As a small business, is it better to save money and do my taxes myself or hire a professional?
This is my first year owning my own business. I've always done my own personal taxes but I have no experience filing taxes as an owner to a new business. We have hired several employees that I have to submit W-2 forms for. Am I better off doing this myself to save money or should I skip the hassle and make sure it's done right by hiring a professional?
Hire someone, it' worth the money AND the peace of mind. Interview a few accountants and bookkeepers who are enrolled agents. You won't be sorry.
The simple answer is: if you are not a subject matter expert in taxes then you should let a professional do it. It's what they do everyday. Save yourself the stress,
As a tax professional, I obviously have a biased view on this question. I work with many small business clients and usually welcome new business when it comes to me, if the client and I are a good fit for each other. At the same time, being too greedy and charging clients for services that they could easily do themselves could result in a poor reputation of my own business over the long term. My most basic answer to this question is "it depends". If you're just a one-person business providing services and/or selling a small inventory and file a Schedule C with your personal return, are good enough at math and your volume of business is still small, you could probably get away with using a simple software program and save your extra money to help grow the business. On the other hand, as your business grows larger, secures different business licenses and is subject to different kinds of business related taxes, and/or chooses to file as a corporation or partnership, I think a tax professional is much more necessary, as many more complications can arise.
You also mentioned that you are hiring employees - I highly recommend that you not do that yourself. Regular income taxes (business and personal) are one thing but payroll taxes can be especially tricky and the IRS and state tax agencies come down VERY hard on businesses that don't file and pay them correctly. It is certainly possible to use a professional for just payroll taxes (as some of my clients do) and do your other business taxes on your own. Many of my clients prefer the "one-stop shopping" and send all their tax matters (payroll, business, personal) through me; others use their bank for payroll taxes (most banks can perform payroll taxes for you if they have you have your payroll account there) and me for everything else.
I noticed you are in Vermont. Payroll taxes in Vermont are a special hassle, because you have to deal with two separate state agencies to pay them - the Department of Revenue (for regular withholding taxes) and the Department of Labor (for unemployment and disability taxes). While most states have you pay all these taxes at one place, Vermont makes you file and pay them on two separate websites and has no plans to change this for the foreseeable future. It is a pain. Then you have the IRS payroll taxes to contend with as well (Social Security and Medicare) regardless of where you are.
Short answer - definitely outsource your payroll taxes and for other types of taxes, it depends.
From the prospective of a CPA- if your taxes are really simple, you can do them yourself. However you might consider tax planning, do you know the benefits of a section 125 plan? Or hiring your spouse? You did not mention if you are incorporated, I assume you are not. Have you considered the benefits there? Do you know that an LLC can generally be taxed as any form of business you choose? The LLC is basically ignored by the IRS, but not your state. Do you know how to get things from Schedule A moved to Schedule C LEGALLY? It saves an additional 15% in Self Employment tax, and could generate larger deductions. Do you know how to break out interest so it is properly reported in the most tax friendly way?
D you know the different ways you can deduct deprecation and which will make the most sense for you? If you are going to show a loss, and it will drop you into a very low tax bracket, have you considered a ROTH conversion of IRA money? Do you know how to do net loss carry forwards and backwards if you do have a loss?
We generally charge a few hundred dollars for a small business tax return. And I can see the temptation to "do it yourself and save money". But if you do not know all these things, are you really saving money? Are you ready to spend 40 to 60 hours a year keeping up with the tax changes, and hundreds of hours a year keeping up with regulation changes, knowing what the hot buttons are, etc? What is that time worth to you?
Again, if its a very simple return, you do not need a high powered tax pro, but if you are paying tax now, or will be in a few years, a good CPA should be able to more than pay for themselves. If they can not, they are not much of a tax pro.
Hire a professional the right one will save you money in the long run, As a business owner you need to take advantage of every option open to you for expenses and deductions. Also based upon your corporate structure your tax bill may flow through your personal account and you need to insure that you maximize your deductions and minimize your tax bill.
Spend the money and have a good business tax accountant do your taxes. They have the current required rules to work with, and it is possible that you might miss some deductions that you didn't realize were available.
The answer to that question strongly depends on how well you understand the various intricacies of the tax legislation, how much your turnover is, and how much profit you actually make. The problem in that question is that knowing your profit strongly depends on your understanding of things like deductibles, charitable contributions, and other requirements under the law that you may well be able to write off.
If you do have a good understanding of tax law you might well be able to save yourself the fee you'd pay for an accountant, but consider this before you go ahead an do your own taxes.
A good accountant isn't just someone who files the necessary paperwork for you. They can also help with financial planning, both for yourself, and and for the future financial growth of your business.
There are also legal obligations as a business owner which you are personally responsible, and therefore liable for, particularly if employ staff. A good qualified accountant can help you with untangle the must do from the should do, and the will offer in the future categories. For instance in the UK it is now law for all employers to off er staff, however big or small a business they are, a work place pension. Putting that in place is not an inconsiderable undertaking, and you have to evaluate how much your time is worth! Are you better at doing taxes, or planning your next line of products.
