A side point, OP and all the comments here saying CPAs are "ripping off" people is unfair. It's not easy to become a CPA, these people need to pay for school, run a business, and pay their bills and support their family like everyone else. Their time is valuable, they charge for that value. That isn't ripping you off, it's providing a service that you are buying. As a consultant you wouldn't appreciate people saying you were ripping them off just because you sold them your services.
did my own taxes one year and the next year had my CPA review them, he found thousands of dollars I left on the table, so in the end it ended up costing me thousands more to do my own taxes.
Source: have done my own semi-complicated taxes (multiple businesses, multiple states, real estate investments, mix of retirement accounts) for 20+ years, never been audited. Had a CPA do them for a few years, it was fine, but nothing I can’t easily do myself.
But in the end, I feel pretty confidant that a CPA isn’t going to find some magical (legal) deduction in OPs situation that TurboTax wouldn’t find. And I consider it my responsibility as a business owner to understand the basics of finances, accounting, bookkeeping, taxes, etc. It’s not that complicated at this level, any software engineer can pretty easily grasp this stuff with a little effort.
Also, CPAs are human and make mistakes, something I’ve personally encountered multiple times. So unless you check their work, how do YOU know you aren’t missing out on deductions or overpaying even if you do use a CPA? But then we’re right back to opportunity cost and expertise.
I don’t think using a CPA is a horrible idea, but you’re overstating the difficulty and risk of doing it yourself.
As I said elsewhere in this thread, the real value for me is in paying for bookkeeping and advice, but I doubt OPs $1800 includes much of either of those.
As a business owner I feel that its my responsibility to understand the basics of finance, accounting, bookkeeping also. I also know when it's time to ask for help and get advice and checks and balances. It's called due diligence.
You are just assuming that you've done it awesome without ever even checking. Maybe once in 10 years get it double checked, you could have been leaving a lot of money on the table and not even known it. You just say your smart, awesome at taxes, but have not proven it to yourself. Companies pay external firms to do audits all the time for exactly this reason. It's a complex subject, the laws change every year, and a good CPA (yes, there are bad ones, but again that's part of the responsibility of running a business is vetting the people you trust) will keep you up to date with those changes and help you minimize your tax burden. Mine also gives me advice, helps me when I have a business or finance question with real experience from his other clients. Who better to learn these things from than a CPA? It's not as if we come out of school just knowing this stuff. It's like a doctor, they know stuff, provide value way beyond just looking up symptoms on webmd.
If you're making 6+ figures, you should be treating your business like a corporation and paying a firm to do your bookkeeping. Especially true if your the only employee because in some countries single-employee corporations can be re-assesed and taxed at a much higher rate.
But if your goal isn't to commit tax fraud, then you probably don't need plausible deniability. I just dealt with a tax auditor from my state, over something my CPA judged as a toss-up, and it really wasn't was bad as you'd think. To interact with them, my CPA wanted explicit direction for what to do (handle the initial phone call for me, and fish for details of what they actually want). Next, they referred me to the most knowledgeable attorney at a prestigious regional legal firm: "You likely don't have an argument, be happy if they don't come after more. If you really want I can represent you in tax court for a $10k retainer".
I decided to represent myself, typed up a few statements outlining the details and my position, and sent them in. A few weeks later, I had a phone call with the auditor and their manager where they immediately proposed that based on the details I sent they could meet me half way. I verbally agreed, the manager seemed content to have a quick amicable resolution, and a few weeks later I got the formal assessment notice with a bit of interest (no penalties). I considered that a major win given what I was staring down. A++ would get taxed again.
Don't know about your firm but for our 7 figure business, I was paying a firm 6k+ just for taxes (no help with anything else, no strategy on tax savings) and they all make you sign a 0 liability thing. Ultimately, it is on YOU if you screw up your taxes and not the tax preparer. Fraud may be an exception but unless you can prove that, IRS will ultimately hold you responsible for mistakes, not the preparing firm.
I bet you are signing that fine print somewhere.
