I’ve been talking a lot lately around here about getting ready for taxes. We’ve discussed how to get your numbers caught up for 2023, doing your year end inventory count, and organizing your documents.

Once you’ve got your numbers ready to go, you might be asking yourself – should I do my own taxes, or should I hire a professional?

Maybe you’re not sure how to find a tax professional that fits your creative business. Or maybe you’re a little bit intimidated about handing your paperwork over to someone else. Today’s post will let you know exactly what it’s like and what’s to be gained by working with a professional.

working with a tax pro

Over the past few weeks I’ve touched base with some of the best tax preparers in our niche. These ladies work especially with Etsy shop owners and creative artisans just like you.  I asked them all sorts of questions so you can get an idea of what it’s like to work with a professional on your taxes (think *peace of mind* y’all!).

First let me introduce my panel of lovely tax experts, all of which provide tax prep services (and more) for creative entrepreneurs.

Let me also preface this discussion by saying not all tax pros are created equal! If you opt to outsource, it’s vital to find a tax preparer that is experienced in YOUR industry (even if they aren’t necessarily local to you!). Not just your brother’s cousin-in law’s uncle. Industry experience is more important than location in this case.

All of the above ladies are well-versed in the tax & accounting issues facing the creative online industry, and that’s why I recommend working with them!

What sort of paperwork do you request from a client in order to prep their tax forms?

Everyone that I interviewed sends their clients a checklist or tax organizer with a list of the important tax forms you might receive in the mail around tax time, like W2s, 1099s, etc. They also ask for info on your investments, health insurance, mortgage, and other personal info that’s relevant for your taxes.

When it comes to your business, it’s important to note that before you outsource your tax work, you still want to have all your sales and expenses totaled for the year, along with all your important financial documents and receipts organized. Doing the legwork now to compile the numbers your tax preparer needs to do your forms will save you money, time, and sanity.

Each expert I spoke with requests similar documentation regarding your business. You can expect to provide a summary of your business income & expenses, info on big ticket purchases, home office expenses, business use of your car, and anything else that might be relevant.

Bottom line – most tax professionals will expect you know how much your business has made in net income or loss over the course of the year when you get started. That means they usually are NOT going to get your books caught up for you! (That’s generally what a bookkeeper does, FYI – not a tax preparer!) Before handing everything over, you’ll want to have your ducks in a row when it comes to your business finances. If you’re struggling to catch up for 2023, I recommend the Bookkeeping Bootcamp or the P+S Etsy Seller Spreadsheet to get your numbers together. bookkeeping spreadsheet

What can a smart entrepreneur do before working with you to make the tax prep process easier on you both?

Helena recommends getting an early start on tax prep. “Start reaching out to accountants in January and February – many fill up by mid-March and you may have to file an extension if you want to work with them,” she says. “Get in early, and accountants are more likely to have availability and time to talk to you one-on-one about your situation.”

The most important thing is that you’re willing to put in the work to pull together the info & amounts you need. You’ll want to have a summarized report of income & expenses for the year in your spreadsheet or accounting software of choice, along with beginning & ending inventory amounts.

Remember, your tax pro is likely not going to do your bookkeeping for you. You need to have year-end numbers ready to go!

Amy recommends gathering all your receipts and bank statements together first. “Then,” she says, “instead of trying to learn a bookkeeping software and doing a year’s worth of bookkeeping under stress, I always suggest using a spreadsheet to organize income and expenses.”

Christina also recommends having everything entered and ready in spreadsheets. “Totals of different expenses save me time and you money,” she says. {Obviously I’m partial to spreadsheets around here myself!}

working with a tax preparer

What are some of the biggest mistakes you see creative business owners make when it comes to taxes?

It sounds like the biggest mistakes all revolve around forgetting something, so it’s key to 1) keep up with your finances throughout the year, and 2) be knowledgable about what tax rules apply to you as a business owner. Christina says the biggest mistakes she sees are not keeping track of inventory (which is very important for crafters and makers), and mixing personal and business funds.

Helena says the most common issue she sees is business owners not claiming all their expenses. She says to “write down everything you buy so you can report it in your bookkeeping system later and claim all those expenses to which you are entitled!”

Another mistake Amy mentioned is entrepreneurs who don’t save up for their tax bill during the year. She strongly recommends setting aside money throughout the year especially for taxes. “Even if the business started out as a fun hobby and then quickly becomes a real money-making business, make it a point to save about 30% of your profit (income left after expenses) for taxes,” she says. “Set up a separate savings account and move this amount to the separate account so it’s out of sight, out of mind and ready to pay in quarterly or annually with your tax return.”

