How easy is it to minimize tax liability yourself without a CPA/accountant?

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Derivative
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How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by Derivative »

How easy is it to minimize tax liability yourself without a CPA/accountant? I am talking about for a small business owner (sole proprietor, with no employees) e.g. for a LCSW or 1-person family medicine physician practice. Do you need a CPA/accountant to help you with minimizing tax liability or is it pretty straightforward to do yourself?

When does a CPA/accountant really save you money (vs. your money going in their pocket for things you can just do yourself)?
livesoft
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by livesoft »

I think it is reasonably easy, but what is easy for me may not be easy for you. Sometimes a CPA will cost you money by the mistakes they make. You will probably only know if you use a CPA for a while.
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TwstdSista
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by TwstdSista »

I don't find it too difficult, but I had tax help the first 6-7 years of being self-employed. I feel like I got lucky though, my second guy was awesome! He literally walked me through our tax return (including schedule C) and practically told me how to do my own taxes. While using him, I had worked up a tax organizer that puts everything in order, following right along with the 1040. Nowadays I have a 1040 spreadsheet on my computer that I fill out throughout the second half of the year to keep track of where we stand now, and also to run different scenarios to minimize liability.

It works for me, but I am a super simple Schedule C (no employees, no inventory, single member LLC, and I don't make scads of money).

I'd certainly suggest familiarizing yourself with the paperwork, and maybe get help at the start as well.
carolinaman
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by carolinaman »

It really depends on your knowledge of taxes,complexity of your business, and your willingness to do the research needed to make sure you optimize your tax liability. IMO, a good approach is to use a CPA initially. If your business stays the same, then it would be pretty simply to do your taxes yourself, using what the CPA did as a template. If there are major changes in tax law, such as the proposed tax reform in Congress, then it would also be a good time to consult a CPA once they become law.
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by smitcat »

Derivative wrote: Mon Dec 11, 2017 3:01 am How easy is it to minimize tax liability yourself without a CPA/accountant? I am talking about for a small business owner (sole proprietor, with no employees) e.g. for a LCSW or 1-person family medicine physician practice. Do you need a CPA/accountant to help you with minimizing tax liability or is it pretty straightforward to do yourself?

When does a CPA/accountant really save you money (vs. your money going in their pocket for things you can just do yourself)?
We have no experience with a physicians practice but find that the interactions of a good CPA to be invaluable in setting up and running our business's.
The costs are not really high and even if they were I would do it for one or two years so I had it set up right and learned how to run the forms and take the deductions.
I am sure you know better then us but around here there are no practices that do not have employees - front desk, answer phone, do billings, set up office and equipment, clean etc.
Between leases, equipment purchase/leases, insurance, payrolls, 1099's , billings, and deductions I would guess that it would be worthwhile to set it up well at the start.
I would also guess that the 'accounting' line would be one of the least of your problems as a new practicing medical professional.
At the very start we never thought we would have employees either - that changed fairly shortly.
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lthenderson
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by lthenderson »

When I made the leap to doing my own taxes, I did a dry run calculating my previous year's return and comparing the "answers" to the one done by the CPA. When I was confident I understood what they were doing, and I didn't find it very hard at all, I made the plunge and have done them myself ever since.
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by dbr »

The observation that applies here is that what you are able to do is easy and what you are not able to do is hard. I personally find individual taxes "easy" but would hardly just dive in on business taxes. I guess I would consider that "hard."

But the real question is not with or without a CPA but rather what the learning curve is. I think the suggestion to start with/consult/compare to a professional tax person makes a lot of sense.
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by jebmke »

One of the keys to minimizing tax liabilities is looking far enough ahead -- and I mean years, not months.

The levers in December for the current tax year are often quite limited. My main focus on tax management over the last few years was to focus most of my time on 2018-2022 (the years following my pension kicking in but before SS and RMDs) and 2023 - when I start SS and my RMDs kick in.

