It’s tax season, and if you own a small business or have a role in the financial department of one, that means you’ll need to worry about how to file your business’s taxes for the year. But if you’re new to the game, or you’re interested in changing how you usually do things, you may be interested in learning what options you have for filing business taxes.
Understanding the Basics
Before you get too far, you’ll want to work to understand how business taxes work—at least on a basic level. You should, for example, understand the different business structures that exist and how they’re taxed differently (e.g., sole proprietorships vs. LLCs vs. corporations). Assuming you’re only working for one business, you’ll only need to specialize in one area here.
Getting a grasp on the fundamentals will guide you in making the right decision for how to prepare your business’s taxes, and allow you to ask the right questions if you end up working with a third party.
What You’ll Need
You should also know the items you’ll need to get the process started. No matter which option you use, you’ll need to have access to documentation that details all your earnings for the year (i.e., any income you’ve gotten from customers and clients) and all your expenses. The more efficiently organized this paperwork is, the smoother the process will go. If there are ambiguous fields, missing information, or incomplete records, you could run the risk of filing your taxes incorrectly; the consequences of that range from missing out on potential deductions (and paying more taxes overall) to breaking the law.
So what options do you have to file?
Option One: Handle It Yourself
Your first option is file your business taxes yourself. The idea is to gather all the paperwork, do the research, and commit some time alone to complete the work. If you’re working as a sole proprietor or freelancer, this is probably one of your best options.
The Advantages
- You’ll be able to make all the decisions for how to report different income and expenses, and you won’t have to put trust in anyone else to do it for you.
- You’ll have complete knowledge of how your forms are getting filled out, which numbers are being used, and how close or far you are from hitting the deadline. This can put some of your fears at rest.
- It gives you valuable experience, even if it takes you a long time to figure things out. The next time you file them, you’ll be able to do them faster and more thoroughly.
- You don’t have to do them on a set schedule (other than getting them done by your filing deadline). You can work on them in your idle time, or on the weekends when you don’t have anything else going on.
- It’s technically possible to file your taxes for free.
The Disadvantages
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- You aren’t an expert in this field, so it’s going to take you much longer to complete the work than someone who’s more familiar with it.
- Because you aren’t a seasoned expert, it’s more likely that you’ll make a mistake on your taxes. Small mistakes aren’t a big deal, but a big mistake could land you in hot water with the federal government.
- Doing taxes alone means you won’t have anyone to turn to when you hit a major roadblock, or a discrepancy you can’t resolve.
Option Two: Work On It Internally
Your second option is to turn your taxes over to your team of accountants. If you already have a talented team of financial experts on staff, you shouldn’t have to expend much effort. Think of it as doing your taxes yourself but delegating the tasks to a team of people who are already familiar with your company’s finances.
The Advantages
- Having your accounting staff handle your taxes will still put the burden of time on your team, but it will be distributed among people who know what they’re doing.
- Assuming you’ll have two or more people working on your taxes concurrently, you’ll have multiple sets of eyes that can review each other’s work, and proactively check for mistakes, increasing the accuracy of your final return.
- Your accounting team will be handling all your income and expenses throughout the year, so it only makes sense that they should be the ones detailing those numbers to the government.
The Disadvantages
- If your taxes are complex, it could take your team many hours—or even days of work to complete them. This can draw them away from other projects that might require more immediate attention.
- If your team is working together on the same problems and are thinking in the same ways, they may be subject to groupthink—the tendency to hold the same biases and flawed modes of thinking about problems.
- Even if they’re experienced accountants, your team members likely aren’t business tax experts, and that means they still might struggle with certain elements of your return.
Option Three: Hire an Outside Expert
The final option is to hire an outside expert. There are hundreds of firms and thousands of individuals who all specialize in handling complex tax returns for businesses.
The Advantages
- Choosing an outside professional means you’ll get someone with ample experience, specifically in the realm of business tax preparation. They’ll know more, and may be able to find more deductions and benefits than you or your team could.
- There are thousands of options available to you, which means you can find an expert who’s a perfect fit for your organization.
- Having someone else do your taxes spares you and your regular team from the hassle of doing them, sparing you dozens of hours of work.
- If something goes wrong on your taxes, you’ll have someone else to blame.
The Disadvantages
- The more experienced your candidate is, the more they’re likely to charge. You might save time, but you’ll end up paying for it.
- You may not want to go with the first tax preparer you find. It can take time to find the right candidate for your business.
- You’ll be able to work with your tax preparer, but you won’t have as much control over how your paperwork is filed.
Selecting the Best Option
So which of these options sounds best for your company? You’ll need to carefully consider variables such as:
- Your budget. Your budget has a substantial bearing on which options will be available to you. If you aren’t willing to pay top dollar for an external expert with years of experience, or spend the internal hours necessary to give your tax return a final polish, you’ll end up doing the work yourself.
- Your experience. You should also consider your personal experience with business tax returns. Are you comfortable filing the documents necessary to complete your federal return? Or are you confused about how corporate taxes work? If you’re inexperienced, going it alone is almost certainly a bad idea.
- Your tax complexity. You should also consider how complex your specific business taxes are going to be; business taxes are generally more complicated than individual tactics, but there’s significant room for variability. For example, if your income stream is straightforward and you don’t have many deductions, you might not need to hire an external expert.
- Your tolerance for risk. How sure are you that you can file without making a mistake? How nervous are you about something going wrong with your return? Hiring someone else can help you soothe those concerns and lower your risk.
Every Business has Their Own Best Option
Ultimately, each business needs something different. If this is your first time filing taxes, you may want to choose the safest option, or the option that will require the least amount of time and input from you and your team. Whatever you choose, aim to keep detailed, organized records in the future; any option will go smoother with this.