DIY Taxes vs. Hiring a CPA: What’s Best for Your Small Business?Every owner loves to cut costs, but tread carefully when it comes to your business' taxes.
Considering taking the bull by the horns and filing your own business taxes this year?
Sure, doing your own taxes can save you money, and for some business owners it pays off. But it can also set you up for a big headache in the form of an audit later — or cost you money in the long run.
NCR Silver spoke to Ted Jenkin, CEO and founder of oXYGen Financial and a featured columnist for the Wall Street Journal, and Alan Salus, CPA and owner of business tax advisory firm Salus Consulting, on what small business owners should consider before they decide to take a DIY approach to taxes.
Are you organized and financially savvy?
Do you keep all your receipts in a big box until tax season, or are you a financial whiz with accounting know-how and detailed records?
Before doing taxes, it’s essential that you have an accounting system in place for your business, said Jenkin. “You won’t be able to do your taxes yourself if you have no tracking of income and expenses.”
If you’re not comfortable managing your books and you don’t have a basic grasp on tax law, your best bet may be to hire an accountant.
On the other hand, said Jenkin, “If you’re pretty fastidious, you should be able to do your own taxes, especially if you’re just filing a Schedule C.”
Do you have the time?
Factor in the value of your time when deciding whether to do your own taxes. How much time it will take is anyone’s guess and depends on your business and your tax savvy. But even if you can complete your return in eight or ten hours, “that’s a lot of time out of any small business owner,” said Salus.
Are you aware of tax “danger zones”?
If you do your own taxes, you’ll need a pretty good understanding of which deductions you can take and which you can’t. Jenkin said the top question small business owners ask their CPA is “Can I deduct this?”
Even if you decide to do the actual filing yourself, consider hiring a CPA for advice. A professional accountant can explain what you’re able to deduct and make sure you’re not deducting anything illegitimate that could trigger an audit.
You’ll want to pay special attention to the home office deduction, meal and entertainment deductions and automobile expenses, said Jenkin. The IRS tends to eye these more closely.
According to Salus, another highly scrutinized area is your cash receipts. “I’ve run into some audits where people just reported their credit card sales.” Based on your industry, the IRS has a general idea of what percentage of your revenue should be from credit cards vs. cash sales — and will judge your returns accordingly.
How complicated is your business?
This is the main question. One-person companies that do consulting or freelancing are often able to do their own taxes, said Jenkin, “as long as they have a decent handle on where they spent money during the year.”
As your business grows, you’ll definitely want help from a CPA, he said.
“Once you get into having employees or you’re subbing out other independent contractors, it’s probably not a bad idea to get a second opinion to look at it all.” -Ted Jenkin
Having a professional help with your taxes can sometimes save you a lot of money because a pro knows how to maximize your deductions, said Salus. “You could pay $5,000 extra in taxes each year. Over a period of five years, that’s a lot of money.”