Do I really need an accountant, or can I handle filing my LLC taxes on my own?
October 2, 2012 4:45 PM
How important is it for me to get an accountant now that I'm earning most of my income as a freelancer? Can I handle taxes on my own?
My husband and I file jointly, and until this year both got all our pay through employment wages. I've downloaded state and federal tax forms and filled them out by pen.
Starting this year, I'm getting most of my income as a freelancer. I have a business bank account and I track business-related spending and revenue carefully. My expenses are pretty minimal -- office rent, supplies, a couple of coffee/lunch meetings with clients. I also attended a conference, which involved registration, travel, lodging and food costs. I ride a bike to get around most of the time, and my occasional vehicle transportation costs are so minimal that I'm not bothering to track them (probably less than 50 miles of work-related driving this year).
Outside of business expenses, my husband and I make some charitable donations and take a mortgage deduction. All of his income is traditional wages, and I have some non-contract wages from temp/on-the-side gigs here and there.
Every freelance writer I know has an accountant, and spends hundreds of dollars or more per year getting tax returns taken care of. But after reading documentation on the IRS website it seems like filing my own taxes as a freelancer won't really be all that overwhelming.
Is there some secret amazing deduction that's not laid out in IRS instructions that only accountants know how to find? Taking an hour or two of my time every three months to handle quarterly taxes and a half day once a year to fill out the full deal seems a lot less stressful than finding a trustworthy accountant and surrendering control of a situation I think I have a pretty good handle on. Am I missing something?
My husband and I file jointly, and until this year both got all our pay through employment wages. I've downloaded state and federal tax forms and filled them out by pen.
Starting this year, I'm getting most of my income as a freelancer. I have a business bank account and I track business-related spending and revenue carefully. My expenses are pretty minimal -- office rent, supplies, a couple of coffee/lunch meetings with clients. I also attended a conference, which involved registration, travel, lodging and food costs. I ride a bike to get around most of the time, and my occasional vehicle transportation costs are so minimal that I'm not bothering to track them (probably less than 50 miles of work-related driving this year).
Outside of business expenses, my husband and I make some charitable donations and take a mortgage deduction. All of his income is traditional wages, and I have some non-contract wages from temp/on-the-side gigs here and there.
Every freelance writer I know has an accountant, and spends hundreds of dollars or more per year getting tax returns taken care of. But after reading documentation on the IRS website it seems like filing my own taxes as a freelancer won't really be all that overwhelming.
Is there some secret amazing deduction that's not laid out in IRS instructions that only accountants know how to find? Taking an hour or two of my time every three months to handle quarterly taxes and a half day once a year to fill out the full deal seems a lot less stressful than finding a trustworthy accountant and surrendering control of a situation I think I have a pretty good handle on. Am I missing something?
Everyone will tell you you need an accountant. But personally, I agree with you--I have learned through extremely painful and expensive personal experience that if you are a detail-oriented, organized, competent, literate, thorough, smart freelancer with a simple business structure and expenses, you are better off without one. Nobody will care about the accuracy of your return more than you. (Although I don't know why you'd do your return by hand, but if it works for you...)
posted by phoenixy at 5:00 PM on October 2, 2012
posted by phoenixy at 5:00 PM on October 2, 2012
Righty-o. Thanks, folks. I guess I forget that many writers are math-phobic, because the other freelancers I discuss this stuff with tend to shudder in horror at the thought of handling their own taxes. Although, yeah, I should probably just trust TurboTax instead of trying to handle this all by hand come spring.
posted by croutonsupafreak at 5:07 PM on October 2, 2012
posted by croutonsupafreak at 5:07 PM on October 2, 2012
Another thing to consider: if you're well organized a tax-prep accountant might not be all that expensive. Finding an accountant that is well versed in your freelance activity might be able to save you money in the long run. There aren't any "magic" deductions, but a good accountant spends much professional time keeping on top of them. Generic store-front tax prep is probably not worth it, but a referral from someone in the same industry is at least worth investigating.
