It’s a DIY world out there, with many small-business owners handling much of the work that bigger corporations outsource. If you’ve ever made your own social media video go viral, you know there’s nothing you can’t do if you put your mind to it. But what about taxes? Does it make sense for you to wing it with something so important?
We know you’re capable, but with so many DIY software options, it’s hard to know if you should stay scrappy or hire a pro. Here are some examples of when it may make sense to leave your taxes up to the experts.
Taxes stress you out
Maybe you love tracking your standard mileage allowance and find it thrilling to calculate adjusted gross income (AGI). You’re the exception. For everyone else, just mentioning an audit causes grown adults to break down crying. If you’re already shedding a tear, pass off this dreaded task to someone with a cool head and lots of experience on their side.
Business owners deal with a lot, putting out fires and making major decisions they can’t avoid. If setting something aside keeps you in a healthier place, free yourself of taxes first.
You don’t (really) have the time
Work-life balance is tough. Most of us never really get the hang of it. That’s why tax season adds such an enormous amount of pressure to the schedule. You have to collect all the documentation, find that perfect tax software, make sure everything is updated, and run the numbers again and again. Ugh.
If choosing between late nights at the office or playing Mario Kart 8 with your kids is really a choice, we recommend picking the latter. You’ll never look back at your life and wish you spent more time double-checking 1099 forms.
You have a complicated or changing business
Different industries have different tax needs. An in-home day care provider seems like a pretty straightforward business, right? Well, when it comes to taxes, things can get very complex.
How much of your new microwave can you deduct? What food counts as day care food? Do you get to claim the time spent cleaning after hours? If your business involves storing inventory or using your own home as the main office, you often must use complicated formulas to figure your deductions. Getting it right ensures you see the most money in your pocket (and avoid audit problems).
You hire others
When you’re a one-person show, the forms involved in a typical tax filing are pretty straightforward. When you start paying others, however, the forms start adding up.
Do you classify your lawn professional as an independent contractor or an employee? The answer should be decided long before tax season, and your local labor department will have guidelines for making the call. A good tax professional can help navigate the right way to file after all of that has been decided, including whether to issue W-2 or 1099-MISC forms. Misclassification of workers has been a hot topic lately, especially since California passed Assembly Bill 5, and you’ll want to show you’re staying on top of the ever-changing laws, especially on your tax forms.
You can’t keep up with the news
Every new law that comes into the Senate seems to deal with finances. What happens on Capitol Hill can ultimately affect which line you put that $500 expense and whether your business counts as a “qualified business” for certain deductions.
Keeping track of it all is impossible unless that’s what you get paid to do. Enter the tax professional, who sits and watches new tax mandates come down from the higher-ups and quickly adjusts their processes. They’ll also weigh new strategies against the old ones because newer isn’t always better.
You’ve been in trouble before
We all make mistakes, and it’s usually no big deal to have to file an amended return (assuming you paid what you owed on time). If you’ve been the subject of a personal audit or owe back taxes, however, you likely can’t afford another major snafu on your tax record.
While we usually don’t know what compels the taxman to pursue some audit cases over others, it’s best to keep your nose clean with a professional who understands how to follow all the rules.
You have issues
Business taxes aren’t always about business. If you’re a sole proprietor, for example, your Schedule C is mailed in with information about which of your kids are in college and who gets medical insurance from the Affordable Care Act (ACA) marketplace. So if you have a messy life, it could spill over into your tax situation.
Common “sticky” issues include divorcing couples who can’t decide who gets to claim the kids on their taxes or how money earned in another state counts toward your total tax bill. People are complicated creatures, and that means taxes may require a problem-solver to sort through it all.
Other perks to paying a preparer
If you don’t feel strongly about any of the reasons on our list, here are some additional facts about paying a tax preparer that may help you decide:
- Tax preparation services are a deductible expense on next year’s filing. If you pay $600, that’s $600 more you get to take in write-offs.
- Your preparer can provide strategic tax advice. Tax preparers are best when used for the long-haul and are quick to spot opportunities that the average business owner may not know about; they also store your documents to make next year’s filing a breeze. With more than a year’s data at hand, they are also keen on spotting trends. Expect your preparer to get to know your tax needs more every year that you use them.
- If you ever get audited, it’s unlikely that tax software can help. While many services do offer “audit protection,” this can vary from having an actual person on hand to answer questions to simply providing a library of prewritten templates to use. While the risk of an audit is low, a human being who can represent you in court is the ideal solution if the worst does happen.
This year, like many years before, will have an incredible number of new tax changes. Many of them will affect when you can file, how much of your tax bill you have to pay right away, and what steps you can take if you can’t afford the next payment.
While it’s smart to weigh the cost of a software solution against the benefits, 2020 has even more changes than usual. Consider what it means to take all that upon yourself, and see if the cash savings is really worth it.
Linsey Knerl is a Midwest-based author, public speaker, and member of the ASJA. She has a passion for helping small business owners do more with their resources via the latest tech and finance solutions.