Why You Need to Hire an Accountant before Tax Season
Hiring an Accountant for Tax Season
Whether you be a small business owner or just an individual living out your day to day life, no one likes to deal with the IRS. Most people don’t like dealing with them simply because they are fearful that they may be in violation of one or more of the existing tax rules. Despite whatever trepidation you may have, it’s imperative that you face your issues before they develop into serious problems.
Here are a few reasons why you need to hire an accountant before tax season:
To Help You Avoid Audits
If the IRS decide to audit you, your business should already have undergone a major internal auditing process. Your accountant should be qualified to audit your books throughout the year to ensure you’re practicing good bookkeeping and that you are doing everything you need to do to remain fully compliant.
To Help You Determine Your Filing Status
Not sure how you should file your taxes? Your accountant can help you determine which filing status is best for you and your business. Perhaps you need to file jointly, separately or even as head of household. Your accountant can break down each filing status to help you figure out how you can receive the biggest refund.
To Save You Money
If you know you will owe money to the IRS at the end of the year, have no fear. Your accountant can help you save money from day one by making sure you are having quarterly taxes taken out of your account.
What other reasons do you have for hiring an accountant? Leave your comments below.
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The Many Kinds of Audits
Tax Audits
Tax audits can impose a great deal of stress in anyone’s life, but in order to avoid them you must first learn more about what a tax audit entails. Believe it or not, tax audits can come in all shapes and sizes, and below is just a brief list of various ways you can be audited by the IRS.
Tax Audits by Mail
Perhaps surprisingly, most tax audits are conducted by mail. Most commonly these audits are referred to as “correspondence audits” and typically occur if the IRS has questions about your return.
In-Office Tax Audits
In rare cases, the IRS may ask you to attend an in-person audit at your local office. In general, in-office tax audits are usually employed when the IRS has additional questions for your business which cannot be answered with traditional paperwork.
Field Audits
Field audits can be a nightmare, especially if they be unexpected. The IRS will come to your home or business just to gain more insight into your tax return. These audits normally occur if the IRS has lots of issues which a phone conversation will not resolve.
Tax Audit Outcomes
Many people sadly make the assumption that all tax audits are designed to ruin your business or your personal life. In most cases, the IRS will either accept your IRS return at face value or they will ask for other supporting documentation. In rare cases, your tax audit could land you in jail or have your assets frozen.
Surviving an In-Person Audit
Surviving an in-person audit can be a difficult task; however, it is possible. Keep all of your receipts and have documentation that backs up everything.
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Four Questions to Ask When Hiring a Tax Preparer
Questions for Your Prospective CPA
Many people contact CPA firms with the hope that the CPA firm can automatically know exactly how to help them. While most CPAs are well equipped to handle tax preparation, it should not be assumed that all CPAs will know exactly how to service your specific needs right away. In fact, the more questions you ask, the more you can learn about how a prospective CPA will be able to handle your particular situation.
Here are just a few questions you should ask before hiring a tax preparer.
Do you have preparer tax ID number?
This should literally be the first question you ask. Anyone who prepares tax returns for money must have a valid PTIN. If they don’t have their PTIN, run away as fast as you can, because you may be dealing with a fraud.
What is your tax background?
For some people, this question would appear to be a tad intrusive, but asking for a company’s tax background is important. Just because one is a CPA doesn’t always mean they are qualified to handle you and your business needs.
Have you ever prepared a tax return for another business?
Just because a CPA has prepared a tax return before doesn’t mean they’ve prepared one for a business. Make sure you ask, and if possible ask for information so you can substantiate whatever response they give. You should also try to obtain references for whichever CPA you’d like to work with.
Do you know the state requirements which pertain to me?
This is another important question to ask because you want to make sure that the CPA knows the tax laws in your city/state. Not knowing your state laws could be a costly mistake that you never knew you signed up for.
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What to Bring When You Meet With Your CPA to File Taxes
If you have never hired a CPA before to handle your taxes you may be a little overwhelmed during your first meeting. You can be overloaded with a great amount of information and terminology which may be unfamiliar to you. While this meeting can be overwhelming, it can be one of the best decisions you ever make as a business owner.
Tax Items
If you’ve ever wondered what exactly you should bring when you first meet with your CPA to file taxes, here are a few items to get you started:
Notebook
Bring a pen and paper with you and get ready to take notes when you go meet with your CPA. Every piece of information they provide you with is designed to help you as a business owner. If you don’t write it down, statistics show that you are almost guaranteed to forget it. Take copious notes during your meeting.
Pay Stubs
Your CPA needs to know exactly how much money you are bringing in each and every year, and the only way to demonstrate this is with a pay stub. Make sure you bring in the pay stubs from the last year of both you and your spouse (if you’re married) to help your CPA better calculate your potential refund.