When I retired in 2007 I made decisions that were primarily around my taxes for the years 2008-2017 (after my employment income stopped but before my pension started).
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Diogenes
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by Diogenes »

TwstdSista wrote: Mon Dec 11, 2017 4:09 am I don't find it too difficult, but I had tax help the first 6-7 years of being self-employed. I feel like I got lucky though, my second guy was awesome! He literally walked me through our tax return (including schedule C) and practically told me how to do my own taxes. While using him, I had worked up a tax organizer that puts everything in order, following right along with the 1040. Nowadays I have a 1040 spreadsheet on my computer that I fill out throughout the second half of the year to keep track of where we stand now, and also to run different scenarios to minimize liability.

It works for me, but I am a super simple Schedule C (no employees, no inventory, single member LLC, and I don't make scads of money).

I'd certainly suggest familiarizing yourself with the paperwork, and maybe get help at the start as well.
TwstdSista,

The spreadsheet sounds interesting. Is it something that's appropriate to share a blank copy here, or on the wiki?
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JBTX
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by JBTX »

Speaking as a CPA who doesn’t practice, and doing self employed consulting, I have always done my own taxes but could have probably saved money using a good CPA. Where they could be helpful is In advising on the optimal set up of your organization legal entity status. I just worked 1099 as sole proprietor. I could have set it up differently and paid myself a lower salary and avoided some FICA expenses. A tax attorney I use for estate planning suggested this after I had been doing this a while.

Depending on what happens with the current tax bill the tax advantages of setting up as a pass through legal entity may become greater.

So yes I’d say get a CPA.
DrGoogle2017
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by DrGoogle2017 »

It depends on how much time you are willing to invest. I did personal taxes for my kid and her business partner, but this year they have told me they are going with their CPA for business and personal tax filings. They are not even rich, but they prefer not to spend the time and deal with it. They are busy.
SouthernCPA
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by SouthernCPA »

Generally speaking, it's all situation dependent. Minimizing tax liability has much more to do with long and short term planning than end of the year tax moves and tax preparation.

When I was in tax practice, we had clients who wanted us to do miracles when we prepared their returns, but wouldn't ever come in early for tax planning sessions. No matter how good your CPA is, once the calendar rolls over to 1/1 that past year is closed for planning purposes.

If I was a self employed physician, I'd probably hire a quality CPA with experience in my industry and look to cut costs elsewhere - at least for the first few years. How much do you really want to study taxes during your off time? Is it worth saving the little bit you'll be paying a CPA?
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celia
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by celia »

I think the main advantage of using a CPA who prepares taxes for other companies like yours, is that they can tell when you are far from the norm in specific areas. Once you know you are within norms, you can probably do your own taxes and update the numbers each year.

Of course, you don't have to be "typical", but you are looking to NOT be over-paying for some areas of your business (insurance, rent, office supplies, etc.).
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BolderBoy
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by BolderBoy »

Here is a 'gray area' trick that a friend's CPA told me a long time ago.

You know you need a disability insurance policy. You know that if the employer pays the premium for it and you need to avail yourself of the policy benefits, then those benefits will be taxable. If you pay the premium yourself and need the benefits, those benefits are not taxable.

So arrange that the policy runs Jan 1 - Dec 31 and the premium is due Jan 1st-ish. Pay it out of your own pocket. If you haven't needed the benefits by Dec 31, have your business reimburse you for the premium amount (deductible to the business as a paid benefit). Repeat on Jan 1.

Not sure how many folks would come up with this idea on their own absent a CPA's or tax attorney's input.

(I never tried this but my friend did for his whole career though never needed to go on disability)
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TwstdSista
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by TwstdSista »

Diogenes wrote: Mon Dec 11, 2017 8:55 am
TwstdSista wrote: Mon Dec 11, 2017 4:09 am I don't find it too difficult, but I had tax help the first 6-7 years of being self-employed. I feel like I got lucky though, my second guy was awesome! He literally walked me through our tax return (including schedule C) and practically told me how to do my own taxes. While using him, I had worked up a tax organizer that puts everything in order, following right along with the 1040. Nowadays I have a 1040 spreadsheet on my computer that I fill out throughout the second half of the year to keep track of where we stand now, and also to run different scenarios to minimize liability.

