Should You Do Your Own Taxes?

In most instances, no, you should NOT do your own business taxes. Why? Because you are not a tax expert. And statistics from the IRS indicate that most people make significant mistakes when preparing their own taxes. Because of the complexity and frequent changes in the law, it is actually best to allow a professional to assist you in your tax preparation. At the very least, you should always have your business taxes reviewed before they are submitted if you do decide to do them yourself.

Tax Preparation Software

Tax preparation software makes it seem easy for the small business owner to do his or her own taxes. There are dozens of choices, with new packages being made available every year. But beware, not all tax-preparation software packages are alike. Your first step should be to evaluate your personal situation. Make sure the package you select can handle the variations you need for your business. Feel free to comparison shop online and at your local office supply or media supply store. Some packages include state forms, some do not. Some are very hands-on, tutorial-based programs, while others assume a strong basic knowledge of tax filings with bare-bones instructions. Most software programs provide support through an 800# and online help. Some will even provide you with assistance in an audit situation. Some include online filing with the base cost, some charge extra. Price should be only one of your considerations … considering the ease of use and appropriateness for your situation are just as important.

Some packages have an “error check” or “audit flag” feature. Make sure you run it. Just because a flag is raised, it doesn’t necessarily mean your deduction or entry is wrong, but make sure you are comfortable with your reasoning as to why you feel you can claim it. If your deductions are ever challenged by the IRS and you did your return yourself, you need to be confident that you have the appropriate documentation and logical support for any questionable deduction you may take.

If you have complications in your taxes you are unsure about, you may want to have your do-it-yourself returns reviewed by a tax professional before you submit it. The cost may be well worth it, and it’s a tax deduction, so make sure you claim it.

One thing to be aware of is that most software packages ONLY deal with year-end taxes. They typically do not calculate ongoing quarterly tax payments, local and state taxes, payroll taxes, and other taxes that are frequently necessary.  If you do-it-yourself, you will be responsible for making sure that all taxes are filed in a timely and efficient manner.

Finding Professional Help

As a small business owner, your time and personal resources can often be more effectively used to make money and work on your business than to spend hours completing tax returns. Finding a competent, reliable tax professional, or even a good bookkeeper, can free you from the burden of staying absolutely on top of all changes in the tax code, and will free you from the drudgery of completing your own returns. The IRS says it takes the average individual 13 hours to complete a personal tax return. It can be twice as long for the typical business owner. Looking for a tax professional is a lot like looking for a dentist, a family doctor, or an attorney.

The best place to start is to ask your friends, neighbors, or business colleagues for recommendations. Especially talk to accountants who are doing taxes for companies similar to yours.  Certain industries have certain tax situations that are common so make sure any assistance you find has knowledge of the intricacies of your situation.

There are typically four categories of tax professionals to consider: storefront tax preparations shops; enrolled agents; certified public accountants; and tax attorneys.

Storefront Tax Preparers

Let’s first look at storefront tax preparation shops. Their workers are usually seasonal employees and, though they have been through more training on taxes than you may have personally, they don’t know your business and you can rarely develop a long-term, trust-based relationship. They can be very efficient at straightforward, relatively simple returns. These employees cannot represent you before the IRS or in tax court, but they can accompany you to an audit if needed to answer questions on the return they completed.  However, many storefront tax preparation services hire Enrolled Agents and CPAs so they will often have the experience and expertise you need if you ask.

Enrolled Agents

An enrolled agent is licensed by the federal government and is usually a former IRS employee. At the very least, an enrolled agent has passed a comprehensive IRS exam. Enrolled agents, however, often specialize in certain types of businesses, so be sure to ask about their experience. Enrolled agents can represent you before the IRS and during an audit, but generally not in tax court, unless they are also an attorney.

Certified Public Accountants

A Certified Public Accountant (CPA) is licensed by the State and has been tested on various areas of accounting procedures, though not all are tax specialists. They are required to take regular continuing education courses to stay current on accounting procedures and tax law. The strength of a CPA is his or her ability and training to look at the bigger picture and assist in unraveling complex financial issues. CPAs can represent you before the IRS and in audits. Just a note: don’t completely ignore those recent accounting graduates who haven’t yet passed their exam. They may be able to assist you at the beginning of their career, and at a significant discount.

Tax Attorneys

Tax attorneys are generally knowledgeable about complex, corporate issues. They will often know the latest laws and issues in tax disputes, but may not be as conversant on the actual completion of the actual tax return. They can represent you before the IRS, during an audit, and appear before the tax court if the dispute goes beyond the IRS auditor or field office.

Bookkeepers

Not all bookkeepers are equal.  Some bookkeepers have been trained in tax preparation, others have not.  You should definitely have some sort of bookkeeping assistance on a monthly basis, either an employee or an outside service, as your business grows.  Turning over your monthly bills, checkbook balancing, payroll, and quarterly taxes is often necessary so you can focus on growing your business.  But check the qualifications and background of any bookkeeper carefully.  This person needs integrity and experience.

Characteristics to Look For

The characteristics for the right tax professional for you is one who: 1) understands your business; 2) understands your income and expenses; 3) is neither overly aggressive nor unreasonably conservative; 4) is competitively priced; 5) is not too busy to take on a new client; 6) can be reasonably available to spend some time with you and answer your questions and provide you with advice and; 7) most importantly, is someone you are comfortable with, someone you can talk to, someone you can trust.

Be aware that some tax professionals and CPAs are only in business for part of the year. You really should look for a full-time professional, not someone who only does taxes during tax season.

Make sure you inquire as to what services your chosen professional provides. Some CPAs and bookkeepers will set up accounting software for you, or will reconcile your monthly bank statements, or will even provide basic services such as writing checks to your vendors. Be sure to ask. They will often have contacts with payroll services, check-printers, and bankers, so they are often good resources for other business needs, too.

It is never too early to identify your tax preparation help.  They can be of enormous assistance in setting up your business.