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2 As a small business owner for 12+ years, I've tried both routes. Started with a tax preparer to save money, then switched to a CPA as things got more complex. My advice: For a NEW business, a CPA might actually be worth the extra cost upfront. They can help you set up the right business structure (LLC, S-Corp, etc.) which has HUGE tax implications. My biggest regrets came from not optimizing my business structure early on. A good CPA doesn't just file taxes - they help with strategy throughout the year. Mine checks in quarterly and helps me make smart decisions about equipment purchases, retirement contributions, and estimated tax payments. That said, if budget is tight, a tax preparer with small business experience is WAY better than trying to DIY everything. Just ask specifically about their experience with businesses in your industry.
10 Do you think it's worth paying for quarterly meetings with a CPA if my business is still pretty small (making around $45k annually)? Or is that overkill at this stage?
2 At $45k annual revenue, quarterly CPA meetings might be a bit much unless your business has unusual complexity. At that stage, I'd suggest an initial consultation with a CPA to set up your structure and accounting system correctly, then perhaps semi-annual check-ins (mid-year and year-end). Many small business owners at your stage do well with a solid tax preparer who has small business experience for the actual tax filing, combined with good bookkeeping software you maintain throughout the year. The key is keeping organized records all year, not scrambling at tax time. That approach gives you most of the benefits without the full CPA cost until your revenue justifies the added expense.
13 Don't overlook Enrolled Agents (EAs)! Everyone always talks about CPAs vs tax preparers, but Enrolled Agents are federally licensed tax practitioners who often specialize in tax preparation and representation. They're usually more affordable than CPAs but have passed comprehensive IRS exams specifically about taxation. I've used an EA for my freelance business for years, and she's fantastic at finding deductions. She saved me over $3,800 last year compared to what I would have paid using online software! The credential to look for isn't always the most important factor - it's their experience with YOUR type of business. Ask any potential preparer how many clients they have in your specific industry and what their typical approach is to deductions in your field.
19 I've never even heard of an Enrolled Agent! Are they allowed to represent you in an audit like a CPA can? How do you find a good one?
One thing nobody's mentioned yet is that if you lease your vehicle, there are special rules. With a lease, if you choose the standard mileage rate, you can't switch to actual expenses later. But if you start with actual expenses, you can switch to standard mileage in a later year. Also, with standard mileage, you can still separately deduct business parking fees and tolls. So even if you go with the simpler method, don't forget to track those expenses!
Do loan interest and registration fees count as separate deductions with standard mileage too? Or are those already included in the standard rate?
Loan interest and registration fees are already included in the standard mileage rate, so you can't deduct those separately if you choose that method. That's one reason why actual expenses might be better for some drivers, especially in states with high vehicle registration fees. If you use your vehicle for both personal and business use, you'd need to calculate the business percentage of these expenses if you go with the actual expense method. For example, if you use your car 70% for delivery driving and 30% for personal use, you could only deduct 70% of your registration fees and loan interest.
I switched from itemized to standard mileage last year and it was the best decision ever! Saved me like $480 and so much hassle. All I do now is use a mileage tracking app (I use Stride but there are tons of others) that automatically logs my trips. I just open the app at the start of my delivery shift and close it when I'm done. It creates professional-looking reports that would satisfy any audit requirements. Way easier than keeping a folder full of gas and maintenance receipts!
What if you forget to turn on the app sometimes? Does the IRS accept reconstructed mileage logs? I'm terrible at remembering to track this stuff consistently.
One thing nobody's mentioned yet - you need to CHECK YOUR STATE TAX SITUATION too! If your federal Schedule-C was messed up, your state returns are almost certainly wrong as well. Most states have similar processes for amending returns and reporting preparer fraud. Also, check if your preparer has a PTIN (Preparer Tax Identification Number). Legitimate tax preparers are required to have one, and if yours didn't, that's another red flag you can report. You might want to look them up on the Better Business Bureau and file a complaint there as well.
Omg you're so right about the state taxes! I didn't even think about that. And no, I don't recall seeing a PTIN anywhere on our returns but I'll double check. When we confronted him about the federal audit, he didn't mention anything about potential state issues either. Should I be contacting the state tax agency proactively or wait until after dealing with the federal audit?
