June Walker can field almost any question on the taxes of one-person business owners. She's been at it for more than thirty years. Still, there's one that continues to trip her up.
"The only question I can't answer is 'Can I recommend a tax pro?' says Walker, a tax advisor for the self-employed who hosts her own Q&A blog on the matter. "It's one of the most difficult things about being self-employed."
So, why are great tax preparers so elusive? Walker says that most accountants train for their corporate clients, but few understand the nuances and changing regulations with regard to sole proprietorship. Yet there are professionals who specialize in your needs as a soloist and can save you precious cash come tax time. We'll show you how to get the most out of them.
Finding a Tax Preparer For Your One-Person Business: Prepare Your Records Year-Round
To find the No. 1 reason why a solopreneur may file incorrectly, look no further than yourself. One-person business owners often carry around a deep-seated fear of records and numbers; they would rather be building than scrutinizing. But having an organized, clear record of your expenses and invoices will give the preparer the most to work with and potentially deduct.
"It's so simple now to keep, good clear records for your business," Walker says. If you aren't already using them, bookkeeping programs like Excel and QuickBooks make it extremely easy to track your financials. And before you step into the room with a tax professional, you'll at least want to hone a basic understanding of the numbers coming in and out.
The absolute last thing you want to do is scramble together a stack of unorganized receipts the second week in April. Walker says that independent professionals tend to procrastinate due to the fear they have of understanding and exposing their finances. But that's also what leads to the most mistakes—both for you and your accountant—that could cost you savings or, worse yet, interest penalties from the IRS.
Dig Deeper: How to Prepare For Next Tax Season Now
Finding a Tax Preparer For Your One-Person Business: Learn the Lingo
You may not need to memorize the tax code, but you will want to grasp some fundamentals before you start your search.
For example, be prepared to explain why you operate as a sole proprietorship and not any other type of business. Read up on the deductions you can take on your home or car, for instance, if you use them to run your business. Most of all don't be afraid to ask questions to unearth the meaning behind all those numbers on your tax return.
"Self-employeds tend to cheat themselves more than they cheat the government," Walker says, primarily because they are nervous about making mistakes. Yet far less make them if they understood their status as a unique business entity. "The jazz musician is just as much a business as the widget-making company down the street," Walker says. "People need to read up on it because it is their responsibility as a business to not blindly rely on what they think the expert says."
A great resource if you are looking for experts in your area is an organization like the National Association of Tax Professionals. While there are quite a few tax professional associations, the NATP allows you to search through its membership to find reputable sources. Cindy Hockenberry, research supervisor for the NATP, says affiliation with a group like hers can validate one candidate over another. "It lends a little commitment to the industry, that they're not just a fly-by-night disappearing after April 15th," Hockenberry says.
In addition you'll want to know the distinctions between different types of preparers. There are CPAs, tax attorneys, enrolled agents, and now registered paid return preparers recognized by the IRS. You can also check with the IRS or conduct an informal background search on the person to see if there are any fraudulent claims against the business. Along with the IRS and NATP, the National Association of Enrolled Agents and the American Institute of Certified Public Accountants are available to authenticate the dignity of your potential preparer's past.
Finding a Tax Preparer For Your One-Person Business: Vet the Credentials
One-person business coach and Inc. blogger Marla Tabaka echoed Walker's sentiment that tax fears often hamstring solopreneurs. She recommends thoroughly vetting the candidate's background and expertise in the industry, particularly regarding rules for solo practitioners.
"What's most important is that the person keeps current with tax law, because right now they are ever-changing," Tabaka says. She also recommends asking how they do projections and how many small businesses they work with, even asking to speak with some of their clients. Also check to see how much time they spend on your account filling out the paperwork. Tabaka recalls a situation where her tax advisor hastily ran the numbers right there in the office, only to later find out he made an error. "He seemed confused, overwhelmed, and didn't seem to want to spend that much time with me," Tabaka says.
Instead, the tax preparer should spare no effort to make sure you're both are on the same page. That means not only answering your questions, but also asking you questions about your business and whether or not you understand the terminology.
"It's the same way you would go to a doctor for a specific health problem," Walker says. "They have to be able to explain it in a way that makes sense to you, because if they can't, then they don't understand it."
For this reason, both Walker and Tabaka agree that the CPA behind the title doesn't necessarily guarantee quality. Because taxes in this area are so nuanced, and mistakes are so easily made, the need to be as comprehensive as possible in your questioning and research is paramount. "The CPA after the name doesn't mean anything," Walker says. "It could just mean they are great with the corporate accounting."
Finding a Tax Preparer For Your One-Person Business: Build a Business Partnership
Like many other business relationship, you'll want to have more than a semblance of trust in the person who will be handling your money. It's vital that the person be willing to go the extra mile and provide a service beyond what you can get from your local H&R Block branch.
"Ask yourself: Can I view this person as a partner in my business? Is it someone I am that comfortable with?" Tabaka says. "Because so many solopreneurs are afraid of understanding, exploring their numbers, it's so important to find someone who is going to help you eliminate that fear."
Certainly Walker has cultivated a deep level of trust with her clients. Tim O'Brien, who runs a Brooklyn, NY-based freelance illustration business, has been working with her for close to twenty years. He says that he used to be terrified of doing his taxes and other finances the wrong way. "Probably, before I found her, I did not deduct or save everything I could have," O'Brien says.
Yet Walker forced O'Brien to keep an eye towards his retirement, even as he struggled with car and other payments early on. "As painful as that concept was when I was in my mid-twenties, now I'm so glad I did it as early as I did," he says.
Though he isn't looking for anyone new, O'Brien advises other soloists to seek out an advisor who keeps careful notes and documents detailing everything he or she can provide. Past that, it comes down to making a connection. "Ask around," he says. "People love them like they love their doctors."