What’s your favorite way for a business owner to keep track of all their financial documents & receipts?

Several tax pros recommended phone apps like Evernote, or even just snapping photos of your receipts. Digital copies of you receipts are fine if you don’t want to hold onto the paper version. Amy adds that she saves her paper receipts in envelopes labeled by the month, which she keeps in her purse. Christina suggests a similar method, organizing receipts in an accordion folder divided by month. “Then you can scan or take a photo to digitally preserve them once a month. It is a lot easier to take care of them periodically then to let them pile up,” she says.

working with a tax preparer

Give us your best “pro tip” for the tax prep process.

Christina stresses staying organized throughout the year. “An hour once a month can save you days of work in January,” she says. Consistently updating those books means a lot less stress at tax time.

It’s important to remember that the savings are in the details, so don’t try to steamroll through your taxes “just to get them over with”. Especially if this is your first time filing taxes with your business, there will be things that confuse you. It is absolutely worth it to pause and get the information you need rather than skip ahead because you think it doesn’t matter that much. If you’re working with a tax preparer, don’t be afraid to ask questions even if you think it seems silly or obvious.

And don’t procrastinate! “The stress of getting your taxes filed could hang over your head for months, if you let it,” Amy says. “Also, by getting your taxes done early, if you owe, you will have time to gather funds in order to make the tax payment.”

Why should a business owner outsource their tax prep, rather than attempt to DIY?

Outsourcing your tax prep to a professional has several advantages that could easily be a blog post all by themselves! Here are just a few of the benefits:

  • Tax reform + sales tax changes + COVID stuff + 1099K changes – Taxes in the past few years have een constantly evolving, thanks to 2018’s tax reform bill, the 2020 CARE package, COVID-related loans & grants, changes to 1099K requirements in 2022, etc. It’s a lot! Tax preparers, enrolled agents, and CPAs have spent the year getting up to date on the new rules & requirements both for individuals and businesses. I trust these experts a lot more than a box software to understand the nuances of tax changes! There’s also complex new marketplace sales tax issues to consider.
  • Confidence that someone has your back – Audits can happen to anyone at anytime. According to Christina, having a competent tax preparer means having someone there “to assist you in the process” if an audit does happen, rather than being all on your own.
  • Having someone to ask questions to – Working with a tax preparer means that you have an actual expert on call (and not a box) to ask questions to. Helena agrees, saying that she offers her clients “comfort in knowing all their questions are answered – not just at tax time but throughout the year”.
  • Saving more by getting all the deductions you’re eligible for – Let’s face it, you don’t know what you don’t know. And a well-versed tax preparer with experience in your niche probably does know. You can get the most tax savings by utilizing a tax professional who, as Amy says, is actively looking out for more deductions that apply to you. That means not leaving money on the table when it comes to your final tax liability or refund. Christina also shares a great factoid from Dave Ramsey: “Research shows that people who use a tax advisor get an average of $791 more back from the IRS. The average refund for people who used tax software was $1,824. The average refund for people who used a tax professional was $2,615. That’s a big difference!”
  • Doing it right, the first time around – A tax professional can save you the headache and the money of having to amend incorrect returns later on. Amy says, “It’s easy to feel like you’re doing everything correctly when using an online program to do your taxes, but I’ve seen some pretty ugly tax issues arise because the taxpayer didn’t understand the rules behind what the program was asking.” Christina also mentions spending her summers fixing DIY-done returns gone wrong. Using a professional the first time around can prevent this from happening to you.
  • Less time spinning your wheels, more time doing what you enjoy – It’s definitely important that you understand your finances and your tax obligations as a business owner, but outsourcing your accounting work can give you more time to focus on what you do best and love most. “For most creative entrepreneurs,” Helena says, “that isn’t the books”.
  • The convenience of working with an online tax professional – Working with an internet-based tax preparer means not even having to leave your house!

It’s up to you to get your biz financials organized for the year. When you’re done with that, consider all the pros of, well, turning the tax prep over to a real Pro.

THANK YOU to our panel of tax professionals for answering these questions about tax time! I encourage you to reach out to any of these wonderful ladies for your tax prep this year. Their calendars are filling up fast so make sure to contact them soon!

Find Amy Northard online here, and on Facebook and Instagram. Find Shan-Nel Simmons online here and on Facebook here. Find Christina Coyle online here and in her Facebook group here. Find Helena Swyter online here, and on Facebook and Twitter.

I also have a free on-demand workshop all about this topic if you want to learn in VIDEO mode. In this 45-minute workshop, I review hobby vs business AND I dive into the financial to do’s and concepts you need to get familiar with as a legit business owner. Learn more here.

tax workshop