Your system sounds similar to mine. Haha. Itemize everything and then have an accountant file them. Keeps it simple!
2 Likes
Besides just keeping track of everything, do you ever miss deductions or changes to tax law? Or is there a way you keep up with all of that?
Yeah I did my own taxes last year in between my previous job I ran to starting up this one, and it wasn’t difficult. In the back of my mind I was just hoping I wasn’t missing something. Even though I keep good records. I just couldn’t help but wonder…
I like to keep up with my own businesses. So, I hire the experts to do what I am not an expert in. And that includes accounting. That may not be for everyone, especially if one does not have several businesses to account for. If you are doing only one or two, handling it yourself may be fine with enough information eg. the software that is used for tax purposes is updated with changing laws annually.
1 Like
Yeah, I get that. I feel like the software does a good job of making sure anything applicable is applied, or asked about. I’m pretty sure many “professional tax preparers” use the same software that is sold to the public. So, if you miss it, they likely will as well.
One of the benefits of doing it yourself is that you learn what to do and what not to do to gain tax advantages. When you see why or why you did not qualify for certain deductions, etc., you can maybe make changes in the next year to lower your tax bill. It is a great learning experience.
1 Like
Way back when we were young, my wife had a home-based business (our first venture into self-employment). Her first year, we took all of our stuff into a local accountant to do our taxes because I thought doing the business part would be way too complicated.
When we went back to pick everything up (this was before e-filing), I was reviewing the forms to be mailed in. I noticed that our refund seemed to be pretty high relative to what we had gotten back in the past. So I started digging and found she had deducted our full mortgage interest amount under both our “business expenses” and under our personal deductions.
That was the last time I let anyone else do our taxes but me.
1 Like
My wife was a paid tax preparer for a franchise office for a while as a second job. The owner of the franchise was a licensed CPA (she owned 4 offices) and used a totally different software than every other franchise in the area because the franchise software wasn’t always up to par with changes in Fed & State tax laws. After my wife stopped working there, she decided to do our own taxes using several of the types of software available for purchase, such as HR Block, TurboTax, and a couple of others. The first thing she noticed was how the “over the counter” products wouldn’t allow her to do things that she had done in the tax office where she worked. After reaching out to her former boss, she learned that those products are a generalized “one size fits all” type of programs and are not tweeked for all of the latest loopholes, laws, and local tax requirements. Her former boss even came over for dinner one night and reviewed all of the programs we had on the home computer and explained all of the issues on each of them. Showing us how we should be able to do certain things in specific areas, but the software was not programmed to allow it, and showing us how to get around the issues (tricks of the trade so to speak). After I started playing with the stock market, and opening my business, I hired a local CPA to do our taxes. Like my wife’s old boss, she was able to do things the “over the counter” software wouldn’t allow, increasing our returns by more than I thought possible. She even looked over a few of the tax filings that we did on our own, for a minimal fee of course ($100) and was able to amend those returns in such a way that we got quite a bit of $$ back (more than the fee paid) on those returns. The best thing is my accountant is a block down the street from my house, so I can just walk over there when needed…
If you are not well versed in your local tax laws and/or the federal side of things (which change all the time), try finding a local CPA that can help you out the first year anyway. Be sure they are licensed in your state, have a registered TPIN with the IRS, and is current in the required training. The fee you pay the accountant is considered a business expense and is 100% deductible, so why not try if you are not comfortable. At the very least, if a CPA does your taxes and you get a letter from the IRS because something wasn’t right, your accountant will be on the hook for the mistakes. It doesn’t mean that you won’t have to pay the fines, but at least you won’t get the brunt of the blame…
Same here. I make 2 spread sheets for my accountant, one is incoming $ broken into 2 parts, income & contributions, the other is outgoing $ broken into categories such as office expenses, insurance, advertising, etc… Keep it as simple as possible. Of course I keep receipts for everything in files on my desk. Hard copies as well as digital, saved to an external hard drive. The accountant just wants the spread sheet. She has told me that if I am not sure where to put something in the spreadsheet to just give her a call and explain what it is and she will decide what to do with it. Needless to say some spreadsheets have several sticky notes on them. LOL. I am the only client she has that has an HI business, but she has many that “provide services” like an HI would so it’s really not much different.
