Equipped with TurboTax and coffee, the world of writers went forth on April 17th (why did you wait so long?) to report and value their last year of work as freelancers, teachers, you name it. I’m talking tax returns, of course. While there is an entire spectrum of writers and their monetary success, the opinions writers have on whether to hire an accountant are surprisingly polar.
On one side, many authors acknowledge, “Yes, I need all the help I can get,” and hire their own CPA or EA. On the other, authors vehemently protest the slightest suggestion of hiring an accountant: “Anyone with half a brain can do it,” someone once told me. As an accountant, I couldn’t help but wince for the dignity of my profession. I also worried about writers who might follow this advice blindly, without understanding the implications or risks that lie with either side of the choice. As a writer, should you do your taxes yourself, or hire a professional? I argue for the latter, as both a writer and a CPA, and here are six reasons why:
1.THEY ARE PROFESSIONALS It’s like getting a haircut. Could you cut your bangs yourself? Absolutely, go right ahead with those kitchen scissors. Try to convince yourself they look as decent as if you just spent ten minutes and a few bucks at a salon instead. Investing in a professional who knows the tax codification inside and out (especially if you find someone who specializes in small businesses and freelancers) is much different than just walking through the TurboTax wizard hoping you understood everything correctly. Yes, you are paying a fee for their services. But it’s paying for expertise, and at the end of the day, it is an investment in yourself, and your comfort in knowing your assets are being reported to your best advantage, without putting you at unnecessary risk. Self-employment and business expense write-offs are heavily audited by the IRS, and you want a professional by your side help you make informed decisions. For reference, to become a CPA, a person needs to have 1,000 hours of public accounting experience, 150 semester hour credits, and needs to pass a four-part 18-month-long exam to receive their professional license. To do your taxes yourself, all you had to do was click a free Download button. Which do you think is the quality product?
2.TAXES ARE NOT STRAIGHTFORWARD The tax codification can seem deceptively simple, especially when it comes to deducting itemized expenses. To vastly over-simplify, the rule is if it’s an expense for the business, you can deduct it from your business tax liability. Easy, right? But what about all of the rules surrounding documentation requirements? You can claim business mileage, but do you have a log of every trip you are counting toward that mileage, or did you guesstimate based on your average working days and average commute? The latter will strap you with back taxes and penalties, while the former can be achieved with a simple app (Stride Drive, TripLog, MileIQ). And what about receipts for all of your expenses – what constitutes a receipt, and how long do you need to keep it? Did you know that if you’re saving only summary receipts (which doesn’t show how many margs you had with that “business meal”), or if you’re relying on credit card statements for proof of purchase, neither of those are valid support for the IRS? A CPA will know and understand these details and can help you plan ahead the avoid these pitfalls.
3.TAX DECISIONS ARE CRITICAL The biggest tax issue for writers is figuring out whether your writing constitutes an occupation or hobby. While the distinction might (again) seem simple – “It’s only an occupation if you make money at it,” right? – there are actually nine different factors you need to consider before defining your writing as either one. One factor is profitability (generally in a five-year period, you need to have one or two profitable years, since the IRS gets cranky if you claim too many losses in a row). But maybe you have similar experience that did prove profitable in the past, which is another factor that you may personally decide offsets the lack of profits in your current activity. At the end of the day, how to classify your writing is up to your personal judgment based on the tax guidance. A CPA would be a great asset to go through this assessment in detail with you. A TurboTax wizard will not capture the nuances of your specific situation.
4.THEY HAVE VOLUME EXPERTISE Doing your own taxes means you are doing only ONE return per year. In an average busy season (January to April, and then August to October when those extension deadlines come up), a CPA is processing hundreds of tax returns. Hundreds. They are working every single day of the week in those months to get filings in. Because of this, they have seen a breadth of scenarios that you will never see, and in that experience can find points of comparison for your own situation that can benefit you. Unsure of how to treat a certain expense? They have a book of business full of people just like you, and those people are a great resource for how that issue has not only been treated in the past, but also how that treatment has been received by the IRS. If you’re doing it alone, who is your point of comparison? Google? Isn’t that kind of like saying you’re going to rely on WebMD instead of seeing your doctor for that weird lump you found…?
5.THERE’S A CPA FOR EVERY BUDGET Like any other professional service, there is a spectrum of pricing available to you. The fees you pay will depend on the person and the complexity of what needs doing, so do your due diligence. Look up CPAs in your area, find someone who specifically has clients in the freelancing/small business world, ask for references, look up their credentials. Find someone you click with and who understands what you have achieved and what you are trying to set yourself up for in the future. It won’t be free, but as I said before, it is truly an investment in yourself.
6.NETWORKING Building a relationship with your tax professional creates another door of opportunity for you to network. Whenever I visit my CPA, he always chats about his other clients’ accomplishments that year. Imagine your CPA chatting about you and your novel, and every time a client comes in he pulls your book down from his shelf of GAAP manuals and tax regulations to show off. It’s just one more cheerleader to have rooting for your side, and you never know what connections that person may have. Writers and accountants can live in two totally different worlds, and this is a great way to get your work out there by word of mouth to individuals you might not otherwise come by.
The decision to work with a CPA is absolutely a personal choice, but I would recommend it to everyone, especially artists. Just as we would never trust the ease of the phrase “anyone can write a novel,” I would encourage artists to exercise skepticism with the notion that “anyone can figure out taxes.” There is a reason it is a highly regulated, licensed field – take advantage of these professionals’ knowledge for yourself! Focus on what you do best and pass off the rest.