Self-Employed? It's Okay (and Recommended) to Hire a CPA

As a business owner, freelancer, or any other self-employed entrepreneur, it is easy to overlook the need for external help, especially regarding financing and accounting. Well, think again. 

Small businesses are as susceptible to accounting and taxing errors as larger organizations. But unlike the latter, these errors can be devastating to small businesses in most cases. 

With that said, here is why you should get a certified public accountant (CPA) even if you are self-employed.

Closeup of accountant hands counting on calculator

What is a CPA?

A certified public accountant (CPA) is to North America what a chartered accountant is to other English-speaking countries. A CPA is a person who is licensed to provide accounting services to the public. They receive their license from The American Institute of Certified Public Accountants (AICPA) through the Board of Accounting of each state. 

What separates an accountant from a CPA is licensing. Not all accountants are CPAs, but all CPAs are accountants. To become accounting professionals, aspirants must pass an exam set by the board called the Uniform CPA Exam. They must also meet specific educational criteria like having a bachelor’s degree in either finance, accounting, or business administration. 

These requirements ensure the enforcement of standardized accounting practices across each state and the nation.

What does a CPA offer?

An accounting professional offers general, specific, and flexible accounting services, which we will now delve into briefly. 

Firstly, a CPA can help set up your business’ finances and bookkeeping. They are aware of the latest technology and software for organizing your financial records and making them easily accessible. Consulting a CPA before setting up your business will save you money on potentially costly errors and rectification processes. 

Secondly, they proffer solutions to financial issues of your business. Being learned and competent, a CPA will hugely benefit your small business. They are also up to date on government and industry regulations and practices. 

Another thing they offer is an insight into your business’s finances which can help you plan for the future. The CPA with access to your records can monitor your assets and ledger balances. This access will give them an understanding of your profit, losses, and liabilities so that they can advise you on keeping and building your monetary resources.

As advisors, they can also perform financial reviews that are crucial in making important business decisions. Speaking of business decisions, a CPA will help prepare your financial and accounting statements for investors, creditors, and banks. Their knowledge of your business will help you better understand your financial statements and provide you with input on value propositions and revenue generation strategies. 

Drawing from that point, they will be instrumental to growing your business as they can judge and assess the viability of future projects by forecasting the profits, losses, and gains. Their experience with other businesses and investors will further provide networking opportunities that can contribute to growth and expansion.

CPAs and taxes

Filing taxes can be tricky, especially when you are self-employed, and even if you can competently file your self-employment taxes on your own, hiring a CPA will make the process a lot easier and smoother for yourself and your business.

For instance, a lot of people don’t know if they owe taxes, what amount of earnings is the threshold for paying yearly taxes, the rate, or even how to correctly utilize a Schedule C form. Well, one of the primary functions of a CPA is to prepare your tax return, and it does not stop there. 

A CPA will avoid common DIY tax errors. As stated earlier, self-employment taxes can be pretty complex. You need to file the suitable forms on or before the correct deadline and present the required proofs, all while understanding every stage of the process. Hiring a CPA would help you avoid errors which are often penalized with hefty fines. 

In addition to ensuring you file your tax returns correctly, a CPA will manage your payroll and ensure you correctly pay payroll taxes to your employees. The CPA will guide you through securing your payroll tax obligations. 

Also, they can maximize your return. Even though the IRS will tax much of your net income and require you to pay higher rates than W2 employees, there are opportunities to reduce that tax. 

Working with a professional would help you quickly identify specific tax deductions you are eligible for, such as healthcare deductions, IRA contributions, and home office savings. These deductions can be invaluable to a startup or small business.

Furthermore, a CPA can and will represent you during an audit. Although they exist to prevent these situations, they are qualified to justify or defend your tax payments before the IRS. They can also prepare your income statements, expense reports, and other statements required for the audit.

Do you need a CPA?

The answer is probably yes. Hiring a CPA might be costly for someone self-employed, but it is a smart move and a worthwhile investment. If you are a self-employed individual, having a CPA on board is recommended and highly beneficial at whatever stage of your business because the margin for error in a small business or startup is often very thin. 

In the early stage, having a CPA is crucial to setting up the business’s finances in line with the long-term vision for growth. Being smart with your finances early on will build your capital so you can grow your business over time. Further down the line, they can be helpful in the expansion or dissolution by providing money-saving strategies. 

A CPA on payroll is advisable if you own rental property, operate foreign bank accounts, or have foreign income and investments. Some special rules govern rental properties; professional aid can claim deductions from rental activities. 

Foreign investment and income often provoke more tax filing requirements that earn stiffer penalties in the event of an error. Working with a professional accountant with expertise will help you organize your investment portfolios and help you get the required authorization for foreign business endeavors. 

Also, hiring a CPA would easily uncomplicate your situation if you generally do not have enough time to prepare your taxes. 

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