Too, tax preparation fees are usually deductible. Which, admittedly, isn't the same thing as saving the money in the first place.
posted by GPF at 5:38 PM on October 2, 2012
Too, tax preparation fees are usually deductible. Which, admittedly, isn't the same thing as saving the money in the first place.
posted by GPF at 5:38 PM on October 2, 2012
I'm not a freelance writer but I am a freelance designer. Ever since I started using an accountant, he's been able to get me thousands back in refunds every year. To me, that alone is worth paying him a few hundred to work on my taxes. Of course, YMMV.
posted by violetk at 5:52 PM on October 2, 2012
posted by violetk at 5:52 PM on October 2, 2012
There are two aspects of accounting: bookkeeping, which includes filling out forms, and process/policy/strategy.
You do not need a bookkeeper because you can do it, and you want to do it so do it. You don't need consulting either, but you will probably want a relationship with an accountant so you can plan ahead for changes in your business and the law. Something as little as coffee or a phone call once per year is enough for now.
posted by michaelh at 5:57 PM on October 2, 2012
You do not need a bookkeeper because you can do it, and you want to do it so do it. You don't need consulting either, but you will probably want a relationship with an accountant so you can plan ahead for changes in your business and the law. Something as little as coffee or a phone call once per year is enough for now.
posted by michaelh at 5:57 PM on October 2, 2012
violetk: Can you help me understand how an accountant is able to save you thousands of dollars? This sounds like it's not relevant to my situation, but maybe I'm missing something.
Since I write for a living, my expenses are extremely minimal.
My business revenue and expenses are completely segregated from my personal bank accounts. I rent an office and don't work from home. I have a separate work computer. There's no mingling of personal and professional expenses.
My total business expenses this year are likely to be less than $5,000 -- and that includes a cross-country conference and a start-up investment in a new laptop. In future years, I expect my expenses to be under $3-$4,000, rising as inflation changes.
The IRS is very straight forward about which expenses can be deducted in full, which can be deducted in part, which can be capitalized. I know what all of my expenses are and plan to take deductions wherever legal. What am I missing? Where are the thousands of hidden dollars in tax savings that I'm overlooking?
posted by croutonsupafreak at 6:01 PM on October 2, 2012
Since I write for a living, my expenses are extremely minimal.
My business revenue and expenses are completely segregated from my personal bank accounts. I rent an office and don't work from home. I have a separate work computer. There's no mingling of personal and professional expenses.
My total business expenses this year are likely to be less than $5,000 -- and that includes a cross-country conference and a start-up investment in a new laptop. In future years, I expect my expenses to be under $3-$4,000, rising as inflation changes.
The IRS is very straight forward about which expenses can be deducted in full, which can be deducted in part, which can be capitalized. I know what all of my expenses are and plan to take deductions wherever legal. What am I missing? Where are the thousands of hidden dollars in tax savings that I'm overlooking?
posted by croutonsupafreak at 6:01 PM on October 2, 2012
I would absolutely agree with violetk. I am a long-time freelancer and my accountant (who specializes in working with freelancers -- important!) has indeed found me thousands of $ in deductions that I never would have thought to take myself.
posted by lgandme0717 at 6:11 PM on October 2, 2012
posted by lgandme0717 at 6:11 PM on October 2, 2012
I've done some independent contracting work (not the same, but similar enough for my point). I have done my own taxes for years, using TurboTax, and it was easy to figure out the more complicated pieces because I was familiar with the basics (when I switched from W2s). The important thing you need to remember is to file quarterly estimated taxes. Otherwise you get probably a few hundred dollars in penalties for underpaying throughout the year.
posted by DoubleLune at 6:20 PM on October 2, 2012
posted by DoubleLune at 6:20 PM on October 2, 2012
Accountants are good for the strategy piece. For example, are you incorporated or do you do 1099 work? What is the tipping point when incorporation becomes the best strategy? If you are incorporated, do you know how to do corporate income tax? How do you structure your corporation? Should you distribute income to a lower income spouse? When is it best to invest money in the business account and when is it best to use tax sheltered personal accounts? This is stuff for an accountant.
