Ask HN: Consultants, what tax software do you use?
I've been paying a CPA $1800 a year to prepare my taxes and realized I'm getting ripped off. Can anyone suggest tax software for a simple return (several 1099s, maybe 2-3 dozen invoices, solo 401k, minimal expenses, home office deduction, etc)?
64 comments
[ 0.27 ms ] story [ 135 ms ] threadYou can usually deduct what you pay a CPA or tax preparer if you need to continue getting professional tax help.
The dark patterns have been getting worse, though, so look up what should and should not be free for filing.
I realize I'm also paying $500/year for payroll via gusto, so closer to ~$1700/year overall. It's helpful for myself, but also paying any subcontractors I deal with too.
The last few years (no longer a consultant) I've just done my tax returns manually. The IRS offers editable PDF forms, and working through the instructions isn't that much harder than going through tax software's prompts.
(The home office deduction, for example, is simply a matter of understanding the rules, and using a measuring tape, and tax software can't automate much of that for you. And, as much as you have to do a little extra work for Solo 401k contributions when you do it manually, if you're using tax software, you still have to make sure you didn't miss or misunderstand the prompts that account for the pre-tax contributions, since that could be a very expensive mistake.)
For 2022, though, I'll probably wimp out, and go back to airgapped tax software, or find an accountant (who won't inadvertently hand my data to Intuit or others). The reason is that my particular state's forms are much more work than federal and they don't offer conveniently editable PDFs. Last time, I decided I would've gladly paid $1k not to have some forms feel like they were shortening my life by years.
Also, one of the most important lessons to learn in business is that business expenses that come off the gross are completely different than personal life expenses that come off post tax money.
I also used turbo tax, did it right (as far as I thought). That's exactly the thing, I just mindlessly filled out each step in turbo tax and did what it said, I don't truly know like my CPA does. Some of the things he does for me aren't really options on turbo tax as far as I understand.
You can classify all of your income and expenses throughout the year, including your home office, deductions and any other deductions that you qualify for and then it automatically transfers it over to TurboTax.
It also calculates your quarterly filings and helps facilitate paying those.
A side point, OP and all the comments here saying CPAs are "ripping off" people is unfair. It's not easy to become a CPA, these people need to pay for school, run a business, and pay their bills and support their family like everyone else. Their time is valuable, they charge for that value. That isn't ripping you off, it's providing a service that you are buying. As a consultant you wouldn't appreciate people saying you were ripping them off just because you sold them your services.
did my own taxes one year and the next year had my CPA review them, he found thousands of dollars I left on the table, so in the end it ended up costing me thousands more to do my own taxes.
Source: have done my own semi-complicated taxes (multiple businesses, multiple states, real estate investments, mix of retirement accounts) for 20+ years, never been audited. Had a CPA do them for a few years, it was fine, but nothing I can’t easily do myself.
But in the end, I feel pretty confidant that a CPA isn’t going to find some magical (legal) deduction in OPs situation that TurboTax wouldn’t find. And I consider it my responsibility as a business owner to understand the basics of finances, accounting, bookkeeping, taxes, etc. It’s not that complicated at this level, any software engineer can pretty easily grasp this stuff with a little effort.
Also, CPAs are human and make mistakes, something I’ve personally encountered multiple times. So unless you check their work, how do YOU know you aren’t missing out on deductions or overpaying even if you do use a CPA? But then we’re right back to opportunity cost and expertise.
I don’t think using a CPA is a horrible idea, but you’re overstating the difficulty and risk of doing it yourself.
As I said elsewhere in this thread, the real value for me is in paying for bookkeeping and advice, but I doubt OPs $1800 includes much of either of those.
As a business owner I feel that its my responsibility to understand the basics of finance, accounting, bookkeeping also. I also know when it's time to ask for help and get advice and checks and balances. It's called due diligence.
You are just assuming that you've done it awesome without ever even checking. Maybe once in 10 years get it double checked, you could have been leaving a lot of money on the table and not even known it. You just say your smart, awesome at taxes, but have not proven it to yourself. Companies pay external firms to do audits all the time for exactly this reason. It's a complex subject, the laws change every year, and a good CPA (yes, there are bad ones, but again that's part of the responsibility of running a business is vetting the people you trust) will keep you up to date with those changes and help you minimize your tax burden. Mine also gives me advice, helps me when I have a business or finance question with real experience from his other clients. Who better to learn these things from than a CPA? It's not as if we come out of school just knowing this stuff. It's like a doctor, they know stuff, provide value way beyond just looking up symptoms on webmd.
