When it comes to filing your small business taxes, it all boils down to two options: following the DIY method and filing your own taxes or working with a professional, such as a CPA, qualified tax preparer or tax lawyer.
How do you decide? You'll want to consider a few things, such as how comfortable and confident you are with taking on the responsibility, how complicated or uncomplicated your tax situation may be and how knowledgeable you are with the filing process. Knowing how to file one’s own taxes is a great skill to have, but a business owner needs to be current with tax changes and updated on tax laws, as well as capable in working with the complex forms and filing involved. Anything less could prove to be costly, especially if a business owner does not maximize on their deductions.
So is following the DIY self tax preparation method worth it? Or would the cost of having an accountant or tax preparer help pay for itself, especially considering the service, experience and access to advice that comes with it. (Let’s also not forget that tax planning and preparing takes time, which can be as valuable to a business owner as money.) Taking all this into consideration, let’s break it down and see which of the two options would be best for you.
Is It Better to Do Your Taxes Yourself or Use a Professional?
When it comes to this question, small business owners need to consider a number of factors. Do they have the time to work on their taxes? (This includes keeping track of records, organizing documents and completing all the required tax forms.) Business owners need to be honest and ask themselves if they know enough when it comes to tax code, or, more simply, if they know what they are doing. Take a moment to assess your situation. How complicated are your taxes? If your business is a sole proprietorship or single-member LLC, odds are that your taxes will not be as complicated as a business juggling multiple employees, payroll, retirement accounts and insurance.
Although filing taxes on your own can help save a few hundred dollars, you can also risk leaving money on the table by overlooking credits and deductions. Small business owners need to always think of the financial health of their business, and unnecessarily shelling out money to the IRS takes capital away from a business. Another factor to consider is ensuring that your filing is error-free. Any mistake in your tax forms can cause problems. And the last thing you want is for the IRS to notify you of an error or omission in your filing. Some errors, as unintended as they might be, can raise a red flag and put a business in greater risk for an audit.
Beyond using the IRS free filing options, there are a number of tax preparation software options available for small businesses, but they do come at a cost and you are still taking time away from your business to prepare and file your taxes. Three popular tax software options for small businesses include:
H&R Block: Starting costs at $109.99 for federal and $44.99 per state
Liberty Tax: Starting at $89.95 for federal and $34.95 per state
Although many tax software programs are easy to navigate, the reality is that each business differs when it comes to their tax situation and there is no one-size-fits-all solution. And many tax software programs do not come with a consultant on the other end to help answer questions and guide you through the process. Though they may be the way to go when it comes to a standard filling, complex filing associated with businesses require an added level of support that comes with the experience of a professional tax preparer.
Choosing a Tax Professional
We’ve established that following the DIY option can save you money, but it also opens you up to the risk or error and omissions, which, in the end, can result in lost credits and deductions or, worse yet, an unwanted call from the IRS informing you that there is an error in your filing. Although filing taxes using the DIY option may be a good plan for a single filer with a simple and basic return, a tax professional is often a better option to meet the needs of a small business owner whose taxes are more complicated. Not to mention that a professional will be up to speed with tax changes and can identify tax breaks that may have been overlooked if you filed using the DIY approach. And when it comes to error-free filling, a good professional tax preparer will help ensure the accuracy of your filling and even deal with IRS communications if any questions do happen to come up.
Other benefits of having a tax professional prepare your taxes include:
Ensures that you maximize your deductions and credits
Ensures the accuracy of your filing
Potential representation in case of IRS contact, even if the error is on the part of the IRS
Professional review of all your business expenses, including property, rent, leasing, investment, insurance, supplies and professional fees, such as tax preparation services
Close review of all your potential (cost-saving) deductions
Frees up your time so you can focus on your business
Taking all this into consideration, being a small business owner puts you in a separate category from individuals filing simple returns. Hiring a CPA can also help you with your tax planning, such as any expansion plans, buying new equipment or machinery or even selling off assets. According to the National Society of Accountants fee report, fees for a Form 1120 (corporation) or a Form 1120-S (S Corp) average $900. The average fee for a Form 1065 (partnership) can be $700. This can be a small price to pay to know that your tax returns are being prepared properly.
Getting the Right Support with Incfile
When it comes to the question of, "Should I file taxes myself or pay someone?" the answer for most small business owners will be clear. Go with professional help.
Running a business will take up a lot of your time and energy. Having a professional in your corner to help protect your business and investment is an important decision that every small business owner will need to make. In the end, you’ll need to conduct a cost-benefit analysis that would best serve your needs and the needs of your business.
Take the first step and go to Incfile for a free tax consultation. Incfile offers the support of bookkeepers and accountants that will help prepare, review and file sole proprietor, LLC, S Corporation and C Corporation business tax returns, ensuring that you meet the government’s filing requirements. Having a professional on your side will make sure that the process goes smoothly and will help avoid any costly missteps that may derail your small business.
Peter Mavrikis is an author and editor with over 25 years of experience in publishing. He has worked as the Editorial Director for Barron’s Educational Series, as well as Kaplan Test Prep, where he ran the test prep, foreign language, and study guide divisions. Peter has also written several books on history, exploration, science, and technology.