7 Reasons You Need an Accountant for Your Small Business
February 6, 2013
With the various inexpensive tax software packages available today, many people have fired their accountants and are going the do-it-yourself route when it comes to preparing their income taxes. This can be an excellent idea when it comes to individual income taxes. But if you have a small business you could be setting yourself up for disaster.
There are at least seven reasons why you need an accountant for your small business.
1. The tax code is even more complex than you assume.
The flood of tax software packages has caused many people to believe that the tax code is simpler than it is, or that it can be more easily mastered as a result of the software. Neither assumption is really correct.
The US income tax code is so complex as to be beyond human understanding. There are basic rules, but every one of those rules has exceptions and special circumstances â€“ and different rules will apply in each situation. Unless you are preparing hundreds of income tax returns each year, you can be completely unaware that you are violating a tax law until you get a written notice from the IRS. By then will be too late.
2. Taxes for a business are more complicated than for an individual.
Taxes for individuals are relatively straightforward. In addition, periodic changes to the tax code tend to be very well-publicized when it comes to individual income taxes. This happens because the greatest number of people will be affected by the changes, and those are exactly the type of stories the media like to report.
Much less well-known however, are the many changes that occur for small business and corporate income taxes each year. Many of the regulations and subsequent changes are so specific that they apply only to certain industries. All of this leads to far greater complication for business income taxes. For this reason, itâ€™s best to have a dedicated professional, like an accountant, to handle your income taxes each and every year.
3. Youâ€™re more likely to be audited and then youâ€™ll need representation.
As a business owner you generally face a greater chance of being audited than you do as an individual with a job and a W-2. This is because business owners have greater opportunity to either concealed income or to inflate expenses. The IRS is well aware of this and targets businesses, especially as income levels rise.
If you are audited, youâ€™ll be face-to-face with an IRS agent will know far more about the tax code that you ever will. Your best defense will be to have an experienced tax professional â€“ like an accountant â€“ not only preparing your taxes, but willing and able to backup anything the returns contain.
4. An accountant can deal with routine tax matters.
When you are in business, thereâ€™s far more than just income taxes. The tax authorities have created a battery of taxes that affect small businesses, but are generally out of sight from salaried taxpayers. Only an accountant will know what those taxes are, if you need to pay them, and how to go about it if you do.
Even if you are not incorporated, there can be unincorporated business tax, various intangibles taxes, sales tax, annual registration fees, municipal taxes and any other type of tax you can think of. Compliance with most of these taxes will be easy â€“ if you are an accountant. If you are not, you can easily get snowed under by them.
5. You may need a financial statement prepared.
Another real advantage of having accountant is that you can have financial statements prepared anytime you need them. And you never know when you will. Sometimes you need financial statements for regulatory or tax compliance, and you will need them if you want a loan from a bank or any other source.
An accountant can prepare these easily and quickly, because thatâ€™s what they do. In addition, financial statements prepared by third parties, such as accountants, have far greater credibility than one that you can run off your computer by yourself.
6. You have better things to do with your time.
If you are running your own business, that needs to be where your time goes. The last thing you want to do is get caught up preparing financial statements, filing income taxes, and dealing with the plethora of government regulation that plagues all businesses.
Though it may seem less expensive if you do these functions yourself, it will actually cost you more because of the time that you will be pulled away from your main business tasks. And then there are the mistakes you can make out of pure ignorance; thereâ€™s no way to estimate what that will cost until it happens!
7. Peace of mind.
Finally, thereâ€™s the emotional benefit of having an accountant. You have enough to worry about by running your business, you donâ€™t need to be worried about regulatory and tax issues as well. Even though youâ€™re in business for yourself, you should always partner with experts who are strong in the areas that you are not.
Having an accountant can be a form of business insulation. While you are going about managing the routine matters of your business, your accountant is keeping you insulated from the general business environment. That keeps your mind clear to work on what is most important rather than to fret over matters that are not entirely clear to you.
Yes you can save money with tax and accounting software packages, but nothing replaces hands-on expertise. An accountant can free you from these concerns, allowing you to concentrate on your work and even enabling you to sleep better at night.
If you have a small business, do you have an accountant? Or do you try the DIY route? Leave a comment!
All posts by Kevin Mercadante