How to tax prep. Today we are going to discuss the options of getting your tax return prepared. As a business owner, you have options out there, and we want to highlight some of those options for you.
Do It Yourself
The first option for how to tax prep is to do it yourself. There’s lots of software out there that you can purchase to do it yourself that will guide you with questions. But we wouldn’t recommend this option.
There’s a purpose and a place for having Do It Yourself tax software, we don’t want to knock them too much. But when there is a business involved, the proper treatment of taxes becomes a little bit more challenging. There might be things to consider that are outside of the realm of questions that the tax software is providing to you. It is preparing the return; it is not your advisor.
If you’re just an individual that has a W-2 and don’t have really anything else going on, do it yourself software can work just fine. But your business taxes are complicated. So doing it yourself could lead to some issues.
I did have a client that had done their return themselves and was not aware of how to treat sales tax properly. They ended up getting a double dip on a deduction that they shouldn’t have had. And it was upon an audit that that was determined to be incorrect. They have since moved on to a tax preparer.
The same thing can be held true for payroll taxes, sales tax, and a lot of these other tax filings that you as a business might have to do. We see it all the time where people try to do it themselves. They end up missing due dates and penalties rack up, and it costs them way more to get it fixed or to pay the penalties and interest and end up having to hire a professional to do it for them.
Hire a Tax Preparer
The next option for how to tax prep is hiring a tax preparer. Not necessarily a CPA, but just a tax preparer that prepares tax returns for you. But they don’t have credentials like an enrolled agent or a CPA. CPAs and EAs are kind of like the next level and that your tax preparer is somebody who doesn’t necessarily have those credentials.
The non credentialed tax preparers are just slightly above you doing it yourself. It’s not something, again, I would recommend because they don’t have the training, they don’t have the expertise to be able to advise you. They may be able to prepare a tax return pretty well. But all of these nuances and these complications they’re not going to understand or know how to do.
Hire a CPA or Enrolled Agent
The third option for how to tax prep is to go with a CPA or Enrolled Agent. This is the route we encourage all business owners to choose. But remember, not all CPAs do taxes. We actually have clients that are CPAs that we do the taxes for because they have other other specialties that are not tax related.
Anytime you go to hire somebody, do some research on them. Get recommendations. See what their expertise is. You can interview them. Ask a lot of questions, don’t just take them at face value. Find out how long they’ve been in practice, how many returns they do, what types of returns they do, what type of industries they work with. You want to hire somebody that is going to be able to provide excellent service and know what they’re doing. We love it when new or prospective clients ask us about our business and what our expertise is.
You’re also looking to understand how that person communicates. Is it the same way that you like to communicate? Will they only call you or do you prefer email? That can make or break a professional relationship if you’re not on the same page.
Discuss expectations with your CPA as well. When do you need to provide them the information to get the job done? What’s their turnaround time look like? Look at all of those different avenues and aspects to understand how everything’s going to get delivered.
Conclusion
One thing I always try and urge people to understand when they’re going from either a DIY or the neighbor who’s preparing their tax return to a professional is that that relationship is very different. It does not move as quickly when you’re working with somebody else to get all the necessary information. You have to allow time for that process to take place.
Initially when you first engage with a CPA or Enrolled Agent, there’s going to be a lot more questions. As the relationship progresses year over year, the list of questions can dwindle because they get to know your business. But your business could change over the years as well.
When you hire a CPA or an enrolled agent, the best thing to do is communicate as much as possible, as early as possible with any kind of transaction or anything that’s happening down the line.. You want their input before you do something rather than after it’s done.
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