While hiring a tax consultant isn’t a job limited to small business owners exclusively, it is still a very viable option for entrepreneurs and new business owners that are still learning how to how to file these types of taxes. A Certified Public Accountant (CPA) will have specific training on things like tax credits, tax deductions, write-offs, and the proper forms to file.
If you are planning on attempting to file small business taxes yourself, there are some things you should know before you start. If you have reviewed and are still open to hiring a professional, here are some guidelines and tips for doing so.
Safely finding a CPA or other accountant
Filing taxes is an extremely personal action that requires numbers and other information assigned to you alone. Posting to the internet to ask for help is often a dangerous or risky endeavor, because how well can you ever really know a stranger? If you are providing your social security number, address, income figures, and other personal details, you should really know the person involved in handling this information.
That said, The Balance provides some sage advice for finding a CPA: “Referrals are often your best bet. Ask everyone you can think of for recommendations: family, friends, business owners, financial advisors, and attorneys. Explain why you’re looking for an accountant and what you want her to do for you. This will help them steer you in the right direction.”
Avoid accountants who promise big refunds without even reviewing your paperwork, statements, income, etc. These are often empty promises used as sales tactics. This might seem obvious, but a sweet-talker will quickly use this reasoning, so make sure you are prepared and this concept is clicking in your head when you hear it.
Request and require some verifiable identification
Ask for a Preparer Tax Identification Number which the Internal Revenue Service (IRS) requires for anyone who prepares or assists in preparing federal tax returns for compensation. This is called a PTIN. This number will be required on the forms when you submit your taxes to the IRS as well. This is where another red flag could exist: If someone “volunteers” to do your taxes for free unless they bring you a return, they will often try to avoid providing this number, and they might also falsify your tax submission in order to gain a return and get paid.
For CPAs, you can also require proof of certification documents, a law license, or Enrolled Agent designation. NerdWallet describes this step as such: “A PTIN is relatively easy to get, so go a step further and get a credentialed preparer — someone who’s also a certified public accountant, licensed attorney, enrolled agent or who has completed the IRS’ Annual Filing Season program. The Accredited Business Accountant/Advisor and Accredited Tax Preparer are examples of programs that help preparers fulfill the Annual Filing Season Program requirement. These credentials all require varying amounts of study, exams and ongoing education.”
Other types of taxes CPAs know well
If you are buying or selling a home and need to deal with capital gains, this would be part of your personal taxes to include in your filing. Selling stocks, business holdings, and other large asset dealings are also very complicated. This is where hiring a CPA comes in handy because understanding this type of tax filing is required as part of the certification process.
Here is some info from MoneyUnder30 explaining why CPAs can handle filing these taxes: “Capital transactions are actually taxed at a lower rate than your ordinary income, but handling capital transactions does get tricky. The tax basis of these assets is determined by a long list of rules. Taxpayers must also declare capital assets on a separate form. Many people know that you can deduct up to $3,000 in capital losses from your income, but what many do not know is that some limitations to this deduction apply when it’s taken as the result of trading securities.”
Tax credits and tax deductions
Ask the CPA about how to maximize your return by both limiting the total dollar amount you are responsible for, and increasing the number of write-offs and deductions you can make from your total balance. The former is called a tax credit, and the latter is called a tax deduction. Credits = lowering total income amount to be taxed, deduction = a reduction in the total amount due thanks to things like charitable contributions, environmental decisions that help converse resources, and many others.
Human CPAs vs web applications and filing software
There isn’t one right way to file taxes. If you are confident in your abilities to represent yourself, then maybe tax software like TurboTax or H&R Block is the right plan of action. However, if you want to be sure that you are filing correctly, consider consulting a human that has been through several years of education to know all the proper avenues for maximizing your tax filing.
As Investopedia puts it: “Your comfort and familiarity with IRS rules will be part of your decision, but the complexity of your finances should be the key deciding factor.”
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