Should You Prepare Your Own Business Taxes

With this stay-at-home COVID-19 stuff, I thought it about time that I write a new book (or more like update an old one). The original version has a heavy focus on how to prepare your own business taxes. I’m trying to make the whole thing more robust, with lots of helpful information, but it does bring up the main key question to all this:

Does it make sense to prepare your own business taxes?

I would for my small business…but that’s coming from a tax professional. It’d be like asking a former NASA engineer if you should build your own squirrel Ninja Warrior course: of course he’s gonna say yes.

But you, person running a small, independent creative shop of some sort without a background in tax. What should you do?

What is Your Time Worth?

You can’t be an expert at everything.

My wife recently went through this with my father-in-law. He’s a real estate agent, and was working on updating his website. “I have to know how to make the changes myself,” he insisted.

Which begs the question of why? If he has someone who can do it for him at a reasonable rate that he can afford, is there really a reason to know how to update his own website?

You need to ask yourself a similar question when you decide on preparing your own business taxes. The first questions you need to ask are (a) do you have time and (b) can you hire someone you can afford?

I can’t answer these for you. I don’t know how much time you have or how much money you have. I don’t know if you have a sister-in-law who’ll do your return in exchange for backstage passes or babysitting.

When you’re first starting up a business, $500 or so to get a good preparer can be steep. Later on, as your more established, paying that money may come as a welcomed relief instead of taking time out of your busy schedule.

IMPORTANT NOTE: Even if you don’t prepare your return, you absolutely need to understand what’s on it. Your name and signature are on your return, after all.

How Complex is Your Situation?

Part of your calculus to determine if you should prepare your own business taxes is dependent on how complex your taxes are.

If your business is a Single Member LLC filing a Schedule C without anything crazy going on, then figuring out your own return is going to be about as easy that the IRS can manage.

I know, I know, if “IRS” and “Easy” were on a Venn Diagram, there’d be very little overlap. But the Schedule C is designed for the lay person to manage.

If, instead, you decided to go down the S Corporation or Partnership return path, then it’s generally going to be a mistake to try to prepare it on your own. It’s possible to do…but it’s much more complicated.

Get the Right Software–But Don’t Let It Think For You!

Inuit makes a lot of money trying to simplify the tax return process. I haven’t used it for a long time–it’s like listening to a GPS telling you all the turns on a road you’ve driven hundreds of times before–but they do step you through it.

If you’re going down the personal prep route, you’ll need to make sure you get the right software. Intuit has a “Self-Employed Taxes” version for Schedule C filers and “Business” versions for S Corps and such. Yes, they cost more than the typical version.

I’m sure there’s alternatives from other providers.

Make sure you have the right version, but also make sure you know what it’s doing. As I mentioned above, your name is going to be on this return. If you’re preparing it yourself, your name is going to be the ONLY name signing it.

Yes, Intuit and H&R Block do need to stand behind their product, but ultimately it’s you who is going to be audited, not them.

So put in that extra bit of time to understand what’s on the form. If you just rubber stamp what’s given, you may send in a bad return.

That means paying too little taxes and potentially facing an audit. Or even worse, paying too much in taxes.