Lot of CPAs just do the taxes and ensure you are doing the right way. They don't really want to/care about giving you advice on how to save more. That doesn't necessarily make them bad CPAs but it also doesn't give them the license to charge crazy numbers. For example, I had a great CPA when I was consulting solo but they wouldn't help me on how to save money pre tax. I figured out on how to do a SOlo 401K which allows almost 44K per year pre tax (this was a few years ago. limit is higher now). Of course, once I told them, they said yea not a bad idea considering my situation.
So, it depends.
I realize I'm also paying $500/year for payroll via gusto, so closer to ~$1700/year overall. It's helpful for myself, but also paying any subcontractors I deal with too.
For quarterly taxes, I use my own spreadsheets, including one that implements the annualized income installment method from Publication 505. (I can't fathom how some freelancers can have income so consistent and/or a crystal ball revealing their total year income that use of simpler methods is possible.)
The fine is only a hundred dollars or so, and TurboTax will calculate it for you and include it. For the hassle it saves, and in the context of a 5 figure tax bill, it's a pretty simple choice not to bother with it.
FWIW, Ally bank has a 3% savings account atm, so you could easily make up that penalty by parking your future tax payments in a high yield savings.
I've missed payments, and paid the fines, and typically it's a small % of the total tax burden, so it's not hit me hard, but I wouldn't plan to explicitly withhold payments to try to pick up small % in savings.
The dark patterns have been getting worse, though, so look up what should and should not be free for filing.
I was a contractor/consultant for a while. CPA was worth every penny (and very similarly priced). I never had to think about my taxes because my CPA knew told me everything he needed me to do.
My taxes were simple, so I could have done my CPA did, but it would have taken much longer and I would have likely missed things.
In previous years, I did payroll manually (by hand), but moving forward, I have decided to use Square to pay my W2 since they properly track and file all state/fed tax forms. Less headache and stress at the end of each quarter. Worth the $40/mo in my opinion.
The only gotcha to my approach (CPA + freetaxusa) is you need to be your own tax "champion". That is, you must research and understand what tax deductible options are available for your business. For example, since I have an S-Corp, I can deduct health insurance, SEP-IRA (25% of W2 income), mileage, and any business-related expenses (hardware/software/office/etc). There are some other interesting deductions that push the limit of what the IRS will consider (eg: use your house as a business meeting place for less than 14 days/yr, use a second home to keep/store data off-site, etc), but I tend to shy away from those since they don't provide any real savings but raise flags during tax reviews.
Finally, get smart on the W2-vs-distribution method of pass-thru income. W2 income requires you to pay fed, state, and self-employment taxes, while the distribution method does not pay self-employment taxes. In general, you can pay yourself 50% W2 income + 50% distribution income and not raise an eyebrow at the IRS.
> you need to be your own tax "champion"
Exactly! This is why I stopped using a CPA. I tried a few different people over the years, and I felt like I was doing all the heavy lifting. One year, I had a guy not deduct my payroll taxes (which I caught), once I was told I could fund two 401ks with the maximum amount when I was working for my company and another (nope), and once they told me I couldn't deduct my personal health insurance premiums because I paid for it out of my own pocket (the IRS lets you treat it as a business expense in certain cases).
The unforgivable one is that no one ever told me to pay myself ~28% of my distributions as salary (if reasonable) to optimize the QBI deduction (this saves thousands of dollars per year for SaaS businesses). I just happened to notice that when reviewing the QBI worksheet, and then Googled it to confirm. The CPA didn't have a clue.
Also, one of the most important lessons to learn in business is that business expenses that come off the gross are completely different than personal life expenses that come off post tax money.
I also used turbo tax, did it right (as far as I thought). That's exactly the thing, I just mindlessly filled out each step in turbo tax and did what it said, I don't truly know like my CPA does. Some of the things he does for me aren't really options on turbo tax as far as I understand.
When I search google or yelp results, it's hard for me to judge who is going to be competent and also reasonabily priced.
How did people find their accountant?
Word of mouth recommendations from colleagues helps, but I would assume you've asked around some already?
The last few years (no longer a consultant) I've just done my tax returns manually. The IRS offers editable PDF forms, and working through the instructions isn't that much harder than going through tax software's prompts.