Childcare Bills (if you have children)
Childcare bills (specifically for daycare and doctor’s visits) are important to include when you’re meeting with your CPA. CPAs can work with you to use these items as potential tax write-offs for you and your family.
Dependent Care Information
Do you have a parent or spouse or someone who is a dependent of yours who needs special care? There’s also a tax write off for you, but only a CPA can help you through that process as they’ll know more information about how to adequately navigate that situation than anyone else.
Business Related Travel Documents
As a business owner, it’s important that you always track your mileage when traveling. This will not only show you how much you’re traveling each month, but it will also be used as a business travel expense that you may be rewarded for at the end of the year by the IRS.
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Moving On Up: Tips to Maximize Your Tax Credits
Moving Day
No one really likes moving: it’s costly, stressful, and generally a pain in the butt–and usually the lower back at the same time. But there’s a small light at the end of that tunnel: there are some tax benefits available to movers. Two things worth noting: the following presupposes that you’re moving for a new job; costs incurred for moving within the same town do not qualify for a deduction.
There are a few requirements which must be met:
Distance Requirements
The distance between your new job and your former home must be at least 50 miles farther than your previous employer is from that home. The IRS requires you to use the shortest commutable routes between two locations to judge this distance.
Time Requirements
You must work full-time for a minimum of 39 weeks during your initial 12 months, which starts on the day you arrive at your new location. If the 39 weeks are not consecutive you can still satisfy this requirement, whether it’s for one or multiple employers.
Okay, I Qualify: So What Is Deductible?
You may deduct any reasonable expense that you incur during the transport of your personal and household items to the new home.
This includes the cost of renting a storage unit (up to 30 days) if you are unable to immediately move your stuff into the new space. If you drive your personal vehicle, you are also able to include gas, oil, parking fees, and any road tolls. If you’re moving a long distance, you can deduct airfare, train tickets, or bus fare.
Claiming the Moving Expenses Deduction
Because of the required 12-month period, most taxpayers are unable to satisfy the time requirements until the following tax year. However, the IRS permits you to claim the deduction in the year you move. Should you not satisfy all requirements at the end of the 12-month period, you must reverse the deduction.
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How Artists Can Benefit from a CPA
Freelance Artists
Freelancers tend to be busy in general, and freelance artists are perhaps even more busy than the average freelancer. When you’re a freelance artist, you’re simultaneously your own employee, manager, PR agency and HR representative. This means that you’re likely super busy. Because time is important to artists, organization is key and a good CPA can help you stay manage your affairs. Here’s a few specific benefits a CPA can bring to the table:
A CPA can help you make sense of your earnings and expenses: you’ve got clients, vendor fees, invoices, and supply costs to worry about. All of this is in addition to creating your art! Brutal! However, a CPA can help you put all of that in order to ensure that you claim appropriate deductions and credits, and pay the correct amount of taxes, which gives you fewer things to worry about.
Tax recommendations: you spend time performing, practicing, or creating, so you might not always be thinking about expense tracking. A good CPA can make recommendations on deductions and tax credits, which will help you know what expenses you should track for tax purposes. Doing so can help maximize your tax return, which in turn can give you more to reinvest into your art. Or use it to take some well-deserved time off.
They can free up your time so you can focus on your art: you’re busy maintaining all aspects of your business. Moreover, certain art mediums are not immediately replicable and serviceable as many hourly or salaried job tasks, meaning that artists tend to work odd, long, and inconsistent hours. Along with properly maintained records, a good CPA can help free up your time so you can focus on doing what you love.
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How to Be Organized for Tax Time as a Freelancer
Freelancer Issues
Freelancing can be simultaneously rewarding and stressful. Unlike most in-house jobs, which have an HR staff, a sales staff, and so on, freelancers often have to wear many professional hats. Accordingly, organization for freelancers is paramount, and here are a few tips to help freelancers stay as organized as possible when it comes time to file taxes.
Spreadsheets are your friend: you already know that it takes a lot of organization to be a freelance employee. Between dealing with clients, tracking expenses, filing invoices, and maintaining your professional and personal schedules, a good ol’ spreadsheet or expense tracking app is invaluable. Not only will your clients appreciate how organized you are, you’ll be thankful for it at tax time. Your CPA will thank you, too.
Make record-keeping a part of your regular to do list: although the automation features of many organization apps can decrease the time you will need to dedicate to staying organized, you will still need to set aside time to put your business in order. Making self-organization part of the regular routine will help make your business run more smoothly overall.
Find a good CPA: if you’re a solo freelancer, your time is valuable and you likely account for time more so than the average employee. A good CPA can not only crunch numbers for you at tax time, but can also make recommendations to help you maximize your return. A larger return allows you to reinvest in your business (or take a vacation), and the extra time frees you up to focus on your work. Or to take that vacation early.
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