DIY Tax Prep Can Cost You Big Time
Back taxes. Mistakes. Audits. Missed opportunities. These can all be a part of the unfortunate side effects of DIY tax preparation. I started freelancing in March of last year. Since then, I’ve seen how stressful and busy tax season can get for the self-employed.
I’ve heard stories from other business owners who’ve gotten on the bad side of the IRS. They either owed more money or had to get audited because they didn’t report their earnings the right way. I didn’t want that to be my story.
The only problem? I didn’t know much about small-business accounting other than setting aside a percentage of my earnings for tax purposes.
It’s perfectly fine to take the DIY approach around tax time. However, it does come with some risks. Instead of trying my hand at DIY tax prep for my first year as a freelancer, I decided to invest a little money and hire an accountant. I was so glad I did this. Let me tell you why.
Simplifying the Process
Have you ever been so confused about something that you didn’t know where to start?
I started working with a certified public accountant (CPA) around tax time. Before our initial call, I remember feeling incredibly overwhelmed. I wasn’t the most organized freelancer the previous year.
Because of my schedule, I didn’t have time to backtrack and organize all my documents and invoices. I was too busy trying to complete projects for clients, market my services, and send invoices to make sure that my cash flow remained consistent.
Hiring a CPA to file my taxes took a lot of pressure off my plate and really simplified the process.
After we got off the phone, I had answers to several of my questions, along with a login to a secured digital portal for me to upload my documents. I also received a custom spreadsheet that made calculating my income and expenses each month incredibly easy.
Using the spreadsheet and the tools that my accountant had provided saved me time and made things easier overall. I was able to clear my schedule for one weekend and take care of everything that I needed to submit on my end so that my accountant could file my taxes for me.
Learning About Tax Breaks
One thing I liked about hiring a CPA instead of trying DIY tax prep was that I had someone on my side looking out for me. As a solopreneur, you have full control over your taxes. But at the same time, almost every responsibility falls on you. It can be overwhelming, especially when you’re still gaining new skills.
Plus, when you spend several months doing anything and everything on your own, it feels great to outsource tasks every now and then.
My accountant brought up important information about potential tax breaks I could use and different expenses I didn’t know I could deduct. These included my internet and cell phone bills, work-related travel, and even my health insurance premiums.
I knew about some of the tax deductions I could make. But after hearing from an expert who stays up-to-date with all the regulations, I felt more confident about them. It was nice knowing that the IRS probably wouldn’t be able to come back and bite me in the future.
Saving Time and Energy
Overall, hiring a CPA for my first year of self-employment saved me time and money. The process was simple, quick, and efficient. Plus, I gained more knowledge about taxes and didn’t have to risk making a mistake.
While I probably could have researched topics on my own, I asked accountants in my area for free advice and downloaded a software program to help me with DIY tax prep. (For those looking for a good tax software program, TurboTax is helpful and easy to use.)
Why not play it safe for my first year? Down the road, after I learn more about filing self-employment taxes, I can try to do it myself. My CPA was rather affordable, and I only used his services around tax time, so I’m sure I can work the expense into my budget every year. I think I paid around $125, though some CPAs can charge in the range of $150 to $250, depending on how complex each file is.
In order to find a trustworthy and affordable accountant to help you navigate the wild world of freelance taxes, I’d recommend asking around to see who other freelancers use in your area. You can also compare rates and look for online reviews to help you pick out the right person.
Word of mouth referrals are still one of the best ways to find quality people to work with, though. Luckily, I won’t have any crazy stories to add to the ever-growing compendium of tales about DIY taxes gone wrong.