Can You File Your Own Business Taxes?
“To be, or not to be: that is the question.” - William Shakespeare
I’ll say this only once: anyone who thinks Hamlet is a tragedy has never had to file their own business taxes. The quote would resonate better if went more like this:
“To hire an accountant, or not to hire an accountant: that is the question”
No, really. That’s the question we’re going to answer today.
When should you do your own business taxes?
The truth is, it largely depends on the type of business you have. There are multiple types of business structures that all require slightly different tax treatments, so the first place to start is establishing what you have:
- 💪Sole proprietor / single-member LLC: This is what most gig and freelancers are. You operate under your own name and Social Security number, or are the only member of your LLC.
- 🤝Partnership / multi-member LLC: This describes any business with multiple owners who have formed an LLC or partnership, but don’t get taxed as a corporation.
- 👔 S corporation: This describes a partnership or LLC that has elected to be treated as a corporation for tax purposes.
- 🏢 C corporation: This is a completely separate legal entity from its owners. It's typically only formed by large companies.
Each type of entity has their own IRS form and their own filing due date. To make things more complicated, the associated business taxes are either paid by the owner or by the business itself, depending on the structure:
Let’s take a peek at the structures that are easiest to go DIY on.
💪 Sole proprietor
DIY rating: 🌶️ Good. Safe to complete using tax software or by hand.
Schedule C is the simplest business filing option. The form you’ll need to use is only two pages long.
When sole proprietors file their taxes, they can simply attach this business filing to their individual 1040 returns.
Here’s what you’ll need to have:
- Schedule C: Profit or Loss From Business
- Schedule SE: Self Employment Tax
- Form 8829: Expenses for Business Use of Home
- Form 4562: Depreciation and Amortization
Schedule C filings are by far the most straightforward when it comes to business taxes. Still, they have their fair share of headaches too. In addition to the forms above, you may also have to deal with the Qualified Business Income Deduction, which can get complicated. That’s something a good tax-filing service can handle for you.
Keeper Tax is a great option for gig workers, freelancers, and small business owners looking for a stress-free filing experience at an affordable rate. So if the Schedule C you’ve been staring at is starting to look like a bunch of squiggly lines, take that as a sign from the universe to download the Keeper app.
Should you hire an accountant for a Schedule C return? To be honest, it doesn’t make much financial sense. Your return is going to be pretty simple, so you’ll probably overpay if you involve a tax professional.
🤝 Simple partnership
DIY rating: 🌶️🌶️ OK. Safe to complete using tax filing software.
Normally, I would caution people away from attempting their owner partnership returns. These entity structures are complicated because the earnings from the business “flow through” to the various partners in the form of a K-1.
K-1 is another form you’ll use to file your individual income taxes with. It lets the IRS know about your stake in the partnership and how much money you’ve made through it.
Because of this K-1 filing requirement, you have to keep track of each partner's “basis” in the company to determine how much of the net income — or loss — needs to be allocated to them. (Basis simply describes what portion of the company belongs to you based on your contributions to the partnership.)
What counts as a simple partnership?
A tax program can safely track basis if the return is simple. How to tell if you have a simple partnership? If you check “yes” to the following statements, you’re probably in the safe zone:
- You have gross income of less than $250,000
- You have business assets under $1 million
If both of the above statements are true for you, your partnership doesn’t have to report a Balance Sheet on your tax return. A balance sheet lists all your assets and liabilities, requiring you to keep a very good set of books every year.
You should be keeping a good set of books regardless, but for many small business owners, just getting the bottom-line correct is a tall order.
If your business is small enough, the IRS cuts you some slack. Just make sure your net income number is correct — just like if you were filing a Schedule C — and the balance sheet is optional.
Some other indicators that you can safely do your own partnership taxes:
- 💰 The partnership is “cash basis” — meaning, you only report what hit your bank account during the year.
- 👥 There are fewer than five business partners. This isn’t a hard-and-fast rule, but generally the more partners there are, the more room there is to make mistakes when you’re tracking basis.
If you’re using reliable tax software, this should be a doable return.
When should you hire an accountant?
The worst thing you can do when it comes to business taxes is try the “fake till you make it” approach. What might seem like a small mistake now could cost a lot of money to fix down the road.
Before getting into the specifics, a general word to the wise: if your company operates on any accounting method other than “cash,” you should hire an accountant.
