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Do You Need An Accountant?

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I’m a big fan of saving money and doing things myself. But I’m also a fan of maximizing time and resources, and sometimes that means spending money by outsourcing business and personal tasks. Some people are much more efficient at certain tasks, and paying a pro can often be worth the time savings, not to mention the piece of mind of having a professional complete the task.

Until last year, I had always done my own taxes, usually with TurboTax because I got a free copy a couple years in a row when I was in the military, and it was easier to continue using a product with which I was already familiar. Then my situation changed, and it made sense to outsource my taxes and hire an accountant.

Why I decided to hire an accountant

Do you need to hire an accountant?

Do you need an accountant?

Before last year, my tax situation was fairly simple – a W-2 for myself, one for my wife, and a couple 1099s for earned income from interest, dividends and other investments. The only deductions we had were tax deferred retirement contributions, a couple charitable donations, and interest on our mortgage. Our taxes took about an hour to complete once we got out paperwork together. Just plug the numbers into TurboTax and be done with it.

But owning my business changed everything.

I keep my business finances separate from my individual finances, which means a lot more paperwork. I organized my company as an LLC, opened a business checking account at a local bank and a business savings account with Capital One 360 Business to keep my personal and business income separate, started a Solo 401k to contribute toward retirement, and kept track of it all with QuickBooks (an accounting program made by Intuit, the makers of Quicken).

The end result was a couple manila envelopes full of receipts and vouchers, and multiple 1099s and other tax documents from various companies and institutions. I had a laundry list of itemized income receipts, expenses, deductions, and credits, and I only had a “pretty good” idea what I was doing. When it comes to taxes, “pretty good” isn’t good enough.

The difference between personal and business taxes.

Keeping your personal and business finances separate is usually the best way to go. You are required to report all earned income, regardless of amount or source, and you also need to keep track of business expenses and depreciate assets. For me, that would include my laptop, printer, and other accessories. In addition, you need to pay quarterly estimated taxes, and self employment taxes. That means expensing items, tracking payment vouchers, calculating how much to contribute for the Solo 401k, and other fun tasks. I researched each of these items, and felt that I knew what I was doing, but it’s also a good idea to have a professional double check everything.

When I got everything together, I realized my tax situation was a lot more complicated than the previous year. All these intricacies made me decide that meeting with a tax professional was in my best interest. My tax situation is even more complicated this year because I have made a few other changes at the recommendation of my accountant, which include putting myself and my wife on the payroll, meaning we now need to pay associate taxes such as FICA, state and federal unemployment insurance taxes, and more. Fun!

Interviewing and hiring an accountant

I asked some coworkers and neighbors for recommendations and received a few leads. I ended up interviewing a couple accountants and chose an accounting firm right down the road. They not only offered the best match of expertise and price, but were the closest location. Score!

I recommend meeting with several people if you decide to get your taxes done by a professional. Experience, specializations, and prices vary widely. Be sure to ask if they have specializations if you have a specific tax situation (such as owning real estate, a small business, if you are in the military, a pastor/minister, day trader, or someone with any other complicated situation). Read about another blogger and small business owner who decided to outsource his taxes.

Should you hire an accountant or CPA?

If you have a complicated tax situation and aren’t experienced or simply don’t have the time or desire, then I highly recommend hiring a tax professional. The time savings and piece of mind is well worth the price of admission. But if you have a simple tax situation, or if your earned income is low enough to qualify for free online tax filing, then its probably not worth paying to have your taxes done.

Whichever choice you make, I recommend enrolling in EFTPS, which allows you to pay your taxes directly to the IRS online. It’s the fastest, easiest, and safest way to pay your taxes online. The best part is that it is free and only takes about 5 minutes to set up (but it takes about 2 weeks to receive your PIN, so be sure to sign up in advance)!

Photo credit: Jeremy Brooks


Published or updated May 21, 2013.
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{ 6 comments… read them below or add one }

1 Don@MoneyReasons

Hi Ryan,

Say, when did you decide to create your LLC? Was it after you were generating enough profit to justify the filing cost or from the very onset?

Nice move on your “Solo 401k” sounds like a great idea!

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2 Ryan

Don, I formed my LLC fairly early on – at the beginning of 2008 (I started this site in March ’07). My income from my business and websites at that point was still very low, but it was growing. I formed the LLC to make it easier to open business checking and savings account and make it easier to keep my finances separate. I later opened my Solo 401k with Vanguard because I wanted a self-employed retirement account. The Solo 401k was the best option for my situation, and I’ve been using Vanguard for individual investments for almost a decade, so it made sense to stick with them (the accounts are under the same dashboard, so I don’t need to log on to different accounts to see everything).

So, to answer your question, forming the LLC was more about facilitating other aspects of my business than anything else. The cost in my state is only $125 for a lifetime LLC, but prices vary widely depending on which state you live in. Some states also require an annual fee on top of your original organization fee. Check with your state for more information.

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3 Carol Topp, CPA

Ryan,

I loved reading your progression from doing your own taxes to hiring a professional. You did everything I tel my clients to do! It was refreshing to read about someone who really followed the advice and did it!

You are my favorite type of tax client: one who has done their own return, knows there way around the basic tax forms, knows the difference between a deduction and a tax credit, but just needs help in a specific area.

Thanks for sharing your experience.

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4 Ryan

Carol, Thanks for the comment. Taxes are not my favorite topic in the world, but I do my best to understand the ins and outs as they apply to my situation. As a small business owner I think it’s important for me to focus on my business operations more than the taxes and other activities that can be outsourced. But it’s also important for me to understand the how’s and why’s and be proactive with my taxes. I call my accountant with an organized list of questions each time we make a new filing or do something new. I’m glad she is patient, because I usually bring several questions to the table (I’ve got a nice long list for her this afternoon, in fact!).

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5 Peter

I think I may be in this boat this year. I’ve made enough money this year, and gotten to the point where it may be time to get the help of a professional. I’m thinking about getting an LLC as well, and possibly thinking about opening business checking accounts/etc. I’d be interested in hearing more about the process you went through to do this!

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6 Ryan

Pete, I recommend going with a professional accountant if you own a business. Start looking now for someone who specializes in small businesses, and try to interview them if possible. I interviewed a couple people, then chose the one that was the best match of experience and price. I was also lucky that they were the closest to me in proximity.

Be sure to ask them about forming a legal entity such as an LLC or S-Corp, or another business form. There can be tax benefits to forming under one of these. The business accounts make it much easier to keep your finances separate, which makes it easier come tax time, and if you were to ever sell your business. I’ll try to write more on these topics in the near future.

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