I have an incorporated business and I can't fathom doing it without an accountant. The guy filed articles of incorporation for us, etc. I can't be bothered to learn all this. To me he is worth it because he simplifies my life. YMMV.
I still do all the invoicing and bookkeeping. He does the legal stuff, provides high level advice, and files the corporate tax return.
posted by crazycanuck at 6:27 PM on October 2, 2012
I have an incorporated business and I can't fathom doing it without an accountant. The guy filed articles of incorporation for us, etc. I can't be bothered to learn all this. To me he is worth it because he simplifies my life. YMMV.
I still do all the invoicing and bookkeeping. He does the legal stuff, provides high level advice, and files the corporate tax return.
posted by crazycanuck at 6:27 PM on October 2, 2012
I ride a bike to get around most of the time
The first time I visited my accountant she asked me if I had a car. No. She asked me how I got there and I told her I biked. She deducts my bike (which I had recently purchased) and its maintenance yearly. I also track public transport usage.
She also advised me on incorporating (it wasn't worth it at the time until I reach a certain income point), how much percentage to file quarterly and at what point of income my taxes change and I need to re-think our strategy. In the end, even though I'm really organized, it was piece of mind and end of frustration for me. I have never tried Turbo Tax-like programs but I like to be explained "why."
posted by Bunglegirl at 7:15 PM on October 2, 2012
The first time I visited my accountant she asked me if I had a car. No. She asked me how I got there and I told her I biked. She deducts my bike (which I had recently purchased) and its maintenance yearly. I also track public transport usage.
She also advised me on incorporating (it wasn't worth it at the time until I reach a certain income point), how much percentage to file quarterly and at what point of income my taxes change and I need to re-think our strategy. In the end, even though I'm really organized, it was piece of mind and end of frustration for me. I have never tried Turbo Tax-like programs but I like to be explained "why."
posted by Bunglegirl at 7:15 PM on October 2, 2012
Since I write for a living, my expenses are extremely minimal.
Fellow writer/editor here. I haven't had much luck with getting deductions or refunds from my accountant, but my overhead is apparently just really low. (Also, when I was just starting out we underestimated my quarterly payments--and then I had a gangbusters year. So...don't do that. OVERPAY THE QUARTERLY. Worst case scenario, you get a refund.)
I will probably keep going to her because I'm not that organized, and she takes payment in steak and/or tequila (family friend). But if you're just filing a Schedule C, and you keep decent records, and you're rolling pretty simply in terms of expenses and deductions, you should be just fine on your own or with TurboTax.
posted by like_a_friend at 7:34 PM on October 2, 2012
Fellow writer/editor here. I haven't had much luck with getting deductions or refunds from my accountant, but my overhead is apparently just really low. (Also, when I was just starting out we underestimated my quarterly payments--and then I had a gangbusters year. So...don't do that. OVERPAY THE QUARTERLY. Worst case scenario, you get a refund.)
I will probably keep going to her because I'm not that organized, and she takes payment in steak and/or tequila (family friend). But if you're just filing a Schedule C, and you keep decent records, and you're rolling pretty simply in terms of expenses and deductions, you should be just fine on your own or with TurboTax.
posted by like_a_friend at 7:34 PM on October 2, 2012
My accountant literally covered his fee and beyond with deductions he found that I never would've thought of. The home office deduction (obviously that wouldn't apply to you), deducting that percentage of my rent and other utilities for business purposes, the mileage deduction for business trips I take, various equipment I could deduct, my cell phone since I use it primarily for work, etc.
Plus for $200 or so, he did all that and did all the paperwork and filing so I didn't have to do it, which at my hourly rate actually saved me money.
And he's good for other stuff, too. That $200 got me a free consultation when I suddenly inherited some money and was kinda freaking out.
posted by Ghostride The Whip at 7:34 PM on October 2, 2012
Plus for $200 or so, he did all that and did all the paperwork and filing so I didn't have to do it, which at my hourly rate actually saved me money.