I'd recommend dealing with the federal issue first since that's the immediate concern with the audit notice. However, you should at least pull copies of your state returns to review them. Most states have processes for amending returns similar to the IRS. Once you have your federal situation under control with proper representation, your tax professional can help address the state issues too. They often go hand in hand, and many of the same corrections will apply to both. Just make sure to keep documentation of everything - communications with the preparer, the audit notice, and any amendments you file. This will help show your good faith efforts to correct the situation.
Has anyone mentioned potential penalties? That's what scared me the most during my audit. The IRS can charge accuracy-related penalties (usually 20% of the underpayment) for substantial understatements or negligence. But if you can show "reasonable cause" - like you trusted a professional who you thought was legitimate - you might get those waived. Documentation is super important here. Keep every email, text, receipt from this preparer. If he advertised himself as legitimate or had credentials he claimed made him qualified, save all that too. All of this helps build your case that you acted in good faith.
This is key advice! When I went through my audit, I had all my communications with my sketchy preparer saved in a folder. The IRS agent specifically asked for evidence that I relied on professional advice, and those emails where my preparer assured me everything was "standard practice" made a huge difference in the outcome.
Has anyone contacted the executor of the owner's estate? When a business owner dies, there's usually someone legally responsible for handling their affairs. That person might be able to authorize Paycom to provide the W2s or at least provide the payroll records so you can determine your wages and withholdings for the year.
That's actually a really good idea I hadn't thought of. I believe the owner's sister is handling his affairs, but honestly we've all been keeping our distance out of respect while she's grieving. Maybe I could reach out carefully and just ask if she has any information about the business accounts or records. The restaurant was doing well financially, so there must be some kind of bookkeeping or records somewhere.
Approaching with sensitivity is definitely the right move. You might frame it as wanting to properly close out your employment relationship with the business rather than just tax documents. The executor likely has legal access to business records that could help everyone involved. If there was a business accountant or bookkeeper separate from Paycom, they might also have records that would be helpful. Many businesses keep separate financial records beyond what their payroll service maintains.
I just went through something similar. If you have your last pay stub from December, it should show year-to-date totals for your earnings and all withholdings. Those numbers are basically what would be on your W2!
This is 100% the way to go. I worked payroll for years and the YTD on your final December paystub should match your W2 exactly for most regular employees. Only difference might be if you had taxable benefits added after the last payroll was processed.
CosmicCommander
One thing nobody's mentioned yet is the QBI (Qualified Business Income) deduction, which allows eligible pass-through entities to deduct up to 20% of their qualified business income. This deduction works differently depending on your tax classification. For a pass-through sole proprietorship, the calculation is usually straightforward. But with an S-Corp, the salary you pay yourself doesn't count toward QBI, only the distribution portion does. So while you save on self-employment taxes with an S-Corp, you might reduce your QBI deduction. At lower income levels, this is another reason the pass-through option might be better initially. As your income grows and you potentially hit the QBI phase-out limits, the calculation changes.
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Zainab Ismail
β’I hadn't even considered the QBI deduction! So are you saying that with the pass-through option I might actually get a larger QBI deduction than with an S-Corp because the entire profit would be eligible? What income levels does the QBI start to phase out?
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CosmicCommander
β’Exactly right. With pass-through, your entire profit is potentially eligible for QBI. With an S-Corp, only the distribution portion (not your salary) is eligible. The QBI deduction begins to phase out in 2025 at taxable income of $382,200 for single filers and $384,400 for married filing jointly. It fully phases out at $432,200 for single and $434,400 for married. These thresholds change each year with inflation. If your business is a "specified service trade or business" (like consulting, health, law, etc.), these limits are particularly important since you lose the deduction completely above the threshold.
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Natasha Volkova
Just wanted to share a real-world cautionary tale. I started my graphic design LLC with pass-through treatment, but switched to S-Corp after reading online that it would save me money. Big mistake without proper guidance. I didn't realize how much work would be involved - quarterly payroll filings, separate tax return, state unemployment accounts, workers' comp requirements in my state, additional bookkeeping to separate personal from business transactions, etc. I was spending 5-6 hours EVERY month on compliance that I could have spent on billable work. After 2 years, I switched back to pass-through and started paying the self-employment tax again because the mental burden and time cost wasn't worth the tax savings (which were about $4,200/year for me). Unless you're making significant profit OR plan to hire employees soon anyway, the default pass-through is usually simpler.
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Javier Torres
β’Did you have to pay an accountant to help with all the S-Corp compliance or did you try to handle it yourself? I'm wondering what the total cost was including both direct expenses and your time.
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