for you. Most preparers should know what to do to complete all the paperwork and maximize your tax deductions. Maximizing your tax deductions means that you will have a lower tax liability.
Notice that I say “should” because not all specialize in business tax returns. It's super important that you find someone who specializes in tax for small businesses. I would also go further to find someone who specializes in tax planning and is available to you all year long. Because who knows what will happen in your business after the April 15 deadline, and you may have questions. So, make sure that the person is going to be able to help you. I will add that even though you hire a professional to do the tax return, at the end of the day, you're still responsible for what is submitted to the government. So, it's super important that you make sure you have a reputable preparer. I'd also ask them what happens if they make an error on your taxes.
I'll also note that all preparers are not the same. Just like you would vet out a primary care doctor, I also recommend that you do the same for your tax preparer. Ask them all kinds of questions.
For example:
How long have they been in business?
What types of returns did they specialize in?
Are they there for you after the return is submitted to the federal government and to your state authorities?
Do they help you with tax planning?
Do they specialize in finding all those missed deductions that you don't even think about?
Can they help you in your bookkeeping?
Are they there for you after the sale?
Now you know the difference between DIY and hiring. Simply put: DIY = you’re on your own. Hiring a preparer = you have someone with a professional set of eyes that really knows what they're doing to make sure you're paying the least amount of taxes.
So, should you hire?
In my opinion, the answer is always yes. Hire a tax professional as soon as you can afford one. There isn't a business too small that should not have a tax preparer set of eyes looking at your return.
If you do decide to go the DIY route…
I want you to keep a few things in mind. The first thing is to make sure that you do your pre-work. Before you even open up that software, make sure that you've gathered all of your documents and you have your books in order. When I say ‘gather your documents,’ make sure that you have all sources of income. If you have a business, make sure that you have your income and your expenses written down, and you have looked through to make sure you've claimed all your income and all of your deductions and that you're not missing anything.
Then, I want you to find a reputable software. One that I would recommend if you're trying to DIY is TurboTax, which can be done online, but there are several different options. Take what ends up in there and have a tax preparer look at the return for you. So you prepare it, but they'll just glance at it quickly to make sure everything looks okay. That doesn't mean that they're going to be digging deep for those maximized deductions.
The other thing you can do is consult with a preparer. Before you start working on your return, maybe have a little chat with a professional tax preparer. Explain to them that you can't afford to pay for their tax preparation services quite yet, but you just want to pick their brain a little bit to make sure that you are claiming all the deductions that you should be claiming.
Then, as you're doing a tax return in the software, I want to make sure that you take your time. Go slow. Make sure you understand the question before you answer it. If you have a question, look it up in the software. When you're finished, I want you to review the tax return. Make sure that it's accurate. Compare it to last year's return to see if there are any changes or any discrepancies. If you're getting a large refund and you normally owe, there may be an issue. If you owe a lot but you normally get a refund, again, there could be an issue so make sure that you check it.
If you do decide to outsource your business taxes to a professional tax preparer…
There are a few considerations that I want you to keep in mind. First of all, there are several different types of preparers. Most people know a CPA or a Certified Public Accountant. These accountants are certified in their state for accounting. They specialize in accounting, bookkeeping, and taxes.
Another delegation of tax preparers is Enrolled Agents or an EA. These particular preparers have passed a federal test for taxes only, so they are not certified in accounting.
You also have registered tax preparers for the Internal Revenue Service. These preparers, along with CPAs and EAs, are required to have a certain number of continuing education hours and pass different courses throughout the year.
You also have unregistered agents to prepare returns. These agents can prepare returns because there is no license, anyone can prepare taxes. However, they have not met the requirements for continuing education or passed any exam for any tax preparation services.
So keep that in mind as you are selecting the type of preparer for your return. You have:
CPA (Certified Public Accountant)
EA (Enrolled Agent)
Registered preparer
Unregistered preparers
It doesn't mean that one is necessarily any better than the other. You really just need to talk with the preparer to make sure they understand and grasp small business, that they are doing their continuing education, and that they are up to date on all the latest tax laws.
A few other things to think about:
Think about how you feel emotionally about preparing your own tax return. If you're worried about receiving notices in the years to come, or maybe just the stress of preparing your own return keeps you up at night, those are reasons to outsource your taxes because your mindset and your emotional well-being is worth the money.
Also, do you know how to maximize your deduction? Do you know all the latest tax laws? If you answered ‘no’ to both of these questions, then it's time to outsource, and usually outsourcing will pay for itself. The cost of the tax preparation fees usually outweighs the savings that you will receive by hiring a professional.
I hope that this helps break down the DIY versus hiring a preparer, and if you're still wanting to DIY but you're really not sure how to organize your income and expenses, I'd love for you to download our Tax Deduction Cheat Sheet that will go over all the different deductions, many of which small businesses miss from year to year. And also if you're needing some help getting all of your income and expenses separated out so you know exactly what to file, make sure you download our Calculated Tax Planner.