It works for me, but I am a super simple Schedule C (no employees, no inventory, single member LLC, and I don't make scads of money).

I'd certainly suggest familiarizing yourself with the paperwork, and maybe get help at the start as well.
TwstdSista,

The spreadsheet sounds interesting. Is it something that's appropriate to share a blank copy here, or on the wiki?
We promise not to ask where your name came from...

I don't think it would be of help to anyone not in my specific tax position -- my spreadsheet skips over the lines that don't affect me, it's very basic and my excel knowledge is fairly simplistic. I did develop the spreadsheet after doing my taxes by hand, being aware of what all those lines do is extremely helpful.
TravelforFun
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by TravelforFun »

Do your own 2017 tax return using a tax software then hire a CPA to do it and compare results. That will tell you whether you're capable of doing it yourself or not going foward.

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markfaix
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by markfaix »

BolderBoy wrote: Mon Dec 11, 2017 12:23 pm Here is a 'gray area' trick that a friend's CPA told me a long time ago.

You know you need a disability insurance policy. You know that if the employer pays the premium for it and you need to avail yourself of the policy benefits, then those benefits will be taxable. If you pay the premium yourself and need the benefits, those benefits are not taxable.

So arrange that the policy runs Jan 1 - Dec 31 and the premium is due Jan 1st-ish. Pay it out of your own pocket. If you haven't needed the benefits by Dec 31, have your business reimburse you for the premium amount (deductible to the business as a paid benefit). Repeat on Jan 1.

Not sure how many folks would come up with this idea on their own absent a CPA's or tax attorney's input.

(I never tried this but my friend did for his whole career though never needed to go on disability)
What type of entity did your friend have? If you are the owner/employee for an S corp, the disability insurance premiums are added to your W-2 wages, which complicates the clever gambit you describe
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by Tc99 »

Diogenes wrote: Mon Dec 11, 2017 8:55 am
TwstdSista wrote: Mon Dec 11, 2017 4:09 am I don't find it too difficult, but I had tax help the first 6-7 years of being self-employed. I feel like I got lucky though, my second guy was awesome! He literally walked me through our tax return (including schedule C) and practically told me how to do my own taxes. While using him, I had worked up a tax organizer that puts everything in order, following right along with the 1040. Nowadays I have a 1040 spreadsheet on my computer that I fill out throughout the second half of the year to keep track of where we stand now, and also to run different scenarios to minimize liability.

It works for me, but I am a super simple Schedule C (no employees, no inventory, single member LLC, and I don't make scads of money).

I'd certainly suggest familiarizing yourself with the paperwork, and maybe get help at the start as well.
TwstdSista,

The spreadsheet sounds interesting. Is it something that's appropriate to share a blank copy here, or on the wiki?
We promise not to ask where your name came from...
This sounds familiar to a system I learned about a long time ago from the book "The Small Business Survival Guide" by Robert Fleury. The system is called "No-Entry Accounting." The book is pretty old (1995, I think) and uses a file folder system which follows a Schedule C format. Makes it very easy to do your own taxes.

You can adapt this system to create your own spreadsheet. You basically make the spreadsheet look like the Schedule C in the exact order as you see it.
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FiveK
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by FiveK »

Diogenes wrote: Mon Dec 11, 2017 8:55 am Is it something that's appropriate to share a blank copy here, or on the wiki?
Perhaps the "prettiest" tax spreadsheet is Federal Income Tax Form 1040 (Excel Spreadsheet) Income Tax Calculator.

One that has the formulas exposed (thus making it easier to lift sections into one's own spreadsheet) is the 'Calculations' tab of the personal finance toolbox spreadsheet.
NotWhoYouThink
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by NotWhoYouThink »

Is the question about planning your business operations in a way that minimizes tax liability, or about calculating the tax liability of the business as it exists? Most of the answers have been about the second option, not about the first.

