Bookkeeping Versus Tax Return Engagements
Engagements with tax professionals and accountants can be very vague. To clarify what to expect when you engage with a CPA firm, I want to cover some basics to help you make decisions about your financial health.
In general, when you are engaged to simply do tax work, your accountant might be making adjustments and looking at your books, and even asking thought provoking questions, but what they aren’t doing is diving into the numbers to make sure they are accurate. Let’s talk about the process and engagement in a tax return relationship.
In a tax preparation engagement, the taxpayer is responsible for providing the detail and accuracy for return purposes. The tax professional is simply applying the rule and entering your information to reap the largest tax benefit. No more, no less. If something is obviously wrong, the tax professional may have to take additional time to clean up the numbers the best they can, usually utilizing external documents, so they can complete your tax return. This is a very task oriented relationship. Sometimes, taxpayers bring in receipts. The tax professional will do some bookkeeping as they categorize and classify receipts to make a big picture that they can plug into your tax return. If you file business returns, there is a more in depth process they follow to ensure the balances are at least close to what you have presented.
The draw back here is there is no analysis of the numbers in relation to activity. Unless the numbers fall outside a relevant range, they likely won’t give it a second glance. This can lead to issues down the line, maybe you have been doing your sales tax reports wrong, or inaccurately reporting payroll taxes. You may feel as though the tax professional is responsible for the these errors, unfortunately, they aren’t. They aren’t engaged for bookkeeping work. Only for tax preparation, which is contained in the language of your engagement letter you sign annually.
Do bookkeepers do taxes? Well, it really depends. Some firms are large enough they have a separate or specialized team that performs the bookkeeping and another team that prepares the taxes. My firm is small enough that the same individual can do both. Even if it’s the same individual that does both, it’s two separate engagements. Bookkeepers really have an eye for balances. It’s more than looking for a percentage of a year over year change. They are looking at outstanding checks that haven’t cleared, tax liability accounts, that your Cost of Goods Sold account is too high in relation to your revenue, and all sorts of things of that nature. Bookkeepers have a much different objective than a tax preparer. Depending on what you need, you should consider engaging for both.
The main drawback is that many people balk at hiring a full-time outsourced bookkeeper. They feel like it’s too expensive. Unfortunately, that is often a check that comes due in another form. A major book clean-up, a more expensive tax bill, or having to hire an internal accountant to clean-up, catch-up, and keep-up.
Here, at Amber Burleson, CPA, P.C. we can help by being your outsourced accountant or bookkeeper, even if you have another firm preparing your taxes. We work well with tax prep firms and many times it’s more efficient because we can speak the same lingo and get to the bottom of a question. We can also provide insight to how your business is performing and provide suggestions on how to become more efficient. Don’t leave money on the table by skipping out on having your books professionally done.