2019 Small Business Taxes: DIY or Outsource?
Handling small business taxes can be a challenge for any owner. Even if a company has an internal finance department for day-to-day business processes, tax season can place an additional (and unwelcome) burden on time-strapped employees.
So, when does it make sense to take a do-it-yourself (DIY) approach to filing small business taxes or, instead, to outsource to an external supplier? Here’s a look at the pros and cons of each approach.
DIY Tax Filing
First and foremost among the benefits of the DIY approach is cost savings. A good tax software package is simply less expensive than hiring a CPA or other type of tax professional. (Just be sure to choose a software package from a reputable provider.) Plus, numerous websites feature free or low-cost tax preparation services that also get the job done.
If your tax situation is simple (i.e., a Schedule C without employees or products), opting to hire a professional may be unnecessary.
There’s also the time you can save by going the DIY route. Employing the right tax filing software generally means most of your time will be spent compiling and organizing relevant documents and then plugging in the numbers. Once that’s complete, the tax filing process often takes less time than a CPA would need to achieve the same results.
But be warned — there are drawbacks to DIY tax filing.
Some sites claim to offer low-cost online assistance but don’t necessarily provide business tax experts as “support.” The aid provided may not include help with the latest tax code changes (occurring on either a federal or state level), leaving a DIY business owner vulnerable to financial inaccuracies and subject to serious penalties later on.
Doing your own taxes always has the potential to consume more hours than expected, and for busy small business owners, that can feel like an inefficient or gratuitous use of time.
Going DIY also means running the risk of making errors in your tax filings. These mistakes may lead to some minor penalties or, in a worst-case scenario, raise the unwanted specter of a formal audit. You may also miss out on helpful exemptions that could mean significant funds being lost because you weren’t up to date on what to claim.
Outsource Tax Filing
CPAs and tax professionals are experts at small business taxes. While the costs involved are obviously higher than with a DIY tax filing approach, you really can’t improve upon a seasoned veteran’s experience, knowledge and judgment.
As experts, their insights offer several benefits, including in-depth familiarity with tax code. Tax professionals not only stay updated on changes, but they know which exemptions and deductions are most applicable in a given situation. They can offer guidance on how to save money on taxes while astutely avoiding any pitfalls that can haunt a small business owner later on.
Plus, these professionals have notable experience with tax software and related technology. Generally speaking, the tools employed by CPAs are more intricate than the DIY software packages discussed above. This level of sophistication ensures more accurate filings, with less risk of any costly errors.
And notably, many entrepreneurs may feel more comfortable about the tax filing process if they can actually speak with an expert. Questions about a small business’s unique tax situation can’t always be answered with DIY software. But CPAs or tax professionals who are good at their job can talk you through your concerns and provide assistance using language that’s not crammed with arcane tax code jargon.
As for disadvantages connected with outsourcing, ultimately, the cost factor can be significant. Hiring someone for their expertise isn’t cheap (nor should it be), but for some small businesses, the price may exceed the value, depending on the situation.
Also, to do their jobs well, tax professionals need to become intimately familiar with a business’s financial status. This may mean sharing more information than some owners are comfortable with.
In the same respect, hiring someone who doesn’t understand your company’s culture can result in miscommunications on key points. Any confusion about taxes is inherently a risky proposition.
What to Look for in a Tax Professional
Having weighed the pros and cons of each approach, it’s time to make a decision. Should you opt for outsourcing, it’s important to decide if you want someone who specializes in the accounting-side of things, or a person who’s more well-rounded and can provide other financial advice. To locate this individual, consider these avenues:
- Recommendations from your business peers.
- Contacts made at business networking events.
- Social media, where tax professionals share their expertise.
- LinkedIn, a centralized place to learn more about who’s out there.
Considering you don’t want to go through the hiring process more than once, it’s crucial to do your research up front. With that information in hand, talk to a handful of prospective choices and then make your decision.
What questions should you ask as part of the selection process? The Balance Small Business suggests the following:
- How knowledgeable is the preparer about current tax rules?
- Will this person offer advice or simply prepare the relevant documents?
- If necessary, can this individual adequately represent you in front of the IRS (in the event of an audit)?
How a tax professional candidate answers these questions can help you make your final determination.
Making the Choice
There’s no denying that choosing an outside expert to handle your small business taxes is a big decision. In general, this is the result of significant growth in your business and the need for you, as owner, to focus more on vision and strategy than on tax preparation. If you choose the right person and feel comfortable with the process, you’ll likely find that the benefits far outweigh the initial expense involved. In any case, the choice is yours.