When your freelance business is booming, the numbers on your tax returns start to get a lot more stressful. But why spend valuable hours — and risk making costly mistakes — trying to go it alone? Hiring an accountant may seem out-of-reach financially, until you realize that the time you’ve wasted trying to figure it all out by yourself could’ve been spent working on that big project (with an even bigger paycheck). Luckily, an accountant can provide you with the right kind of support around the financial and strategic decisions for your business.
During the first booming year I had as a freelancer, I marched into my accountant’s office with an actual box of receipts and cheerfully noted that I’d done business with clients in 15 states — which meant filing 15 state returns. She grinned at me and rolled up her sleeves, eager to take on the challenge. How can you find that kind of freelance-friendly accountant? Seek out someone who contains the following five characteristics.
1. They Understand Freelance Taxes
Sure, you’ve found an accountant who’s a pro at tax returns, but are they familiar with freelance tax returns? My number one piece of advice to you: Make sure they are. Whether they specialize in the small business and solopreneur niche, or they simply have a number of clients in that bucket, it pays to work with someone in a more specialized space.
And that’s true for two reasons. First, they’re more likely to stay on top of tax law changes that affect your business. Second, they’re less likely to blanch when you do show up with that shoebox of receipts, or if you have complex, multi-state client tax situations to sort out. The easiest way to find accountants with a specialty in this space is to ask your fellow freelancers for recommendations.
2. They Have the Necessary Credentials
Freelance designer Anna Sinclair offers a cautionary tale: “The first year I hired an accountant, she was basically a bookkeeper. While her work was great for getting me organized, she didn’t really know about business taxes, and I missed multiple deductions.” Sinclair later filed amended returns to fix the errors. You wouldn’t go see a podiatrist for a heart problem, so don’t take your business accounting and tax prep to someone who isn’t qualified to handle it.
My best advice? Look for either a certified public accountant (CPA) or an enrolled agent. A CPA is an accounting specialist who has passed exams and is licensed by the state. From there, all you need to do is determine if they have experience with individual or business returns — and what fits your needs. If you want to get even more in-depth, look for an enrolled agent — someone who has worked for the IRS for a minimum of five years or has specialized training and passed an exam. They’re a great choice if you have complex taxes (for example, if your freelance income is at a high threshold or is combined with royalties, rental income or investment dividends).
3. They’re Knowledgeable About Maximizing Your Income
During a banner year, I took on a project that kicked my income up to the next level (well, tax bracket). While this was good news for my freelancing personal records, I thought it’d be bad news for my taxes. To my surprise, a meeting with my accountant gave me a new perspective. Believe it or not, it was actually a great time to invest in my business. Simple purchases such as a new computer and office chair — and attending a professional conference I wanted to go to but wasn’t sure I could afford — lowered my tax burden through deductions.
A freelance-friendly accountant will have a structured plan to meet with you throughout the year. During these sessions, you’ll assess things like:
Whether you’re on track to meet your income goals
If your quarterly taxes are appropriate for spikes or drops in income
Whether you’re maximizing deductions
Specific planned investments and purchases
4. They’re Focused on Stability
A freelance accounting ally should be more than a tax preparation and deductions expert. Sinclair notes, “After I left my corporate job, I let my retirement plans fall by the wayside. When I hired an accountant, I got some good options for getting on track and saving toward the future, even at a really modest level.”
Your accountant should also be able to help you craft long-term stability for your business. One study reported by CNBC found that as many as 70 percent of freelancers have nothing saved for retirement. Unfortunately, a high-flying freelance career isn’t going to do you much good if you don’t have a safety net in place or plans for retirement. Consider exploring whether your financial adviser can help you with:
Saving for retirement through an IRA or individual 401K
Health care benefits
General coverage for your business and specialized protection
While your accountant might not be an expert, they should be part of your advisory team. That means they should help you assess what you can afford and refer you to trustworthy experts when needed.
5. They Strive to Keep You Honest
Recently, I had dinner with a freelance colleague who shared her IRS audit horror story. Her accountant let her deduct all the expenses associated with a combination family getaway and research trip for her book, without really evaluating which portions were deductible and which were not. Her glee over a big return turned into an audit nightmare when she had to pay back taxes and penalties. Moral of the story: Look for someone who will help you maximize deductions while making sure you stay well within the limits of IRS propriety.
Hiring an accountant might seem like a luxury on a tight freelance budget, but it can be a critical part of your long-term financial success. The key is to find someone who is experienced with freelance tax returns and accounting advisory. By establishing this partnership with your accountant, you can take your business to the next level.