Do You REALLY Need a Tax Preparer for Your Business? (2024)

Are you waffleing between DIYing your taxes and hiring a tax preparer? Maybe you have a MILLION questions running through your mind wondering if it’s even worth it to hire a tax preparer. You’re probably wondering “Is my business too small for that? Is it really that bad to DIY my taxes?”

If these questions are keeping you from filing your taxes, you’re in luck because this week on the Andi Smiles Show, I’m your magical tax unicorn and I’m answering all your questions about if you should DIY your taxes or hire a tax preparer! I’m talking about the 3 types of people who can DIY their taxes and 3 types of people who should hire a preparer.

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DIY vs Tax Preparer (2:22)

Before we get down to the nitty gritty, let’s have a quick chat about what it means to DIY your taxes versus hiring a tax preparer.

DIYing your taxes means that you file your taxes yourself. With this method of filing you’re actually creating your return yourself. People filing using this method often use a filing software like Turbo Tax or you can do it the good old fashioned way with pen and paper.

When you’re DIYing your taxes, you are the person that’s responsible for everything on your taxes. With this method there’s no extra set of eyes from a professional that’s going through your tax return and making sure that everything is correct. Now, obviously, when you DIY your taxes it costs a little bit less because you’re not working directly with someone.

The thing about DIYing your taxes is that YOU are doing the entire process. It’s takesmore time because not only do you have file the return, you also gather all of your tax prep materials.

If you DIY your taxes, you would just put that information into Turbo Tax. If you hired a tax preparer you’d hand off the information you’ve gathered to somebody else who will actually do the part of creating your tax return and filing your tax return on your behalf. This person knows exactly what to do and they’re going to work to maximize your deductions based on their knowledge of filing taxes.

Here’s something really important:When you file your taxes with a tax preparer you are still ultimately responsible for what goes on your tax return and what gets filed. If there’s an error, omission, or something really major that happens, you’re responsible for looking over your taxes and ensuring that the information is correct- which is why it’s really important that you trust your tax preparer.

If an error was the fault of your tax preparer, reputable tax preparers will correct the error for you free or assist you in an audit. Just know that whether you file it yourself or you file it through a preparer, the person who is ultimately responsible for your taxes is YOU. They’re your taxes. It’s your return. You sign the dotted line at the bottom saying the information is correct.

Let’s talk about tax preparers. A tax preparer is someone who files your taxes on your behalf. But let’s talk about the different types of tax preparers because there’s more than one type of tax preparer.

The first distinction is what’s called a CPA- which is an accountant. A CPA is someone who has passed an accountancy exam. Accountants go to school to become accountant which means there’s an extra layer of certification. Accountants do tax prep but they do financial oversight and analysis for businesses.

A CPA looks at your business from a holistic point of view not just from a narrow tax lens.

There’s another type of tax preparer which is called an enrolled agent. Now, this is where people get really confused. An enrolled agent is someone who is certified to file taxes and is NOT an accountant. Enrolled agents have taken a test with the IRS that certifies them to file taxes on behalf of people.

This is a major distinction because an accountant is going to be looking at other aspects of your finances while an enrolled agent just focuses on filing your taxes. As you can imagine, an accountant costs more than an enrolled agent because accountants are looking at the bigger picture, while an enrolled agent takes the data you give them and plugs it into a tax return. Enrolled agents are also certified by the IRS to represent you in an audit.

The good news is that enrolled agents cost less! Hells to the yeah! SO- if you really want to have that professional person filing your taxes for you but you can’t afford an accountant to do it, an enrolled agent is an awesome choice.

Who Can DIY Their Taxes (8:53)

We just talked about what it means to DIY your taxes versus hiring a tax preparer. Now, let’s get into what most people are probably here for which is who can DIY their taxes.

Before I go any further, I want to point out the language that I’m using. I use the words who can DIY their taxes not who should DIY your taxes. The reason I use the word can is that my honest opinion is that you should hire a tax preparer as soon as you can afford it. If you can afford a tax preparer, just hire somebody.

