Small Business Taxes

[Andrew Justin]

I'm curious how many small business owners around here do their taxes themselves vs. hire accountants. Classical Mustachianism would suggest a DIY approach, which is what I've done in the past. However, I'm sitting down for 2012 taxes (on TurboTax, which costs about $60 or so through my bank discount) and I'm a little surprised how much I'm going to have to pay.

I know this topic has been discussed before (http://www.mrmoneymustache.com/forum/ask-a-mustachian/do-you-do-your-own-taxes/msg41244/#msg41244) but I don't think anyone has addressed the business side of things. If it were just a 1040 I'd do it myself, but the business expenses get complicated.

In case it is relevant, my business is a sole proprietorship, and it's pretty small for now: about $30,000 in gross income and $18,000 net income last year. But if everything goes according to plan, income should increase in 2013 while expenses stay the same or decrease. The goal is for it to cover all our family expenses until early retirement. So I'm looking at paying more and more Self Employment tax as the years go by. Should I shell out for an expert, from a purely cost-benefit standpoint? I don't want to miss out on any really obvious deductions, write offs etc..

[tamara]

When I had a smaller sole proprietorship, I did them myself. The stakes seemed lower and, because I had stayed on top of quarterly estimated taxes, the the end-of-year bill was never so painful that I sought other solutions.

These days, however, we're incorporated, have employees, and the stakes are high. So I do all the mid-year stuff myself (payroll, monthly and quarterly state and federal, etc.) but send the year-end for our business and personal taxes off to the CPA. We live in a small town, so she's reasonably priced and attentive. It's worth the money to me to be sure it's done properly and to make sure I'm not paying more than I should.

In the future, things should simplify on the personal side, then I'll start doing that part myself. I've also considered taking a basic accounting class at our local community college so I can take over the business side as well.

[Self-employed-swami]

I have two employees (My husband and I) and I hire an accountant.  I'm in Canada though, and my accountant is my Dad's Girlfriend, so I don't actually pay.

[jawisco]

I own a small business and like others I do all the stuff during the year, but then hand off the tax stuff to a cpa.  Costs me around $300 to do it this way.  I think, depending on the nature of your business (consulting and contract work is much more straightforward than having inventory), you COULD do it yourself, but I would work with a cpa the first year or two.  Then you will have a template if you decide to do it yourself.

Find a good CPA though - interview a bunch and go with the one who seems the best.  If you find a good one, it will be more than worth your money and time.  Finding a good one could help out a ton and is worth giving time and effort towards.

If you don't have any employees, look into a solo 401K - great way to save lots of money on taxes.

[Crash87]

If you are giving it an honest shot when you prepare your taxes, the only thing I can think of that might be messed up is depreciation. I would brush up on how depreciation works by downloading the 1040 instructions from the IRS website. Skim through the whole thing if you're concerned about missing potential tax credits/deductions.

[arebelspy]

I don't have a small business, but I do have several rental properties, and I hire someone.

[Jamesqf]

I do all my own, but I'm way over on the simple end, doing software contracting.  I don't find it difficult at all, just time-consuming.  If I had to deal with things like inventory or payroll, it might be a different story.  As it is, my biggest problem is debating whether I could deduct the cost of dog food as "maintenance of security system"?

[Nate R]

I had a side business for 9 years. At its' peak, I was doing about 60K in sales, maybe 12-15 in net income. I always did it myself, and things turned out fine. Tracked my business miles, etc through the year.  The expenses generally don't get too crazy. You can always add your own categories on the Sched C as needed if you can't get some things to fit.

[MooreBonds]

I do some consulting on the side as a self-employed person. It's not really as daunting as it might sound, especially if you already do your own 1040 taxes to begin with. The IRS publications and form instructions are actually somewhat 'good' at walking you through each line. If you feel that unsure, you can always hire a CPA or someone to do it for the first year or two, and then just see how they did it and do it yourself in later years.

If you have a fairly simple business (i.e. not too much crazy depreciation or complex first-in/last-out, etc. costs), it's pretty straight forward. It can take a few hours for everything, but you then get to pay yourself $50 or so an hour for your troubles vs paying someone else.

[Andrew Justin]

Thanks for the thoughts, everyone.

Jawisco, thanks for the tip on the solo 401K... haven't even thought of that!

Crash87, yes, depreciation seems to be the trickiest part.

Jamesqf, I think your dog totally falls under home office security!

I think I will continue to do my own taxes this year, and interview a few CPAs this year to see if it's something that would be of value. I have no staff and no goods - I provide consulting and services, so it's really just home office and misc. expenses.

[MooreBonds]

One last thing - the IRS has now enacted a simpler provision for home office expense deductions. Before, you had to total up your utilities, real estate taxes, insurance, etc., and then pro-rate it for whatever % of your house your home office is (i.e. your home office is 11% of your total living space, then you deduct 11% of your total home expenses).

Now, (for tax year 2013, filed in 2014), you will be able to simply apply a $/sq ft allowance to make it much simpler if you want. And for mustachians, that would be a huge benefit, since our utilities, insurance, and other expenses would likely be small anyway, so with the flat $/sq ft, you should end up being able to deduct more compared to totaling up your actual expenses.

One other item - don't forget that you can count your home office as your 'headquarters', and ANY trips by car to a client's or work or other business location or any other location qualifies for the generous $.555 mileage deduction. Again, for mustachians, the flat $/mile car deduction is great because our car expenses should be far less than $.555/mile.