If you're making 6+ figures, you should be treating your business like a corporation and paying a firm to do your bookkeeping. Especially true if your the only employee because in some countries single-employee corporations can be re-assesed and taxed at a much higher rate.
But if your goal isn't to commit tax fraud, then you probably don't need plausible deniability. I just dealt with a tax auditor from my state, over something my CPA judged as a toss-up, and it really wasn't was bad as you'd think. To interact with them, my CPA wanted explicit direction for what to do (handle the initial phone call for me, and fish for details of what they actually want). Next, they referred me to the most knowledgeable attorney at a prestigious regional legal firm: "You likely don't have an argument, be happy if they don't come after more. If you really want I can represent you in tax court for a $10k retainer".
I decided to represent myself, typed up a few statements outlining the details and my position, and sent them in. A few weeks later, I had a phone call with the auditor and their manager where they immediately proposed that based on the details I sent they could meet me half way. I verbally agreed, the manager seemed content to have a quick amicable resolution, and a few weeks later I got the formal assessment notice with a bit of interest (no penalties). I considered that a major win given what I was staring down. A++ would get taxed again.
Don't know about your firm but for our 7 figure business, I was paying a firm 6k+ just for taxes (no help with anything else, no strategy on tax savings) and they all make you sign a 0 liability thing. Ultimately, it is on YOU if you screw up your taxes and not the tax preparer. Fraud may be an exception but unless you can prove that, IRS will ultimately hold you responsible for mistakes, not the preparing firm.
I bet you are signing that fine print somewhere.
Lot of CPAs just do the taxes and ensure you are doing the right way. They don't really want to/care about giving you advice on how to save more. That doesn't necessarily make them bad CPAs but it also doesn't give them the license to charge crazy numbers. For example, I had a great CPA when I was consulting solo but they wouldn't help me on how to save money pre tax. I figured out on how to do a SOlo 401K which allows almost 44K per year pre tax (this was a few years ago. limit is higher now). Of course, once I told them, they said yea not a bad idea considering my situation.
So, it depends.
What’s worth paying for is: 1) bookkeeping, and 2) advice on how to structure things for maximum tax benefit, but it’s very hard to find an ethical CPA who will have any advice for an operator of your size that you can’t figure out yourself with a few hours of research.
Per https://openai.com/api/ "Helps freelancers automatically find tax-deductible expenses by using GPT-3 to interpret data from their bank statements into usable transaction information."
For quarterly taxes, I use my own spreadsheets, including one that implements the annualized income installment method from Publication 505. (I can't fathom how some freelancers can have income so consistent and/or a crystal ball revealing their total year income that use of simpler methods is possible.)
The fine is only a hundred dollars or so, and TurboTax will calculate it for you and include it. For the hassle it saves, and in the context of a 5 figure tax bill, it's a pretty simple choice not to bother with it.
FWIW, Ally bank has a 3% savings account atm, so you could easily make up that penalty by parking your future tax payments in a high yield savings.
I've missed payments, and paid the fines, and typically it's a small % of the total tax burden, so it's not hit me hard, but I wouldn't plan to explicitly withhold payments to try to pick up small % in savings.
To answer your question though, Xero and it's pretty great once setup correctly
I was a contractor/consultant for a while. CPA was worth every penny (and very similarly priced). I never had to think about my taxes because my CPA knew told me everything he needed me to do.
My taxes were simple, so I could have done my CPA did, but it would have taken much longer and I would have likely missed things.
Sometimes your taxes are simple enough to do directly on the forms, but sometimes they aren't.
(Thanks for the reference to xournalpp, I should check that out some time)
Got every cent in tax I could get: capital cost allowance on business use of personal car, and such.
Used the output of the software to successfully fight tax-related misreporting from a company I was contracting for. Canada Revenue Agency sided with me, agreeing with my interpretation of how accounting should be done.
If your taxes are more complex than you can handle on your own, put in the effort to find a good CPA. Get several recommendations!
Here is a cautionary tale when it comes to paying people to do your taxes: https://blog.nawaz.org/posts/2022/Nov/do-you-trust-your-tax-...