How To Know If It’s Time To Hire An Accountant.
No matter how many years I have had to practice, somehow I still haven’t quite figured out how to tax.
This article was written by featured guest writer Ashlee Christian.
After one too many installment agreements with the IRS I decided that it was finally time for me to find a professional to math for me and help me better understand my tax liabilities both as a W2 employee and a 1099 freelancer.
As a freelancer who works so hard to generate income, it might seem hard to justify shelling out money for something that you could do, albeit in my case, very poorly. However, the amount of psychological currency that is saved in the form of sanity, and the amount of real life dollars that can be saved with someone who actually knows how to maximize freelance deductions was well worth it for me.
Here are some things to consider when determining if it’s time for you to hire an accountant:
How complicated is your situation?
If you are only a W2 employee or if you have only a few very regular clients chances are your situation is pretty tame. However, if you have multiple 1099s to manage or a ton of different deductions then it may be time to hire a professional. Accountants can also help you stay on top of your quarterly payments by preparing estimated tax vouchers (Form 1040-ES) for you.
How much money can you afford to spend on one?
A good way to think about this question is to calculate how much time it would take you to complete your own taxes as well as any accounting software or tax preparation site costs. The IRS estimates that it takes the average person 13 hours to prepare their tax return (however, it might be far more than that if you have a complicated return). So even if it is 13 hours, that’s 13 hours of time you could have been spending with other clients. Here’s a handy calculator to determine the ROI of hiring an accountant.
Do you need help with general bookkeeping?
Many accountants can do more than just your taxes, they can assist with general bookkeeping throughout the year as well. Make sure when you are looking for an accountant that they can provide the services that you need, as some may only do tax returns.
Here are some things to consider when you have decided to hire an accountant:
Does this person have experience working with freelancers?
The best way to find an accountant (preferably another freelancer!) who works with freelancers is to ask your freelancing friends. There are of course all sorts of ways to find freelance accountants in the wild, however, chances are you know some folks who have accountants that they love and would be happy to put you in touch with.
What is the accountant’s rate structure?
Depending on the services that you need you might end up paying a monthly fee, especially if you are looking to tack on bookkeeping services. Most accountants will likely charge a flat monthly fee for this, and outline what types of services they are providing. If you are only using an accountant when you file your taxes once a year then it probably makes sense just to pay them once a year when tax time rolls around. The important thing is to establish rates and the cost of services up front so there are no surprises and to ensure you’ve properly budgeted the costs.
What is the difference between an accountant and a CPA (Certified Public Accountant)?
Generally speaking, a CPA is an accountant but an accountant is not always a CPA. While an accountant doesn’t need to be a CPA to file your taxes it certainly doesn’t hurt to have someone who is licensed. In addition to finding out if your accountant is a CPA, it’s also worth checking if they are an Enrolled Agent. Enrolled Agents are not only able to prepare your tax return but are also qualified to represent you before the IRS (which is especially useful in the event that you are ever audited).
Have you given yourself enough time to find an accountant?
If it’s April 14th and you’ve just now realized that you need an accountant, you might be in trouble. Make sure you you make a solid plan not only for finding a good accountant with plenty of time to spare, however, make a plan with your accountant as well. What are your tax liabilities? When are things due? When does your accountant want documents by, and how do they like to receive them? Understanding all of these things will help better prepare you for the incredible feeling that comes with cobbling together a mess of documents, handing them over to a professional, and walking away.
While it might not be your time to find an accountant quite yet, it’s a good idea to constantly assess your financial situation and to determine whether you would benefit by hiring someone to help file your taxes or do general bookkeeping for your freelance business.
Freelancers what are your pros and cons for using an accountant? Leave them the comments!