And he's good for other stuff, too. That $200 got me a free consultation when I suddenly inherited some money and was kinda freaking out.
posted by Ghostride The Whip at 7:34 PM on October 2, 2012
I say that any time you have an extreme change of income that you should get help for one year to learn the system and then do it on your own. At least you have something to compare it to for future years.
posted by JJ86 at 5:54 AM on October 3, 2012
posted by JJ86 at 5:54 AM on October 3, 2012
I'm a freelance editor, married filing jointly, and I have a CPA. I think it's really just a simple cost-benefit analysis. For me, I come out ahead by paying someone else to do my taxes. It takes me a lot longer to do my taxes than my CPA -- and I can use that time to make money. YMMV, obviously, and my tax situation is a little more complicated than yours. Just guesstimate how long it will take you to do your taxes with your new situation (be conservative -- double the time you spend now), look at how much your time is worth, and compare that with what an accountant will likely charge. They will give you estimates if you ask. Good luck!
posted by Shoggoth at 6:45 AM on October 3, 2012
posted by Shoggoth at 6:45 AM on October 3, 2012
When you are doing your taxes and slogging through TurboTax or the IRS website, wouldn't it be great if there was a real person to ask "am I doing this right"? Or to say "don't do that, it's a red flag" or "you can deduct that, everyone does it"?
Now imagine if they actually went even further and said "Let me fill out those forms for you, and you don't even have to worry about it except to dump a box of unorganized receipts on me once a year."
That's why people hire accountants.
(Not to mention the whole "accountants know how much cheating on your taxes you can get away with" which is really why many people like them.)
posted by smackfu at 6:50 AM on October 3, 2012
Now imagine if they actually went even further and said "Let me fill out those forms for you, and you don't even have to worry about it except to dump a box of unorganized receipts on me once a year."
That's why people hire accountants.
(Not to mention the whole "accountants know how much cheating on your taxes you can get away with" which is really why many people like them.)
posted by smackfu at 6:50 AM on October 3, 2012
(Not to mention the whole "accountants know how much cheating on your taxes you can get away with" which is really why many people like them.)
I've hesitated to post here because I don't want to generalize about professional tax-preparers, but ...yeah. This has been my experience, with multiple accountants. I've been pressured to claim deductions where I hadn't spent the money, or discovered on reviewing the forms that the accountant taken it on himself to drop sums in there (in categories like entertaining for business) that we'd never even discussed. I'd always been told that accountants can often pay for themselves with the deductions they find, and was rather dismayed back in my young and naive days that one method of "finding" deductions is making them up.
I still use an accountant because our finances are extremely complicated (co-owned real estate, home office, out of state employer, etc.), but if they were simple I'd prefer to do my taxes on my own. You are correct, croutonsupafreak, in your skepticism that there's thousands in deductions lying around if for example you don't have a home office and your business expenses are straightforward. Accountants are awesome for taking the whole tax mess off your hands, but they're not magic--you're right that it's all there in the forms and you can certainly do it yourself if you're of a mind to.
posted by torticat at 12:48 PM on October 3, 2012
I've hesitated to post here because I don't want to generalize about professional tax-preparers, but ...yeah. This has been my experience, with multiple accountants. I've been pressured to claim deductions where I hadn't spent the money, or discovered on reviewing the forms that the accountant taken it on himself to drop sums in there (in categories like entertaining for business) that we'd never even discussed. I'd always been told that accountants can often pay for themselves with the deductions they find, and was rather dismayed back in my young and naive days that one method of "finding" deductions is making them up.
I still use an accountant because our finances are extremely complicated (co-owned real estate, home office, out of state employer, etc.), but if they were simple I'd prefer to do my taxes on my own. You are correct, croutonsupafreak, in your skepticism that there's thousands in deductions lying around if for example you don't have a home office and your business expenses are straightforward. Accountants are awesome for taking the whole tax mess off your hands, but they're not magic--you're right that it's all there in the forms and you can certainly do it yourself if you're of a mind to.
posted by torticat at 12:48 PM on October 3, 2012
Thanks all. I'm still skeptical of the value of an accountant for me, though if they really do charge just $200 to prepare taxes I guess I'm willing to give it a try to see how it works out. People in my freelance discussion group have paid more in the neighborhood of $1,000, which seems insane to me.
