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Self-Filing Taxes vs. Hiring an Accountant: The Cost Breakdown

Self-Filing Taxes vs. Hiring an Accountant

To file, or hire it done, that is the question. Whether ‘tis nobler in the pocketbook to hire a professional, or to suffer the slings and errors of doing it all yourself…

Tax time is on us, and that means struggling with a question millions of small business owners ask themselves every year: is it worth the money to hire an accountant?

Fifteen years ago, the answer was clear. Unless you’re an accountant yourself, hire it done. With the new(ish) wave of websites and apps that do the hardest parts for you, though, filing your own taxes is within the ability of many small and most micro business owners. It boils down to a question of cost.

The Costs of Self-Filing

The good news here is that the cash costs of filing correctly are free as compared to filing via a professional. Yes, state filings include a nominal fee — but your accountant includes that fee in his charges, so there’s no difference there. Additional costs of self-filing fall into three categories:

  • The cost of labor. The average personal tax filing requires 16 hours of record keeping, tax planning and filling out of forms. The average business tax filing requires 24 hours for small businesses and increases exponentially as the operation becomes larger and more complex. This could represent cash laid out for a bookkeeper or office manager, or your own precious time.
  • Costs of organization. If you want to come in at anything near the estimated times above, you need to have your business finances in relatively good order. This means paying a bookkeeper, buying financial software, organizing paper records and/or a combination of all three. There’s no true average cost of making this happen, but it will cost you time and money.
  • Software and apps. TurboTax, TaxAct and similar tax preparation help sites are what make this question reasonable, but they do come at a cost. TurboTax costs $80 for federal small business tax filing, while TaxAct costs $50 for federal taxes. Both charge an additional fee for state filing, which varies by state but is rarely higher than the cost for federal filing.

The bad news here is that those low costs are for filing correctly. If it’s an honest mistake, the IRS will ask you to correct the information, and charge you 0.5 percent of any overdue payment for every month it’s late. Considering how long it takes the IRS to process your taxes, you can already have racked up six months or more worth of interest penalties before you even find out about the error.

If they think you filed untrue information intentionally, you’re in a huge world of hurt. Don’t even think about it.

The Costs of Hiring an Accountant

Hiring an accountant is pretty straightforward, cost-wise. On average, it costs about $420 to professionally prepare a Schedule E or C tax filing. This doesn’t include any filing fees you would pay if you filed yourself, but in terms of out-of-pocket expense it’s comparable to the $50 to $80 you would pay to use an online tax service to help you prepare on your own.

It’s important to remember that some of the costs of labor and organization still fall in your lap if you hire an accountant. That $400 charge only happens if you show up with your books already in order, and are able to quickly answer any questions the accountant might have. If you drop off a bunch of disorganized notes, your accountant will charge you for the time spent putting it together…and his/her time costs more than your time or your office manager’s.

On the plus side, hiring a professional accountant provides some protection from the costs of incorrectly filing your taxes. If the mistake was because you gave bad information, those fees are generally your problem. But if you provided accurate information and the tax filings were prepared wrong, that’s what their errors and omissions insurance is for.

Filing Your Taxes: The Middle Ground

Choosing whether to hire an accountant or to prepare taxes on your own is a matter of weighing risks, costs and opportunities. Whichever direction you choose, there are ways to mitigate risks and costs that might shade your decision toward one direction or another.

  • If preparing your own taxes, use a tax preparation service and opt-in for their audit protection and other error protection services. It’s not 100 percent protection against everything that could go wrong, but it is a cost-effective way of hedging your bets.
  • If hiring an accountant, ask your accountant exactly how he/she likes to receive documents. Put in the time to have them exactly that way. This will keep your accountant’s time spent at a minimum and keep your fees as low as possible.

Our Small Business Tax Recommendations

Since every business is different, there’s no right or wrong answer to this question. However, we can give some general advice based on the trends we’ve seen among our own clients:

  • Very small businesses, including sole proprietorships, microbusinesses and most home-based operations, aren’t much more complex that the personal filings you make when you have income from a business. If you’re filing successfully for yourself, you can probably file successfully for your business.
  • Small businesses with equipment to depreciate and employees with payroll are usually better off hiring an accountant. The variables and complexities are too numerous to do successfully without costing you more time and energy than you would save…unless you or a staff member (or a family member) is already confident and experienced with bookkeeping and tax preparation.
  • Medium businesses with complex payroll, multiple locations and other complications should hire an accountant. Even experienced tax people who don’t do taxes professionally can’t count on knowing all the changes and updates to the tax code that could be relevant.
  • Multi-state and other large enterprises should always hire professionals for the job. In fact, at this size there’s a good chance you’ll want an accountant on your payroll full time.

We do our best to report truthfully with up-to-date information, but none of us are tax lawyers and you should take this advice as advice only. If you have any serious tax questions, check with a professional.

Sometimes, small businesses end up in a crack where a tax refund will set them right but they don’t have the money on hand to hire an accountant. In such cases, a Kabbage small business loan can be a quick and cost-effective way to bridge that gap. Find out more today.

Do you plan to file your taxes yourself or hire an accountant? Let us know on social media.

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Kabbage Team

The Kabbage Team is here to not only fund the small business loans you need, but to help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at content@kabbage.com.

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