Here in CO, you don’t have to charge sales tax on services (labor), so that eliminates a lot of headaches.
Ooops… Yeah , you can’t do that.
@akincade you can however deduct a % of your mortgage and utilities for a home office/business. My accountant does it based on the square footage of my “office space” and how it relates to the square footage of the home. Not sure if you can do it that way where you are for the state stuff, but you can on the federal stuff. It’s not any different than if you were renting a space in an office building.
2 Likes
Yeah, no kidding, lol. I mean, the IRS would have likely just corrected it and sent me the proper refund, but it became clear at that point that no one has my family’s interest in mind quite like I do. So it made sense to learn what I could about taxes so that I wouldn’t have to depend on someone else to do it right.
The home office deduction is reportedly one of the most audited topics with taxes. I’m sure you know that with your wife’s work history and also the fact you put “office space” in parenthesis. For me, I have chosen to avoid the whole “home office” conundrum in exchange for hopefully a lower risk of audit.
5 Likes
Will you consider that when the home is sold… % wise of sale price?
Yeah, we pass on that too for that and other reasons.
Mine is only about 100 Sq Ft in a 3K+ home so it doesn’t equate to very much. 
so I’m not too worried about it. Ever since the shutdowns of 2020, my wife had to work from home for the state university she works at, and it has become a regular deduction since then, except for her it is under the non-reimbursed employer expense, right along with my work boots, cold weather and safety gear that I have to buy out of pocket for my other gig.
2 Likes
Never thought about it to be honest, but since you mentioned it, I will ask my accountant when I see her in a few weeks to see if it’s even worth it. Like I said, it’s only a 10x10 area…
That’s precisely why it isn’t worth the higher risk of audit, in my opinion. That, and having to keep track of and record/report the expenses. For me, my office isn’t “clearly separated” from space used for other purposes either, so that adds another layer of uncertainty. When my wife had a home-based business, we did deduct then, but it was a large space and we could reasonably argue it was used exclusively for business.
1 Like
On a 3000 ft2 house selling at $600,000 x .0333% (100 ft2) equates to $20,000 of value, if my math is correct.
2 Likes
That makes total sense for you then. I do have a dedicated area that my wife and I share. The previous owners ran their business out of the same space, so we set the area up for ourselves. Personally, I don’t think it’s worth it sometimes as I don’t think it brings enough of a deduction, but it never hurts to try… That’s also why I let the CPA deal with it…
1 Like
It probably should be more realistically priced selling at ~ $975,000 ($325/ft2)
Crazy market!
LOL!
3 Likes
Put some masking tape on the floor and hang a sign called “office” on the wall. 
Don’t forget the percentage of internet and phone. 
3 Likes
It would have been better to have your accountant in place when you started your business. Now you will be struggling to find an accountant at their busiest time. In any case, tell them your type of business and how you plan to file. Let them know if you made quarterly estimated tax payments. Find out if they are specialized in small business and what you need to collect to bring them.
I use quickbooks and my accountant has an accountant log in to my account. This makes it very efficient since my accountant can access my account and do all of my accounting through quickbooks. My business checking is linked with quickbooks so all business invoices, and purchases are also recorded in quickbooks. My employee payroll, vendor pay, and contractor pay is all recorded here, and my accountant can process employee taxes withheld, 1099’s, 1040, and any other form needed. You pay for it but is much better than going to your accountant with notebooks and bags of receipts to sort through. You should ask your accountant for a recommendation on software to use that tracks payments in/out, payroll, local and federal tax liability, etc.
Also, find one accountant rather than a firm that will pass you to whomever is available at the time. If you choose a firm, make sure you have one person assigned exclusively to your business. You should only deal with one person. Shop around for pricing. They might charge by the form, but most charge an hourly rate. You might want to set up a payment retainer to pay monthly instead of paying all at once in January.
3 Likes
Thanks Scott! I appreciate all the info!
Get a bookkeeper that will keep everything in line throughout the year and make it much easier to send your info to the CPA. I happen to know a great one that works with inspectors… 