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
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