BUT the reality is a lot of newer business owners can’t pay someone $500 to file your taxes or just simply don’t have that kind of disposable income in your business.

Let’s get down to business (no pun intended…or maybe yes pun intended because I’m secretly a grandpa in my cardigan) and talk about the types of businesses that can DIY their taxes.

Service-based businesses with basic income and expense structures

I’m talking about the people who are solopreneurs or independent contractors with a simple business model. When I say simple business model, I’m talking about a business that sells services and a few digital productions with typical business expenses like software, travel, and advertising. With this type business structure, there’s not a lot of complicated financial stuff happening in the business.

People who fall under this category are:

• Coaches
• Consultants
• Therapists
• Massage therapists
• Virtual assistants
• Photographers
• Personal service providers (like wedding planners, personal stylists, dog walkers, etc.)

Remember, these are businesses with a basic business structure.

When I say basic business model that doesn’t mean that your business isn’t complex or scalable. I’m speaking about a basic business model from an accounting standpoint. With a basic business model, there’s money coming in and money going out. It’s very straightforward.

These type of business models have very straightforward expenses with maybe one or two industry-specific expenses.

The other reason that service-based businesses can get away with DIYing their taxes is because there’s less to screw up. To be totally honest, you don’t need to have a complex understanding of tax law when you have a business like this. There’s not a lot of mistakes that can get made especially in an online filing software programs that take you through the process step-by-step.

New businesses that have minimal income and expenses

This one goes out to all the newbie business owners. Maybe it’s your first year and you’ve had some clients but you really haven’t had a lot of inflow or outflow. You’re just getting started and getting yourself up to speed as a business owner. Another example of this would be like of your business is your side hustle and you have a full-time job.

Another example could be that you’re partnered so you have someone who has a primary income in your household. Most of the money in your household is coming in from your partner or someone that you live with and that person is supporting the household and your business is minimal in terms of income and expenses.

You want to think about this as your business being in the toddler phase of its existence. It’s just kind of learning to walk. It’s may you stumble a little bit and throw tantrums in the airport but it’s not often running yet. People in this category can DIY their taxes because there’s so little going on in their business at this point that there’s not a lot to screw up. There’s so little happening that you don’t have to worry about all of the nuances of taxes.

Businesses without big fluctuations year to year

These are business that havebeen in business for a while and their business is holding steady without huge changes year to year. When I say huge changes, I’m talking about jumping from $50,000 to $300,000 in one year. That’s a huge gap that will need some tax help.

If your business is always hovering around the same place as far as your earnings, profit, and spending, then I would say you can continue to DIY your taxes, especially If you’ve been doing it for so long time and there are no big changes that would warrant hiring a tax preparer.

Who Should Hire a Tax Preparer (17:35)

Now let’s talk about who needs to hire a preparer. There is a point that you can get to within a business where hiring a tax preparer is a should not a can.

Businesses with unusual expenses

These are businesses that have expenses that are not in the regular categories like advertising, meals, travel, education, which are really general for most businesses. If you have a lot of unusual expenses you want a hire a tax preparer. Some examples of unusual expenses are going to be MAJOR startup costs. Not startup costs where you spent $2000 to start your business. I mean you spent $50,000 to start your business. If you have a huge startup cost then you want to hire a tax preparer

You also want to hire a tax preparer if you have a lot of asset purchases as unusual expenses. So again, I’m not talking about just buying a couch for your therapy room. I mean if you have a construction company and you have to buy high-priced machinery.

Another example of these assets and startup costs would be if you started your business as a retail store and you put a lot of your own money into improving your storefront. For example, you bought a bunch of furniture and fixtures, you sanded the floors, you painted and needed to do electrical work to improve the commercial space. In this case, you’d want to hire a tax preparer.

If you have a lot of industry specific deductions, you’d also need to hire a tax preparer.