I think some of the benefits of an accountant are more appropriate for people who are stymied when trying to figure out what their deductions are, even though the IRS is extremely explicit in its documentation and there are 10,000 articles waiting for an eager Googler who might be confused. I also have no interest in making large sums of money, which means that planning for a big-money year is hard to conceive of. If I start getting paid more per hour of effort, I plan to spend fewer hours engaged in the effort.
I'm strongly opposed to lying or trying to game the system dishonestly -- by saying that my bike is a business expense, for example, when I use it mostly for personal purposes and to commute or to make up other fake deductions. It seems like some people here who are ardently defending the value of their accountants are then citing examples that would land them in hot water if they were audited.
posted by croutonsupafreak at 1:45 PM on October 3, 2012
I think some of the benefits of an accountant are more appropriate for people who are stymied when trying to figure out what their deductions are, even though the IRS is extremely explicit in its documentation and there are 10,000 articles waiting for an eager Googler who might be confused. I also have no interest in making large sums of money, which means that planning for a big-money year is hard to conceive of. If I start getting paid more per hour of effort, I plan to spend fewer hours engaged in the effort.
I'm strongly opposed to lying or trying to game the system dishonestly -- by saying that my bike is a business expense, for example, when I use it mostly for personal purposes and to commute or to make up other fake deductions. It seems like some people here who are ardently defending the value of their accountants are then citing examples that would land them in hot water if they were audited.
posted by croutonsupafreak at 1:45 PM on October 3, 2012
I'm strongly opposed to lying or trying to game the system dishonestly -- by saying that my bike is a business expense, for example, when I use it mostly for personal purposes and to commute or to make up other fake deductions.
I'll defend my bike deduction by letting you know that I ride to meetings, to buy supplies etc. My accountant only deducts a percentage of my bike (just like she only deducts a portion of rent/utilities/phone) since I only use it for business a percentage of the time. This is not a fake deduction in my case, it is transportation. If you don't use your bike for business then I would expect you not to deduct it.
posted by Bunglegirl at 2:08 PM on October 3, 2012
I'll defend my bike deduction by letting you know that I ride to meetings, to buy supplies etc. My accountant only deducts a percentage of my bike (just like she only deducts a portion of rent/utilities/phone) since I only use it for business a percentage of the time. This is not a fake deduction in my case, it is transportation. If you don't use your bike for business then I would expect you not to deduct it.
posted by Bunglegirl at 2:08 PM on October 3, 2012
I'm strongly opposed to lying or trying to game the system dishonestly -- by saying that my bike is a business expense, for example
Well, you don't report all of your bike usage as a deduction -- just the percent that you use it for work. Just like my car that I use for work (as an independent contractor). I very precisely track the miles I use my car for work, and then on my taxes I input that number. Sure, people might be gaming the system by putting in more than that -- but you can take the honest deduction without gaming the system. And I don't put in "maintenance fees" for my car separately -- the IRS deduction amount / mile already takes that into account. And even with just being honest about it, I got something like $200 off my taxes last year.
posted by DoubleLune at 3:35 PM on October 3, 2012
Well, you don't report all of your bike usage as a deduction -- just the percent that you use it for work. Just like my car that I use for work (as an independent contractor). I very precisely track the miles I use my car for work, and then on my taxes I input that number. Sure, people might be gaming the system by putting in more than that -- but you can take the honest deduction without gaming the system. And I don't put in "maintenance fees" for my car separately -- the IRS deduction amount / mile already takes that into account. And even with just being honest about it, I got something like $200 off my taxes last year.
posted by DoubleLune at 3:35 PM on October 3, 2012
There should be no reason you can't do this yourself, particularly if you spend 50 bucks for Turbotax. Turbotax will walk you through all of the deductions. Some items to look out for:
1. Turbotax will fill out the Schedule C for you business income and Schedule SE that calculates your self-employment tax. The bottom line on these are carried over to your 1040 by Turbotax.
