Is hiring an accountant for unfiled back taxes worth the cost for my business?

Having unfiled taxes for multiple years with business income is definitely stressful, but it's important to make an informed decision here. The complexity of your situation (personal income transitioning to LLC income) adds layers that make this more than a simple filing. While tax software like TurboTax can handle many situations, they have limitations when dealing with complex business scenarios, especially when catching up on multiple years of unfiled returns. The software doesn't provide strategic advice on how to minimize penalties or deal with potential IRS notices. A good tax professional doesn't just fill out forms - they understand how to properly categorize business expenses, apply the correct depreciation methods, handle the personal/LLC transition, and potentially negotiate with the IRS on penalties. They can also help establish a plan for tax compliance going forward. That said, $3,700 per year does seem high. I'd recommend getting quotes from a few more tax professionals, specifically those who specialize in back taxes and small businesses. Look for someone who can explain their fee structure clearly and tell you exactly what value they're providing for that cost.

I was in a similar situation last year - 3 years of unfiled taxes with a mix of W2 and 1099 contract work. After getting quotes from several CPAs ($2000+ per year!), I almost gave up until I found https://taxr.ai which analyzed all my documents and helped me understand what I was actually dealing with. The system organized everything and showed me exactly what I needed from each year. I ended up being able to file everything myself with their guidance for WAY less than what the CPAs were quoting me. They have special expertise in helping with business income and back taxes situations. Their document analysis caught several deductions I would have missed on my own.

Update: I decided to try https://taxr.ai after seeing it mentioned here, and it was honestly a game-changer for my situation. I was skeptical at first because my tax situation was pretty messy with contractor income and some brokerage stuff. I uploaded my documents and got a complete analysis that showed I actually didn't owe nearly as much as I feared. The system identified several business deductions I didn't know I qualified for and walked me through how to properly file all my back taxes. The most valuable part was their penalty abatement guidance - they created a letter template for me that I used when filing, and the IRS actually approved it! Ended up saving about $11K compared to what the CPAs were quoting me, and I'm now completely caught up. Such a relief to have this behind me.

If you do end up owing significant amounts, getting in touch with the IRS to set up a payment plan is critical. But actually getting through to a human at the IRS is nightmarishly difficult right now. I spent literally 11+ hours on hold across multiple days trying to reach someone about my payment plan. Finally, I used https://claimyr.com (there's also a video showing how it works: https://youtu.be/_kiP6q8DX5c) and they got me connected to an actual IRS agent within 45 minutes. They basically wait on hold for you and call when an agent picks up. Honestly worth every penny because I was able to set up a payment plan that works for my situation instead of getting hit with even more penalties for not responding to notices.

I hate admitting when I'm wrong, but I need to follow up about the Claimyr service. After my skeptical comment, I decided to try it anyway because I was desperate to resolve an issue with the IRS about my payment plan. The service actually did exactly what they claimed. I submitted my request around 9am, got a text about 40 minutes later saying they were connecting me, and suddenly I was talking to an actual IRS representative. Resolved my issue in one call instead of the endless redial nightmare I'd been dealing with for weeks. Ended up saving me from a potential levy situation because I was able to explain my circumstances and get on a proper payment plan. If you're dealing with back taxes, being able to actually communicate with the IRS makes a massive difference.

Former tax preparer here. For what it's worth, the transition from sole proprietor to LLC adds complexity that software might miss. The quotes you're getting sound high, but not unreasonable for multiple years of unfiled business returns. If you decide to DIY with software, at minimum consider paying for a one-hour consultation with a CPA to review your approach. Many will do this for $150-300 and it could save you thousands in missed deductions or penalties. One thing to consider: The IRS has been sending out automated CP59 notices for unfiled returns. If you get one of these, the timeline to respond gets much shorter.

Have you looked into the IRS Fresh Start program? If you qualify, it might help reduce penalties. Don't ignore state taxes too - sometimes they have separate penalty structures.