Tax season isn’t everyone’s (or anyone’s) favorite time, but it comes along every year and since taxes must be paid, there’s nothing we can do but get them done.
In the past, the only option was to hire a tax professional. Today, because of advanced technology, people can do their own taxes through software programs at home or online. But just because you can do something yourself doesn’t always mean that you should.
If you’re a small business owner or an entrepreneur, you’re possibly debating if you should do your own taxes or hire a tax professional. Don’t worry; you’re not alone in this debate. For example, 59% of individuals will pay someone to do their own taxes this year. Which means another 41% will do it themselves. It can only be assumed that these statistics are similar for small businesses and entrepreneurs.
There are many factors that can determine which choice you make and just one of those factors could be the reason you end up going one way or the other. Let’s take a deeper look into what you need to ask yourself before making your decision.
Number of Employees & Company Size
How many employees do you have? Unlike employee thresholds for small businesses in Obamacare, there’s no set amount of employees that determine whether you should do your own taxes or hire a professional. But it’s safe to say that if you only have a handful of employees, say a number in the single digits, then it would be easier to manage your business taxes and file the forms than if you had 10-plus employees. The more employees you have, the more work you have to do, the more forms you have to take care of and the longer it takes.
Time Constraints
How much free time do you have? As a small business owner or entrepreneur, you probably don’t have a lot of free time. That’s just what comes with the job. But if you have enough trusted employees that you delegate jobs out to, then maybe you have more free time than most. If you feel that you have plenty of time, like several hours worth, then go ahead and do your own taxes.
Opportunity Cost of DIY Taxes
How do you prioritize money and time? If you think your time is more important than money, then you should hire a professional to do your taxes. If you put money over your time, then you should do your own taxes since it will take more of your time but save you money. There’s an opportunity cost to doing everything. So figure out how much money you could be making by not doing it and then figure out what makes most sense from a financial perspective. Just don’t spend a whole day figuring this out!
Numbers, Numbers and More Numbers
How do you feel about numbers? If receipts, numbers, amortization and calculations stress you out, then doing your own taxes is not the path to take. If you’re good with numbers and enjoy delving into asset management and the minutia of record keeping, then feel free to calculate away and do your business’s taxes.
Tax Law Knowledge
How is your tax law knowledge? If you’re up to date with tax law and are willing to keep up with changes, then doing your own taxes shouldn’t be a problem. But if tax law confuses you and you don’t want to take the time to understand and keep up with it, then you’re better off hiring out your tax work. And when the 2013 Income Tax Code takes approximately 73,000 pages to explain, we don’t blame you if you choose to hire a professional.
We know it’s a lot of pressure making sure your decision is the right one. Because we know how important this decision is, we’ve put together the pros and cons of doing it yourself and for hiring a tax professional to help you make the correct decision for yourself and your small business. Happy decision-making!
PROS of Doing Your Own Taxes
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Cost savings. The only costs for an online program are software usage fees and filing your taxes, which are fairly low.
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Have the most control over your taxes.
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Control how and when you want to do it.
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Become more knowledgeable about taxes, money and your business.
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Learn more about your own finances.
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Usually receive a refund in days instead of waiting weeks when you e-file.
CONS of Doing Your Own Taxes
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Takes time away from running your business.
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If you don’t have a strong accounting background, you’ll most likely have questions that come up throughout the year and while doing your taxes that you’ll need answered. DIY software can’t give you advice throughout the year or answer a lot of questions.
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Most DIY tax software isn’t designed to handle unusual transactions, either because it’s not programmed in or isn’t able to consider the different options or questions you have to make sure you’re minimizing your tax liability.
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Increased chances of error.
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If a mistake is made, most of the blame lies with you and your company, instead of a tax professional. Fines for making a mistake are usually higher than hiring someone.
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Tax law is constantly changing and being up-to-date with it requires a lot of effort.
PROS of Hiring a Tax Professional
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Saves you time.
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Gives you peace of mind because you don’t have to deal with the stress from doing your own taxes.
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Having a relationship with them ensures they know you and your business, can offer advice and can answer your business related questions throughout the year.
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Sometimes professionals can save you more in taxes than the fee to have them do it.
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Helpful planners and preparers.
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Trained, have experience and can help with planning stuff before the craziness of tax season begins — advising on what you should spend on new business assets, what your reasonable compensation should be as a SMB owner and whether to lease or purchase certain vehicles or other equipment.
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Know all about tax law.
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Can provide networking contacts that can help your business grow.
CONS of Hiring a Tax Professional
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Can be expensive. The more experienced and reputable, the more expensive. Have the choice to go with someone cheaper, but it may be harder for you to trust that they’re doing your taxes right.
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Can still spend a good amount of time organizing papers for them and explaining your business to them.
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On their time.
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Still human. Not perfect so they can make mistakes.
Since there are pros and cons with each path, you may still be on the fence about your choice. If that’s the case, here are five critical reasons why you should do your own taxes or why you should hire a tax professional.
DIY
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You’re good with numbers.
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You have some background in accounting so this stuff isn’t new or scary to you.
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You understand tax law.
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Cheaper even with opportunity cost considered.
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Your employee count is low and reasonable enough for you to handle doing all the tax work.
Hire A Professional
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Numbers and calculations terrify you.
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You don’t want to keep up with changes in tax law.
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You put your time over money.
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Making a mistake and being the only one paying for it is not something you care to deal with.
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Your life has changed in the past year, meaning as a SMB owner or entrepreneur you just started a new business.
