While the standard business advice is that you need to hire a CPA as soon as you go to work for yourself, most freelance writers don’t need to call on a CPA quite that fast. As long as your taxes are fairly straight forward, you can take your 1099s to a tax preparer and get your income tax return completed for less than you would pay a CPA. If you’re willing to put the hours into it, it’s even possible to do your taxes on your own: completing Form 1040 will take some time if you aren’t just working for one employer, but there are both in-depth instructions and software packages available to help you out.
There are certain situations in which hiring a CPA does make sense, though. Most of them can be summed up in one description: your taxes are getting more complicated. Here are a few examples of when hiring a CPA can make your life a lot easier.
- Your tax burden is getting out of hand: Depending on what state and local taxes you’re paying, as well as how much you’re earning, it’s easier for a freelancer’s tax burden to take up a larger portion of income than someone working for an employer. Most tax preparers can only help you find the obvious tax deductions, but a CPA can help with an overall plan to reduce your tax burden and keep more money in your pocket.
- You choose a new business structure: Some freelance writers find it practical to start an LLC or otherwise change their business structure from a sole proprietorship to something else, especially if their businesses are growing. But while such a move may sometimes reduce the overall amount of taxes you could owe, it increases the paperwork dramatically. You’ll need a professional to help keep it all straight.
- You’ve got multiple sources of income: Some writers end up with income from more than just client work. If you’re receiving royalties or selling an ebook, for instance, you may want to work with an accountant, rather than a tax preparer.
If anything about your taxes doesn’t make sense, it’s worth taking the matter to a CPA. While a tax preparer usually only knows the details associated with completing a tax return for someone who has one source of income, a CPA is trained in a variety of fields beyond simply preparing an income tax return. A CPA can often advise you about everything from how buying a house could affect your business’ finances to when it’s a good idea to change your business structure. A CPA can offer you the big picture. Some CPAs will offer a short consulting session, rather than the more expensive option of bringing your taxes in. You may be able to get the benefits of talking to a CPA with committing yourself to something more than your freelancing career needs right now.