Accrual and hybrid accounting methods can get complicated very quickly, and there’s a high error risk even for people who know what they’re doing. Don’t risk an expensive mistake to save a few bucks now.
With that public service announcement out of the way, let's look at the entity types you absolutely shouldn’t try doing at home.
🤝 Complex partnerships
DIY rating: 🌶️🌶️🌶️ Bad. Hire an accountant.
In the last section, we discussed how to tell if your partnership is simple enough to file yourself. If you didn’t fall into that bucket, you’re probably out of luck. Partnerships only get more complicated from here.
What counts as a complex partnership?
If any of the following statements are true, you should probably find a CPA to help:
- You have gross receipts over $250,000
- You have business assets over $1 million
- Your partnership has more than five partners
An added word of caution: Both partnerships and S corporations are described as “flow-through” entities. That’s because the income or loss is passed on to the owners in the form of a K-1. Tax isn’t assessed at the business level — it’s assessed on the individual owner level.
Consequently, a mistake on the partnership return will likely result in mistakes on all the individual owner returns as well. You can imagine how this can get particularly expensive to fix.
If a partnership with five owners has to be amended, all of the corresponding 1040 returns will probably need to be amended too. So it would be six returns that have to be fixed — not just one.
👔 S corporations
DIY rating: 🌶️🌶️🌶️ Bad. Hire an accountant.
As an accountant, S corporation returns are my personal favorite. That’s why I don’t advise trying them at home. They come with the same high-stakes as partnership returns — a mistake at the business level requires fixing the individual owners’ returns too.
Additionally, while S corps have relatively low audit rates, that’s probably because tax professionals handle the majority of these returns. If you don’t know what you’re doing, it’s easy to get on the IRS’s radar.
For example, a key benefit of an S corporation is the ability to avoid self-employment taxes. (That’s because, instead of getting paid “self-employment income,” you can take earnings out of the business as an owner distribution.)
Because of this perk, the IRS typically requires S corp owners to pay themselves a reasonable salary if they routinely take money out of the company. That forces them to pay self-employment tax on at least part of their earnings.
As a result, S corporations that don’t report owner wages — while still showing sizable net income or distributions — are much likelier to get audited.
Corporate filings are a minefield of little requirements like that, and it’s hard to learn all of them if it's not your full-time job. Having someone who does know them in your corner is half the value of enlisting an accountant.
🏢 C corporations
DIY rating: 🌶️🌶️🌶️🌶️ Very bad. Get an accountant STAT.
C corporation returns are the most distinct type of business filing, because it never trickles down to the individual level.
You may have heard the expression “double taxation” thrown around. It’s often used in reference to C corporations. That’s the only business structure where the income gets taxed twice: once at the entity level, and then again at the individual level when officers take dividends from the company’s profits.
In other words, any income that a corporation distributes to its shareholders gets taxed on their personal returns — even though the corporation has already paid tax on that income.
C corporations come with a whole host of complicating factors, and they also have the highest audit rates. That’s why I would strongly advise finding an accountant to assist with your corporation’s filings.
How much should you expect to pay?
Speaking of money, let’s get into it. Most people have no idea what they should reasonably be spending on tax services. Here’s generally what you can expect to pay:
To break this chart down a little further:
- Keeper Tax’s flat fee, which includes recordkeeping for your Schedule C and tax filing with professionals (like me!) making sure you get the best bottom line. Think of it as TurboTax for independent contractors, plus a bookkeeping service like Quickbooks, all in one.
- Mainstream tax software like Turbo, H&R, TaxAct frequently have hidden fees and surprise charges, especially for people who freelance, own businesses, or do anything else other than a traditional W-2 job. That makes it hard to find straightforward pricing for their services. The amounts listed above are the minimum that you’ll pay, but don’t be surprised if it comes out higher.
- Accountant fees vary widely depending on your location, the professional’s experience level, and the complexity of your return. The prices above are average fees, but business tax returns can easily cost a few thousand dollars. Keeper Tax allows you to export a Schedule C worksheet to give to your accountant, which could help reduce their fees if they charge hourly.
I know there are a million better things to spend your money on — rent, for example. But tax prep isn’t something you should skimp on. Much like finding a good mechanic for your car, it will save you money in the long run to do it right the first time.
And don’t forget, the cost of filing your business taxes can be deducted on your business tax return next year. Who says a tragedy can’t have a happy ending?
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At Keeper Tax, we’re on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please email firstname.lastname@example.org if you have questions.