Time as they say, is money and in business that means every moment you spend, even answering a question on a social network, has a cost benefit that needs to be evaluated. Also when you hire an accountant you are taking a lot of pressure off yourself, and offloading a needed task to someone potentially better qualified to do it.
In short doing your taxes shouldn't necessarily be seen as another chore that you have to do to stay legal, it's an opportunity to take a closer look at the way you operate as a business, and fine-tune procedures you employ on a day-to-day basis. As the person who does that planning, even with an acute understanding of the legislation, you may well dismiss things that a new set of eyes would point out to you as an area in need of attention, and posible change...
In short as the owner of a business your focus needs to be on the things you do well and that have made your business successful. If that is doing your taxes then fair enough, but based on past experience I seriously doubt that it is. Your business is probably where it is due to your creative input, and one of the most important skill that you need to learn as a small business owner is to delegate where posible tasks that can be handed off to other people who are more skilled at doing them...
Good luck, and may the coming new year bring you prosperity and security :-)
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You're not going to save $$ doing it yourself! For years I used H&R Block & discovered they were being ULTRA conservative. When a real accountant got a hold of my taxes, he pointed out hundreds of dollars of deductions I was entitled to which more then paid for his services.
As for me, there is nothing like a tax attorney. They are without a doubt the most "On Top" of the tax codes, have more to worry about than an audit (placing their Bar affiliation intact) , and usually have access to much deeper resource libraries and connections in the field. Search for one that specializes in your industry and filing type; LLC, Open or Close Corp, Chapter C, Subchapter S, etc.
As has been said already, you have better things to do than accounting.
If you are competent in accounting and taxes, do it yourself. You have much more control.
As long as you can same money in a small business , go for it - It will strengthen your fianancial position ,which may result into expansion at any time .
My view is that you are better to invest in good professional advice in relation to taxes, rather than trying to do it yourself.
If you good at taxes and confident of doing right then go ahead and spend the money where you can maximize the return.Otherwise it will be better to take help of a professional and spend money once but don't think of doing twice or spend more money later then saving amount.I hope it will be great help.
Use a professional in finance to do your taxes because they know how to either maximize your return or minimize how much taxes you pay.
Corey, I think this is a question you have to decide for yourself. Do you feel that you will be able to identify the best tax advantages for your business after only one year and is the time you take to do the taxes taking you away from time spent on the business proper.
A certified accountant's job is to save you money and perhaps help you continue to grow your business in ways that effectively minimize you tax liability. Perhaps at least initially, the advice and support you get from a good financial person.will provide you with ideas to consider for your business you might otherwise not have considered.
I believe in doing what you do best and paying others for the rest, so if you are not saavy in tax planning, how to organize deductions for your best advantage etc...it's worth finding someone who does this as HIS business.
Definitely go with a professional. As others have said, the time and energy you would spend figuring it out yourself aren't worth the hassle; especially if you make a mistake and have to pay penalties.
Use best practice and hire a professional. Being a,new business owner your focus should be on building your business. Not having the knowledge of the current tax laws could lead to fines, over/ under payments, garnishments or worse.
Actually there is an alternative and that is to buy a decent accounting package that does most of the thinking for you. I would agree with many who have written that as an owner you have better things to do than study tax law but I would also argue that you do need to understand the principles to make well informed decisions. I use a cloud based accounting package that sucks all my transactions in from my bank account, does my payroll, calculates sales taxes and files returns and produces P&L and other reports st a fraction of the cost of hiring a book keeper IR accountant. That said it is worth taking advice but at least if your software does the heavy lifting you only pay for real value adding advice. Take a look at Freshbooks or Xero.
Unless you are really tax savy, hire the pro. Like have a proper mileage log, if the co. buys life ins. on you, who is the owner and who is beneficiary for the business pay the premium and is the prem. or use of a car a taxable item to you. Meals are some times only 50% deductible, other times 100%. Did you do qtrly 941's on payroll and know how to do yr. end 940, to send W-2's to Social Security as well as IRS? No, I'm not an accountant. I know enough to know there is a lot more to know. Consider tax accountant's fee insurance.
Congratulations on making it through the first year. Like the company name too.
Here are my thoughts:
Time, money and risk are the elements under consideration.
The costs, penalties and negative impact associated with an error made on your taxes will surpass any fees that you would pay a professional to handle these issues on your behalf.
Mistakes made in this area can threaten the existence of your business. IMHO, it is not worth the risk.
Do yourself, the family, employees and the community your business serves a favor - hire a professional (EA or CPA) to do your taxes. Check with your peers, the SBA/SBDC/SCORE or local Chamber of Commerce to obtain suitable referrals.
Tip: There are three (3) professionals you want on your team - an accountant, an attorney and a business advisor.
We are paid to learn, know about and counsel you on the legal/technical issues that impact your business. There is also demonstrable expertise acquired in repetition - we do regularly what you need to address occasionally. We also have the added vantage point of serving many organizations that deal with similar situations. You get the benefit of that exposure/experience.
Another added (yet sometimes unrealized) benefit in building such a team is that often we are connected to a vast network of people and professionals - leading to the ages-old statement, “oh, them?…they are a client of ours…” which may result in other referrals for your business. Most professionals are happy to refer/connect clients to other businesses that they (wait for it), know, like and trust. It comes with the territory.