When Should a Freelancer Graduate from a Tax Preparer to an Accountant?

When tax season rolls around, most of us just want to get through it as quickly as possible, without sending too large a check to the government, but also not getting in trouble for sending too little. Its technically possible to do your taxes yourself (provided you have a spare week), but most of us rely on tax preparers or even tax preparation software to get our taxes done.

There are some big differences between tax preparers and accountants. While a tax preparer knows at least the basics of preparing a tax return, most dont know a lot about the details of tax law. They dont need to most of the tax returns a tax preparer will ever deal with are for people who are employed. Thats a very different animal than a freelancers tax returns, so if youre considering a new tax preparer, its crucial to make sure youre working with someone who knows what to do with a stack of 1099s and receipts, rather than just dealing with W-2s. The matter is less urgent if youre freelancing part-time and you actually have a W-2, as well as a few freelance clients.

If your freelance career grows, however, you may find yourself needing more specific advice than a tax preparer can provide.

Reducing Your Tax Burden

At the bare minimum, you might want to look for opportunities to reduce the amount of taxes you pay. A tax preparer can make sure that the IRS has no complaints about your actual tax return, but he typically cant offer suggestions on tax deductions you might qualify for with a little work.

A tax preparer can make sure that the IRS has no complaints about your actual tax return, but he typically cant offer suggestions on tax deductions you might qualify for with a little work.

Exactly what can bring down your tax payments depends a lot on your specific situation. For some freelancers, just opening a tax-advantaged retirement account can be enough to minimize their tax burdens (and make life easier in the long run, as well). But unless you want to spend all your spare time learning the tax code inside and out, you wont know if theres an easy fix or how to implement a more complicated fix without some professional advice.

While its always appealing to pay fewer taxes, its probably not a question to worry about if youre just starting out. After all, you have to make some money before the IRS is going to worry about whether youre paying taxes. But when youre making a full-time income, it may be time to schedule at least a consultation with an accountant.

Making Your Own Payments Out

Depending on how your freelance career evolves, you may wind up with a contractor or two of your own who you make payments to over the course of a year. If you go over $600 in a given year (and sometimes even if you dont hit that point), the IRS expects you to file some 1099s of your own. If you find yourself in that situation, its best to start talking to an accountant the typical tax preparer only handles tax returns.

You may also find that you need to take some steps to make sure that youre working with contractors and not employees. An accountant can give you the basics and refer you to someone with more expertise if youre running into problems.

Mixing and Matching Income Sources

As freelancers, were oftenencouraged to consider diversifying our income: take on a couple of clients here, sell some stock designs there, maybe even become an affiliate for a product that we sell for someone else. While such diversifications can be very good for our bottom line, the moment we step away from offering just services, it gets a little harder to figure out our taxes. If youre bringing in income from quite a few different streams, consider sitting down with an accountant.

Its not just a question of taxes, either: an accountant can tell you if you need to incorporate or take other steps to make running your multi-part business much easier.

Planning for the Future

There are plenty of options for retirement planning available to freelancers, to the point where its almost too confusing to get started. An accountant can give you financial advice about what options are going to fit best with your business, as well as point you to other experts who can give you more specific advice as needed.

An accountant can help you plan for your business future. You almost certainly want to grow your freelance business in some way and earn more money from it. But, more often than not, that requires changes in how you actually operate your business. An accountant can help you decide which options are available in that realm and even which will be the logical decision for you.