Why, as a business owner, doing taxes yourself might not make sense.
As a business owner, you’re probably used to wearing a lot of hats. That kind of “get it done” attitude makes for successful entrepreneurs (and successful businesses). But there’s one major area of your business that requires a very specialized hat—and that’s doing taxes yourself.
While doing taxes yourself is the default position for most business owners, that doesn’t necessarily mean it should be. Let’s take a look at some of the critical reasons why doing taxes yourself might not be the best thing for you and your business.
- 1. Numbers Just Aren’t Your Thing…
- 2. …Or Numbers Are Your Thing, but You Don’t Have the Bandwidth for Taxes
- 3. Business Taxes Are More Complex than Personal Taxes
- 4. Tax Laws Are Always Changing
- 5. Making Mistakes on Your Taxes Is Costly
- 6. The Internet Can Be an Unreliable Place
- Doing Taxes Yourself Is Your Call—but Come Tax Time, Consider What’s Right for Your Business
1. Numbers Just Aren’t Your Thing…
Let’s be real: Not everyone is a numbers person. And if you’re not a numbers person? Doing taxes yourself probably isn’t a good idea. Filing a federal income tax return can look very different for every business, and is much different from doing your personal income tax return.
Obviously, taxes are a numbers game. There’s a lot of complexity involved, and if numbers aren’t your thing, the monotony of all the math can feel overwhelming. Worse still, it can increase the likelihood that you’ll make a mistake, which can have serious consequences (more on that later).
A tax accountant, tax preparer, tax professional, or anyone working at H&R Block doesn’t choose to go into tax preparation unless numbers are most definitely their thing. So, if you’re not a numbers person, it’s probably best to leave all the tax math and numbers to the tax professionals.
2. …Or Numbers Are Your Thing, but You Don’t Have the Bandwidth for Taxes
Even if numbers are your thing, it doesn’t necessarily mean that doing taxes yourself is the right move.
Doing your business taxes and filing a federal income tax return is a time-consuming affair. And all that time you’re spending on your income tax return? That’s time you’re not spending on your business, billing clients, bringing in revenue, or growing your small business.
Hiring a tax professional to handle your state and federal tax returns frees up your time and energy to work on your business—while they work on your taxes. So if you don’t have the time to do your taxes (and do them right!), you should definitely consider partnering with an accountant or tax preparer come tax time.
3. Business Taxes Are More Complex than Personal Taxes
If your personal finances are relatively straightforward, then filing your personal taxes can be pretty simple, which is why so many people choose to DIY them. It’s fairly easy to gather tax documents each tax season to get yourself the maximum refund, with every tax credit and charitable donation accounted for. Business tax returns are a different beast entirely.
Business taxes…deep breath. Depending on your business structure, you may need to consider payroll taxes, profit-and-loss (a.k.a. P&L) statements, issuing 1099s to contractors, unemployment compensation, rental property considerations, which tax software or tax preparation method best suits your business…the list goes on.
Essentially even the most straightforward business taxes will be significantly more complex than personal taxes. And the more complex the tax process, the more opportunities for error, which could trigger an audit for both state and local taxes.
Tax professionals have significant experience (sometimes decades!) navigating each step of the complex process that is business taxes (which means you don’t have to spend the time and energy figuring out how to navigate tax preparation software or anything else yourself).
4. Tax Laws Are Always Changing
Tax laws are constantly changing and evolving—and unless you’re a tax accountant, you’re probably not going to know about all of those changes when it comes time to file.
This “not knowing” can increase the chance that you’ll make a mistake on your return—which, again, can cause major issues with the IRS (scary word moment…AUDIT). But it goes further than that. It can also cause you to miss out on tax deductions and tax credits you may be eligible for, which can cause significant issues with cash flow and your bank account.
For example, the 2018 Tax Cuts and Jobs Act in the U.S. introduced the Section 199A deduction, which allows eligible small business owners to deduct 20% of their pass-through income from their taxes. And if you were doing taxes yourself and didn’t know about this deduction? You’d miss out on knocking a hefty chunk off your income tax. That alone is worth the tax preparation fees.
It’s a tax professional’s job to keep their finger on the pulse of what’s happening in the tax world, including any new laws, credits, or deductions. And when you work with them, you’ll know that your taxes are being done in accordance with the most up-to-date tax law (and that you’re pocketing as much of your money as possible with each tax refund).
5. Making Mistakes on Your Taxes Is Costly
The IRS is not a mistake-friendly branch of the government. When you submit your federal taxes, they expect them to be completely accurate, and if they’re not, it can cost you a lot of time, hassle, energy, and cash.
Filing an inaccurate, incomplete, or late business tax return can result in:
- Hefty fines
- Additional penalties
- An audit, which is a huge time investment (and an even bigger hassle)
Basically, tax mistakes are costly from every angle—from a time perspective, an energy perspective, and a financial perspective. Even with audit defense, you can spend significant time dealing with an audit.
A tax professional knows the ins and outs of filing business taxes—it’s literally their job. And while they’re certainly not immune to making mistakes (they’re human, after all!), the chance of a tax specialist or a company like H&R Block making a mistake on your taxes is significantly lower than if you went the DIY route.
6. The Internet Can Be an Unreliable Place
If you do your business taxes yourself, you’re going to have questions, like:
- Which tax forms do I need to file?
- What are my tax rates?
- When are the deadlines for business filing?
- What’s my adjusted gross income?
- What is e-filing?
- Where do I include charitable donations?
- What’s the difference between a federal tax return and local tax returns?
- What is considered taxable income?
- What’s my filing status for this tax season?
- What do I need from last year’s tax return?
And when you need those questions answered, chances are, you’re going to head to the internet.
But the internet can be an unreliable place. There is so much information out there, and it can be hard to sift through out-of-date or inaccurate info to find the answers you need.
Working with a tax professional will ensure you get all of your tax questions answered by someone who actually knows what they’re talking about (no offense, internet!) Plus, you won’t have to waste hours (or days!) desperately googling to find those answers.
Doing Taxes Yourself Is Your Call—but Come Tax Time, Consider What’s Right for Your Business
Bottom line? If you feel strongly that you want to manage and file your own taxes, be responsible for tax filing, and your business’ tax refund, you can certainly go that route.
But keep in mind that doing taxes yourself is a big job on top of running your business, and if you’re going to do them, you need to dedicate the time, energy, and resources to get them done right. If not, it’s definitely in your (and your business’) best interest to partner with a tax preparer to ensure your tax preparation and tax filing goes smoothly, and you get the maximum refund possible.
This post was updated in March 2022.