Many entrepreneurs approach the filing of their income taxes as little different than when they were wage earners, and a sole proprietor has good reasons to seek out help with their new tax situation even if they're used to doing their own forms. Here are four of the most important reasons.
1. You're Unfamiliar With Schedule C
If you've never earned income as a business or independent contractor, you have likely never worked with Schedule C. While not overly complicated, it has elements that you may not get right if attempting to do it alone. You may need to calculate cost of goods sold, for instance, as well as depreciation on business assets. You'll also need to understand what expenses are deductible and which can get you in trouble.
2. You Should Plan for Next Year
As they complete their tax forms for each year, business owners should start planning for the next one. Even a one-person business benefits from thinking ahead. If your taxes were high, you and your preparer can brainstorm ways to lower them next year with strategies like making retirement contributions, using early depreciation, or timing the purchase of assets. Unless you're familiar with the business tax system, this is a good time to seek out professional assistance.
3. Income Miscalculations Are Costly
Wage earners generally put their income into one familiar place on their forms. However, business income must be entered elsewhere and it triggers certain other calculations.
For instance, interest income is reported separately from ordinary business income. Some independent contractors doing different jobs may need to report income as separate business ventures. Misidentifying income as 'other' rather than self-employed income can even open you up to extra examination.
4. You'll Get Year-Round Assistance
When you have a professional tax preparer on your business team, you have help with other tax-related tasks. Some preparers help with payroll and sales tax obligations. Others may be able to assist with things like requesting an Employer Identification Number or providing documentation for lenders. In the event of an IRS notice or audit, you may also need someone to help you make your case.
Even an experienced 'do it yourself' taxpayer needs assistance at times, and starting a new venture is one of those times. If you want to learn more about how a tax preparation services and how they can help you, don't hesitate to make an appointment with an accountant like those at Hough & Co CPA today.