Small Business Resources is now the Center for Business Empowerment.
September 26, 2023 | 3 minute read
Many small business owners successfully prepare their own tax returns — but whether DIY is the right strategy depends on a number of factors. The size and complexity of your business — as well as how much time and experience you have — are important to consider.
If you are a sole proprietor with $100,000 or less per year in revenue, preparing your own tax returns should be relatively simple. To save yourself a headache during tax season, ideally, reconcile your books once a week. Once a month is not frequent enough if all you’re doing is throwing receipts or invoices into a box. Errors can escalate quickly.
Plan for success. Set up a bookkeeping and accounting system that will scale with your business as it grows. The alternative — playing an endless game of bookkeeping catch-up — is a recipe for missed payments and accounting errors. Doing payroll and books retroactively is difficult and time consuming; sorting out a mistake with tax authorities is worse.
As your business grows, there are further complexities. Once you hire an employee or start paying yourself as one, you’ll need to calculate and collect payroll taxes as often as you issue a payroll. Here’s when a payroll service might be worth investigating.
Costs for services and professional help vary. Small businesses that keep their own books often use software such as QuickBooks. Subscription costs for accounting software generally will cost a couple hundred dollars a year or more. This option of doing your own bookkeeping may save you money but requires more of your time.
The least expensive professional bookkeeping services — which provide services such as reconciling your books to your bank account and categorizing expenses — typically cost $100 per month or more, though costs may vary regionally. Outsourcing your bookkeeping can add to your overhead, but it will save you time that you could be devoting to building your business.
Payroll companies such as Gusto and ADP usually charge per employee or per check, so a small business with fewer than 10 employees could end up paying a few hundred dollars a month. This costs more than tackling payroll yourself, but because payroll providers have teams dedicated to keeping up with laws and regulations, it reduces the risk of compliance errors. It also gives you access to reports and forms you’ll use if you apply for a loan or when you file your tax returns.
Without a payroll provider, you’ll need to create these on your own or have your accountant do so. Some accountants charge as little as a few hundred dollars to file simple small business tax returns, but prices can quickly range upward into several thousands of dollars for complex businesses or more services. This may vary based on your region.
Are you earning revenue in more than one state? Do some of your contracts contain clauses, such as for rebates and refunds that could affect your finances and taxes? Do you have extensive inventory or capital assets that have to be depreciated? How heavily is the company regulated? Any of these factors could affect the complexity of your tax situation.
Some small companies can take a DIY approach to one or all of the three components of taxes: bookkeeping, payroll and tax returns. Others will need guidance. Talk to your banker about what other businesses of comparable size and industry are doing to help find the best approach for you and your business.
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