As a small business owner, weighing the benefits of turning to a professional tax preparer versus preparing your own tax returns can be challenging.
We consulted with several tax professionals to recommend when to hire a preparer and how to choose a great one. Stay tuned for the next part of our article breaking down general tips and best practices from tax experts.
When to hire a professional
“For a small business owner, working with a tax professional can always be a good solution to ease stress and make sure you’re not setting yourself up for trouble with the IRS,” says Jayson Mullin, the founder of Top Tax Defenders, a tax resolution firm specializing in clients’ IRS tax problems.
“If your business is new and simple, you may be able to file using online services, but as the business grows and the laws become more complicated a tax professional will be able to navigate the codes and earn you the deductions you qualify for.” “Most small business owners could likely do a competent job at doing their own taxes, but it would consume a lot of time and energy better spent elsewhere,” agrees Wendy Connick of Connick Financial Solutions, a firm specializing in small business tax planning and preparation. “And small business owners likely aren’t tax experts, so they won’t know all the tricks for minimizing their tax bills.
If a professional tax preparer finds even one extra deduction or credit (just to give a simple example), it will likely more than pay for the tax preparer’s fees – especially since tax prep fees are deductible.” Josh Zimmelman, the owner of Westwood Tax & Consulting, a tax and consulting firm, adds that if you’re not very organized or computer savvy, or if you’ve made a lot of recent business changes, it’s probably best to hire a professional. The same goes for those who don’t understand tax laws that well.
“The IRS is constantly updating its laws regarding taxes, deductions, credits, etc. Some of it is pretty straightforward but certain tax forms can be more complicated and confusing. If you’re not sure what you’re doing, then you need a professional to offer guidance.”
When to prepare your own return
You should consider doing your own taxes if you have a simple tax return. “The benefits of using a tax professional are very little if you have a straightforward, simple return without a lot of deductions or complexities,” comments Randall Brody, owner and founder of TaxSamaritan, a tax and wealth management firm. “But that is often not the case for a small business owner that has a tax situation that is more complex than the typical taxpayer.
” Jacob Dayan, the partner, and co-founder of Community Tax, a full-service tax company, says that while hiring a tax preparer has its benefits, it’s important to vet the person you choose. “There are plenty of wet-behind-the-ears people at large tax prep firms, so don’t think that because you’re hiring help you’re getting a true expert. Also, there are plenty of risks with aggressive tax preparers (not accountants) who promise hefty refunds.
So there are good reasons to be careful when you shop for help.” “That said,” he continues, “the decision to ask for professional help is really about opportunity cost. As the saying goes, don’t step over a dollar to pick up a dime. Not only can the right professional save you a lot of money in expenses and deductions, but getting help can allow you to remain focused on running your own business during tax season.”
How to pick a tax preparer
Randall Brody discusses how to pick a tax preparer who is knowledgeable, accountable, and professional:
- “If you can’t afford to hire a tax professional, online tax software such as Turbo Tax and Tax are user-friendly and a good option when you can’t afford the best.
- Check the credentials of the tax preparer. All tax preparers, whether an Enrolled Agent, CPA or un-enrolled preparer must be registered with the IRS. The Internal Revenue Service (IRS) requires all paid tax preparers to have a Preparer Tax Identification Number (PTIN), so make sure your tax preparer has one and enters it on your return. IRS credentials can be checked at http://irs.treasury.gov/rpo/
- Check the reputation of the Professional Tax Service with the Better Business Bureau, State Boards of Accountancy (if a CPA), and other resources.
- Interview/talk to the preparer before deciding to hire them – based on your conversations with the tax professional, do you feel comfortable and confident, do they seem attentive and responsive to your questions (definitely ask questions to test their knowledge and about their service); returning your calls or responding to your email quickly before you even decide to hire them is a good sign.
- Hire a credentialed preparer. I recommend Enrolled Agents (an EA) as they are America’s Tax Experts and the only credentialed preparer that specializes in strictly income taxes.”
Thanks to Jayson Mullin, Wendy Connick, Jacob Dayan, Josh Zimmelman, and Randall Brody for their contributions.