Actually, you should want to maximize after-tax income rather than minimizing tax liability. And I'm not sure a CPA is the person to help you with that.
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by dbr »

NotWhoYouThink wrote: Thu Dec 14, 2017 8:33 am Is the question about planning your business operations in a way that minimizes tax liability, or about calculating the tax liability of the business as it exists? Most of the answers have been about the second option, not about the first.

Actually, you should want to maximize after-tax income rather than minimizing tax liability. And I'm not sure a CPA is the person to help you with that.
You can talk to a CPA and explicitly ask the first question. It is probably true that most CPA tax shops assume the second and may or may not give you a lot of assurance about the first. I have no idea what kind of person is in the business of managing the first other than some kind of financial analyst that might be an employee of the company needing the service, and that would be for a larger company -- but then I don't really know.
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by Raybo »

It depends on how complex your financial life is.

I started doing taxes myself, in pen way before software was available to do it, when the CPA I went to made a mistake (that I found) and then charged me more than the mistake cost in tax to file the form to fix the mistake. I figured that even if I made a $500 mistake, I'd be ahead of the game.

Keep in mind, that CPAs use software not all that more sophisticated than what individuals use themselves to file your taxes. The data for these programs is entered by some assistant. If you are lucky, the CPA reviews the returns before calling you in and taking your check.

I agree with the above comments that a CPA would be most useful in helping you set-up your financial life to minimize taxes or maximize retirement savings vehicles. What's more, if you do your own taxes, you will soon learn yourself what is taxable and what isn't.
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by NotWhoYouThink »

Raybo wrote: Thu Dec 14, 2017 9:17 am
What's more, if you do your own taxes, you will soon learn yourself what is taxable and what isn't.
Very important point. Even if you have the CPA file the "official" version. Buy a tax program, enter the data, and watch the numbers change. It is quite an education. And fun, if you are into that.
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by smitcat »

NotWhoYouThink wrote: Thu Dec 14, 2017 9:27 am
Raybo wrote: Thu Dec 14, 2017 9:17 am
What's more, if you do your own taxes, you will soon learn yourself what is taxable and what isn't.
Very important point. Even if you have the CPA file the "official" version. Buy a tax program, enter the data, and watch the numbers change. It is quite an education. And fun, if you at into that.
Yes agreed in general - but the example here is a business and our 3 business returns are maximized by having a pro set them up ahead of time with some rules and strategies that I would never have been up to date on.
Of course before when we only had personal taxes it was a much different story.
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by J295 »

Small medical practice ....

Yes, you may be able to do it yourself

Personally, I'd hire a CPA

When I was active in our law firm I hired an accountant. Our returns were simple, and I gave accountant great detailed info, but I had enough going on with my practice and family and the like that I had no interest in saving the modest amount he was charging by doing it myself (i was more than capable of doing the returns, but had zero interest in doing so).

Now, I use Turbotax mainly because I have the time and it's kind of fun to DIY.
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by randomizer »

I dare not try it. My accountant charges a few hundred a year and does a good job of it. The peace of mind of knowing my return is probably optimal and correct is well worth it.
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JW-Retired
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Re: How easy is it to minimize tax liability yourself without a CPA/accountant?

Post by JW-Retired »

Raybo wrote: Thu Dec 14, 2017 9:17 am I started doing taxes myself, in pen way before software was available to do it, when the CPA I went to made a mistake (that I found) and then charged me more than the mistake cost in tax to file the form to fix the mistake. I figured that even if I made a $500 mistake, I'd be ahead of the game.
Deja vu! Exactly my experience, including the $500 extra charge (if that was what yours cost). My one difference was it was a deliberate ploy on the CPA's part, not a mistake.

On the other hand, this was long long time ago, and the really wonderful outcome was it cured me from going to CPAs/FAs and the like
forevermore. :D
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