2. Turbotax will automatically carry over the 50% of SE tax deduction to your Form 1040.
3. Claiming a home office deduction can be a little tricky but Turbotax will help you there. You have to separate out expenses spent strictly on your home office (e.g. painting your office) from expenses that are generally attributed to your home living space (e.g. utilities, mortgage interest, depreciation). The first category you can deduct 100% and the second category only the percentage of square feet of your office compared to total home square feet.
4. Turbotax will ask you about your health insurance premiums. If neither you nor your spouse are eligible for a group plan from your employer, you can deduct 100% of health insurance premiums for you, your spouse and your dependents.
5. If you don't have a retirement plan from an employer, you can contribute to your own retirement plan, for example a SEP IRA and take a tax deduction. Turbotax will calculate the maximum deduction you can contribute to your plan.
6. You can still contribute $5000 to your individual IRA, regardless of your SEP IRA or other retirement contribution. These are separate retirement plans and you can do both. Turbotax will calculate the portion of your individual IRA contribution that is deductible.
posted by JackFlash at 5:20 PM on October 3, 2012
1. Turbotax will fill out the Schedule C for you business income and Schedule SE that calculates your self-employment tax. The bottom line on these are carried over to your 1040 by Turbotax.
2. Turbotax will automatically carry over the 50% of SE tax deduction to your Form 1040.
3. Claiming a home office deduction can be a little tricky but Turbotax will help you there. You have to separate out expenses spent strictly on your home office (e.g. painting your office) from expenses that are generally attributed to your home living space (e.g. utilities, mortgage interest, depreciation). The first category you can deduct 100% and the second category only the percentage of square feet of your office compared to total home square feet.
4. Turbotax will ask you about your health insurance premiums. If neither you nor your spouse are eligible for a group plan from your employer, you can deduct 100% of health insurance premiums for you, your spouse and your dependents.
5. If you don't have a retirement plan from an employer, you can contribute to your own retirement plan, for example a SEP IRA and take a tax deduction. Turbotax will calculate the maximum deduction you can contribute to your plan.
6. You can still contribute $5000 to your individual IRA, regardless of your SEP IRA or other retirement contribution. These are separate retirement plans and you can do both. Turbotax will calculate the portion of your individual IRA contribution that is deductible.
posted by JackFlash at 5:20 PM on October 3, 2012
If you are well-organized, you can do it yourself. If you freak out when you hear words like "depreciation," get an accountant.
Where I live, an accountant would change quite a bit more than $200 for a freelancer's tax return. I do it myself.
I am using Turbo Tax Home and Business which was especially helpful for calculating the home office deduction. I also joined the Freelancer's Union. It's free, and they have helpful information just for people like us. In fact, last February they had a webinar with an accountant who pointed out deductions I would never have found myself.
The hardest part, at least for me, is keeping track of expenses and saving receipts, especially for the home office deduction. Whether you use an accountant or not, you have to do that yourself.
If it would give you more confidence, you could try an accountant this year, and next year you could do it yourself. Just repeat what the accountant did, filling in the new numbers.
posted by islandeady at 8:19 AM on October 5, 2012
Where I live, an accountant would change quite a bit more than $200 for a freelancer's tax return. I do it myself.
I am using Turbo Tax Home and Business which was especially helpful for calculating the home office deduction. I also joined the Freelancer's Union. It's free, and they have helpful information just for people like us. In fact, last February they had a webinar with an accountant who pointed out deductions I would never have found myself.
The hardest part, at least for me, is keeping track of expenses and saving receipts, especially for the home office deduction. Whether you use an accountant or not, you have to do that yourself.
If it would give you more confidence, you could try an accountant this year, and next year you could do it yourself. Just repeat what the accountant did, filling in the new numbers.
posted by islandeady at 8:19 AM on October 5, 2012
This thread is closed to new comments.
posted by Dansaman at 5:00 PM on October 2, 2012