You are likely in the same position as most start up entrepreneurs: you are trying to conserve as much money as possible but find yourself working 10 different positions within your business. It’s worth asking—is tax preparation one of those roles you need to undertake?
There are several great tax software tools out there that you can use to do business taxes. Whether you are a self-employed entrepreneur, single-member LLC, partnership or corporation, small businesses can easily take advantage of tax software to complete your tax return. They can usually handle multi-state filing and update for the ever-changing tax codes in each jurisdiction. The Q&A format to complete the forms has really made the ability to self-prepare your taxes more accessible to everyone.
That said, there are still quite a bit of accounting knowledge and the tax rules the software assumes you know to be able to do the best job possible for your business. Here are a few questions to help you discern which is right for you:
Would you be better off spending your time continuing to develop your business or the same time learning and doing your taxes? For some people, it’s a welcome break and a key time to really understand the financial footing for their business. For others, they would be far better off hiring a tax expert and then spending a couple hours at the completion to understand what their expert has prepared.
Accounting rules can be tricky and often the IRS has their own set of rules on expenses that are different from the generally accepted accounting principles (GAAP). If you are unsure how these match up, you could find yourself making an error on your tax return.
Tax software often asks you if you wish to make any elections. While their help sections are good at pointing to the regulations and explaining in layman’s terms what these elections are, it may be wiser to consult a tax professional who has seen your type of business many times over.
If you have other partners in the business, it may be wise to have a CPA prepare your taxes as a professional third-party. That may mitigate some disputes over record keeping and also ensure that someone is holding all partners accountable.
Outside investors in your company may not be comfortable with the owner completing their own taxes and saying the equivalent of “trust me.” They will probably require a professional to prepare the business’s taxes. It is likely that they would rather you focus your energies on building the business then preparing tax forms.
Fixed asset based businesses have more complexity in terms of depreciation and variations between financial reporting, federal tax reporting, and each state’s tax reporting. Inventory accounting decisions can be complicated and should be chosen with care. While many tax softwares can certainly handle this, sometimes your choice of how to treat these assets can have a pretty big impact on how taxes affect your business in the long run.
With a few key exceptions, this is the first year that some major federal tax revisions have taken effect. It may be wise to ask a tax professional to do at least one year’s tax return so you know what to expect if you do decide to do your taxes yourself in the future.
It may seem like I am telling you to go the professional route. That is not at all the case. I have done my own taxes for my businesses for over 20 years.
If you are inclined to use tax software, do an internet search for recommendations and reviews on current tax software solutions. There are several products out there, and you will want to pick the best one for your business. Some are available online, while others need to be installed on your computer. There are some that work on Mac and PC but some only work for PCs. Make sure you do your homework before you choose.
The reality is that taxes are an extra complication that may not make sense for many business owners to do. You may also find that professional help is not as expensive as you might think. It could be well worth a $500-$1,000 investment so that you can go land that next $10,000-$20,000 order.
Entrepreneur Coach, BizStarts
Brent is an Entrepreneur Coach with BizStarts and has started and been part of many businesses, both for profit and non-profit, in his 25 years of professional experience. He has also been using tax software to prepare his personal and business tax returns since 1992.
This article is informational only and should not be used as tax advice. If you have any questions about the tax codes or your taxes, you should contact a tax professional or an attorney.