(The home office deduction, for example, is simply a matter of understanding the rules, and using a measuring tape, and tax software can't automate much of that for you. And, as much as you have to do a little extra work for Solo 401k contributions when you do it manually, if you're using tax software, you still have to make sure you didn't miss or misunderstand the prompts that account for the pre-tax contributions, since that could be a very expensive mistake.)
For 2022, though, I'll probably wimp out, and go back to airgapped tax software, or find an accountant (who won't inadvertently hand my data to Intuit or others). The reason is that my particular state's forms are much more work than federal and they don't offer conveniently editable PDFs. Last time, I decided I would've gladly paid $1k not to have some forms feel like they were shortening my life by years.
If your taxes are more complex than you can handle on your own, put in the effort to find a good CPA. Get several recommendations!
Here is a cautionary tale when it comes to paying people to do your taxes: https://blog.nawaz.org/posts/2022/Nov/do-you-trust-your-tax-...
Per https://openai.com/api/ "Helps freelancers automatically find tax-deductible expenses by using GPT-3 to interpret data from their bank statements into usable transaction information."
CPAs as a result of that marketing may tend to charge higher for their service. It doesn't mean that they do a better job.
Given the degree of complexity stated by the OP (not very high, since there are no employees or business assets to speak of)[0] it should be easy to find someone with five or more years experience at a local H&R Block office who can do just as good a job for half the price, along with various guarantees on the work.
[0] of course we don't know what else was involved - is it a MFJ return, are there dependents with various credits, fancy investment income, itemized deductions, etc? Those items also add to complexity beyond just the consulting business.
They specialize in consultants and helped structure the LLC taxed as an S-corp to save a ton of money on payroll taxes.
They prepared a statement for justification on the portion of funds I take as salary.
They balance my bank accounts as part of the book keeping.
When applying for loans having several years of CPA stamped financials makes applications a breeze.
They have stopped me from doing a few borderline things which may have been technically legal, saved me a minuscule amount of money, but would have almost guaranteed an audit in their opinion.
When I had some very complex ideas for some things I wanted to do, the CPA scheduled an hour call to discuss and give me details on how to make it work.
I used to do my own taxes. And still do for my personal taxes. But I find having a firm keep my books totally worth it.
Searching for book keepers that specialize in independent contractors should bring them and some competitors up.
My guess is you haven't ever received a letter from the IRS saying you owe money, because $1800/year might sound like a bargain to avoid the stress such a letter creates.
For example, I once had a client switch their billing service. Each service sent a 1099 to the IRS for the same work for the same client for the same tax year.
The IRS is a blunt instrument.
I got a bill (for taxes, interest, and penalties) because I had only paid taxes on the money I was paid.
Yes it all got resolved properly.
But I opened a letter with five figures of taxes owed.
And had to figure out what had happened while completely freaked out and in a domain where I was operating for the first time. Would have been nice to have just called my accountant.
Of course your mileage may vary, and so to your luck.
You can usually deduct what you pay a CPA or tax preparer if you need to continue getting professional tax help.
To answer your question though, Xero and it's pretty great once setup correctly
What’s worth paying for is: 1) bookkeeping, and 2) advice on how to structure things for maximum tax benefit, but it’s very hard to find an ethical CPA who will have any advice for an operator of your size that you can’t figure out yourself with a few hours of research.
Got every cent in tax I could get: capital cost allowance on business use of personal car, and such.
Used the output of the software to successfully fight tax-related misreporting from a company I was contracting for. Canada Revenue Agency sided with me, agreeing with my interpretation of how accounting should be done.
If you have lots of free time and many freelancers have down time, then maybe it's cost effective to do it yourself regardless of the time taken.
There are various freelancer SSAS which will help you do it too. A kind of halfway.
You can classify all of your income and expenses throughout the year, including your home office, deductions and any other deductions that you qualify for and then it automatically transfers it over to TurboTax.
It also calculates your quarterly filings and helps facilitate paying those.
Sometimes your taxes are simple enough to do directly on the forms, but sometimes they aren't.
(Thanks for the reference to xournalpp, I should check that out some time)