Accountant for Self-Employed Taxes: Worth It, and What It Costs

Is an accountant worth it for self-employed taxes, or is tax software enough?

Tax software may be enough when every number is simple and documented; an accountant is worth pricing when a number needs a decision. Software follows the lines of Schedule C and calculates from the amounts you enter. You are responsible for the return whoever prepares it, and no one can say in general that an accountant pays for themselves.

Gather this year's Forms 1099, bank and card statements, mileage log and last year's return before you decide; the full list is in the section on your first 1099 year.

The fee is not the only cost. The IRS lists leaving out income shown on a Form 1099 as an action that may indicate negligence, and the accuracy-related penalty is 20% of the underpayment attributable to negligence, with interest charged on the penalty.

What does tax software ask for, and what does it leave to me?

Software asks for each amount; the decision behind the amount stays with you.

What can a preparer check that software may not?

A preparer's added work can be judgment across the whole file, not extra arithmetic. Some software prompts for some of these items; what a preparer checks varies, so ask. These checks depend on documents and facts outside the form.

• Do the records agree? Forms 1099, platform reports, bank deposits and invoices should tell one story, because records must support the income, expenses and credits you report.
• Which entity? A single-member LLC with no corporate election is disregarded for federal income tax, so the owner generally files Schedule C and pays self-employment tax, though the LLC is still a separate entity for employment tax. Whether an S corporation election helps is a separate question: see whether independent contractors need an LLC.
• Payments and states. What you pay each quarter, and which states need a return, depend on the year's profit and where you earned it. The Schedule C instructions note that state and local taxes and business licences may apply. See quarterly estimated tax payments, nonresident state return thresholds and business income tax in other states.
• Timing. Under the cash method, which many sole proprietors with no inventory use, income counts when received and expenses when paid, so what falls either side of December 31 moves the year's profit.
• Choices that are hard to undo. A car you own can use the standard mileage rate only if you choose it in the first year the car is available for use in the business, so a first-year return filed with actual expenses may close that option. A simplified home-office election, once made on a timely original return, is irrevocable for that year.

How much is an accountant for a self-employed return, and what moves the price?

Preparers set their own fees, and the IRS says taxpayers should always ask about service fees. This page gives no market price because fees vary by preparer and by the work in your file.

Ask for a written scope listing the returns, years, states, estimated payments, bookkeeping and IRS letters included, and what is billed extra.

You can deduct on Schedule C the cost of preparing the business part of your return (line 17 instructions, Publication 334), but not the personal part.

A fee that is a percentage of your refund is a warning sign, and the IRS names it as one. Whether federal rules bar a fee tied to the result depends on the kind of work, and state accountancy rules may differ. What a small business accountant costs covers how that rule works and how to read a yearly bill.

Is a quarterly fee too much to pay a tax preparer?

Whether a quarterly fee is too much depends on what it covers, so compare the scope before the number. The IRS divides the year into four estimated tax payment periods, so a quarterly fee often pairs with those payments, but the same fee can sit on very different scopes.

Add up what you would otherwise pay for the return, the four calculations and any bookkeeping, then compare that total with the quarterly fee. For how the payments work, see quarterly estimated tax payments.

Who can sign my return and speak for me if the IRS writes?

Every paid preparer must sign the return and enter a PTIN (preparer tax identification number), and anyone with a PTIN may prepare federal returns for pay. A state can add its own rule: Oregon, for example, requires a license or registration to prepare its personal income tax returns for pay. Whether the preparer can speak for you depends on the credential.

• CPAs, enrolled agents and attorneys have unlimited representation rights: audits, payment and collection issues, and appeals.
• Annual Filing Season Program participants have limited rights: only for returns they prepared and signed, and not on appeals or collection.
• A preparer with only a PTIN cannot represent you.

Even a preparer with full rights usually speaks for you with the IRS only after you authorize it on Form 2848.

A credential shows who may represent you, not how often a preparer handles returns like yours; ask. For credential checks and warning signs, see CPA, enrolled agent or tax software.

Do I need books, not just a return?

You need records that support every number on the return, and books are the usual way to keep them. Publication 583 says the law generally requires no specific kind of records: any system that clearly shows income and expenses works, and it advises keeping a business account separate from personal spending.