This is where we’re getting into the nuances of taxes. When you start to get into unusual expenses that aren’t just simple like buying Facebook Ads. This is where you want someone that’s really well versed in tax law AND who understands how to use these expenses to save you money. This is where we’re getting into tax strategy and how you file your taxes in a way that helps you pay less on your taxes.

Product based businesses or retail shops with inventory

Anyone who has inventory in their business knows it’s a pain in the ass at the end of the tax year because you have to do inventory count and you have to report on your assets. If you’re somebody that has inventory and you’re a product based business, save yourself the headache and hire a tax preparer.

In these cases, you probably have a lot of items you purchase in order to produce your product or if you have a retail store and you have a lot of items (assets) in your warehouse on the shelves.

You want to get someone to help you go through all the nuances of your inventory because it’s CON-FUS-ING. This is again where having a tax preparer is going to help you not make a big mistake with either reporting your inventory or reporting the value of your inventory on your taxes.

You can probably Google how to deal with your inventory and your assets on your taxes and figure it out. But think about the time it’s going to take you to gather all that information, learn what you’re supposed to do, then take action on to implement what you’re supposed to do. Think about all the time that would take you vs. just hiring somebody who already knows that information.

Scaling businesses that need tax advice

Remember how earlier I talked about businesses who hold steady and I used that example of going from $50,000 in profit to $300,000 in profit? If that’s you and your business is rapidly growing you definitely need to hire a tax preparer.

You want to hire a tax preparer less for the tax preparation aspect of things and more for the tax advice and strategy you’re going to get. If you’re at that point, I guarantee that whoever files your taxes will have creative tax strategy ideas to save more money.

I would even go as far to say if you were in this category, it’s worth it to start looking at CPA. When you’re getting up to these multiple six figures in profit an accountant will help you come up with a strategy that is healthier for your business and healthier for the for the personal you.

I know CPAs are pricey, but the amount you pay a CPA can be SO worth it if they help you save money on your tax bill. When you’re at this point in your business it’s time to start being forward thinking about your investments instead questioning the value of delegating this tasks.

The Most Important Questions to Ask Yourself (27:46)

So far I’ve given you a lot of guidelines so you have a sense of where you fall in the DIY vs tax preparer game. But there’s also something that is super important to keep in mind when you’re making this decision.

How will this decision to hire a tax preparer or DIY your taxes impact your emotional well-being around money?

Think about how you’re emotionally going to react to your money based on your decision. You might be somebody who falls into the DIY category but thinking about filing your taxes makes you stressed and anxious. If you’re feeling this way, it’s worth hiring a tax preparer.

If filing your taxes is going to have a negative impact on your emotional well-being and your relationship with money, hire a tax preparer. The $500 dollars that you’ll spend is SO worth it for your emotional well-being, which brings me to my next brings me to my next point.

Be willing to invest in your emotional well-being. Be willing to invest in yourself. I know that’s hard in our businesses because we just want to invest in everything else to grow our business. But in the case of tax prep, if it’s causing that much emotional turmoil for you, invest in your personal well-being. Be willing to give yourself that gift of not being stressed out.

Or the opposite may be true. You may be excited to try to DIY your taxes. Some of you might think it’s a really fun challenge or maybe you fall into one of the categories I talked about who should hire a tax preparer but you’re excited to do it on your own because you have such a great connection to your money. If that’s you, go for it!

Use my guidelines on the practical level but always check in with yourself on the emotional level about what’s really right for you.

Now regardless of how you do your taxes whether you hire someone or DIY it, there’s a step before your taxes which is preparing all of your information. We call it tax prep. This is not filing your return. This is actually prepping your financial records to file your taxes. If you hire someone, you hand this over to them in an organized format and they use it to create your return. If you DIY your taxes you want to have all of this information together ahead of time so you can just sit there on your computer with a packet next to you and fill out the software.

I have a workshop called Panic Free Tax Prep. It is all about how to get your information organized and prepare for filing your taxes. This workshop is 60 minutes. People have said it’s really helped to them have a process around get ready for their taxes. I go through what documentation that you need and how to have it ready for your tax preparer or for yourself.