Two record rules are stricter than the rest:

• Income. Your records should identify the source of each receipt, so business income is separated from loans, personal funds and other nonbusiness money (Publication 583).
• Car, travel and gift expenses. The IRS expects a written record made at or near the time, and says you cannot deduct amounts you approximate or estimate.

A preparer works from what you bring. If the year's records are missing or mixed with personal spending, rebuilding them is bookkeeping work that comes before the return. See record keeping for the self-employed and rebuilding a mileage log.

What do I bring to a preparer in my first 1099 year?

Bring what lets a preparer tie your income to your bank and support each deduction.

Can a preparer fix a return I already filed with software?

Yes. A preparer can prepare Form 1040-X to correct a filed return, but the fix is only as good as the records behind it. The Form 1040-X instructions call for a separate form for each year, and a federal change may also require a state change.

A refund claim generally must be filed within 3 years after you filed the original return or 2 years after you paid the tax, whichever is later. A return filed early counts as filed on its due date, and a separate lookback limits the refund to tax paid within a set period before the claim, so a timely claim can still return less. A preparer cannot add a deduction you cannot document. For income left off, see amending for income left off past returns. For a missed or wrong expense, see amending a return for business expense mistakes.

Example

These examples are illustrative. Figures are in US dollars, and the fee is an invented round number, not a market price.

One income source and clean records

A delivery driver with no wage job earns US$38,000 net profit from two apps in one state, logs miles in an app and uses one bank account for the business. Self-employment tax is about US$5,370 (US$38,000 × 92.35% × 15.3%) before income tax. Whether that leads to estimated payments depends on the total tax the driver expects to owe after withholding and credits, against the IRS's US$1,000 threshold; see quarterly estimated tax payments. Software and a preparer would both produce the return. The driver weighs the difference in fee against a second look at the mileage log and the quarterly amounts. A second state, or a Form 1099-K that does not match the deposits, would change the comparison.

A new LLC selling in three states

A single-member LLC formed in March buys US$9,000 of equipment, spends US$4,000 before its first sale and ships to customers in three states. Software asks for the amounts. A preparer also confirms no corporate election was made, so the return is still Schedule C; whether all US$4,000 qualifies as startup cost and the active business began that year, in which case it is under the US$5,000 limit and is deducted that year unless the owner elects to capitalize it; when the equipment was placed in service and whether bonus depreciation, section 179 or regular depreciation applies; the estimated payments for a part year; and which of the three states need an income tax return or a sales tax registration.

A US$300 quarterly fee

A freelancer pays a preparer US$300 a quarter, US$1,200 a year, and asks what it covers. The engagement letter lists four estimated-payment calculations and the federal return, with a state return and bookkeeping billed separately. If those extras cost more, the US$1,200 buys less than it first sounded; if the letter had included them, the same US$1,200 would buy more. The number cannot be judged until the scope is written down.

Different for you?

• It is your first year with 1099 income, or you formed a new LLC: Schedule C may still fit, but the quarterly amount, the records and the first-year choices need setting. See whether independent contractors need an LLC and quarterly estimated tax payments, and get individual tax help.
• You earn or sell in several states: see business income tax in other states and when you must collect sales tax, and get individual tax help.
• You have years of 1099 income never filed: see Schedule C expenses for unfiled years and catching up on unfiled returns, and get individual tax help.
• A Form 1099-K or 1099-NEC does not match your records: see reconciling sales and payouts and the same income on two tax forms, and get bookkeeping help.
• Vehicle or home-office deductions are large and the records are thin: see which Schedule C expenses get questioned and rebuilding a mileage log, and get bookkeeping help.
• The IRS wrote about income that does not match your return: see responding to an IRS underreporter notice and get individual tax help.
• Business and personal spending share one account, or the year's records are not reconciled: see record keeping for the self-employed and get bookkeeping help.
• You are on a visa, or have income or accounts outside the US: which return you file and which foreign reports apply come first; see starting an LLC on a visa, and get cross-border tax help.
• You are still choosing a preparer or a price: see CPA, enrolled agent or tax software, which also covers the free IRS options, and what a small business accountant costs, and get individual tax help.