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A lot of people think that bookkeeping and accounting are the same things. Although bookkeeping is a part of accounting, bookkeepers and accountants are very different people. Your bookkeeper does all of the record-keeping while your accountant does the tax filing with the IRS. Knowing the difference between the two will help work more efficiently and effectively with your tax preparer. For a video on how to work with a tax preparation service, follow the link here!
Let’s take a look at how to work with your tax preparer.
Everybody has to file a 1040 tax return in April. If you are a small business and you have both a bookkeeper and an accountant, that is great! A lot of times, people don’t have both. Sometimes they don’t have either one. Accountants play a very important role as they know all of the rules that the IRS has laid out in terms of how to do things. These rules are constantly changing, so you have to keep up each year, even throughout the year, on the changes happening. In 2021, many things changed, requiring accountants to redo tax returns they had already done since the IRS changed some rules regarding what was taxable, what was not, and much more.
When you have a tax preparer or bookkeeper, you want them to keep track of things in a way that will make it easier for your accountant to do the taxes at the end of the year and also easy for you as the business owner to look at the financials and gain some understanding of what is happening in your business. So how do you best work with an accountant?
The best way is to think ahead like a tax expert. What are they going to need, when are they going to need it, when are you going to have it available, and how are you going to get it to them are very important questions along the way. There are also a couple of things you’ll need to know when it’s time to do taxes.
Accountants get very busy during February, March, and April, and don’t usually take on new clients. It can be hard to reach accountants since they are so busy. After the April deadline and if you filed an extension, you should know that it is an extension of time to file, not time to pay. Any taxes which were due from the previous year are due at the time you extend. If you do not pay on time, you can get penalized by the IRS.
If you file for that extension, you get an automatic four months to file your taxes. You can file an additional extension if you cannot file by then, but this is still only extending the time to file. As a business owner, this isn’t a good thing to do since you want to use the numbers from the previous year to gain insight into the current and upcoming year.
The earlier you have your things in order, the happier everyone will be. Your accountants will charge you less, and if you have it organized, you will have a lot more insight into what is going on in the next year. Your accountant will also be able to get you the best tax benefits when you file earlier rather than later.
Knowing what tax form you file is also very important. The form you file is usually the same one you filed last year. Each of those tax forms has different categories on it and if your bookkeeping records are kept in different categories than the one on those forms, your accountant will not easily know which one to put where necessarily. This can cause confusion and can delay the process.
Tax preparers are very busy people and many of your questions for them can easily be answered by other people. Your tax bookkeeper can be someone who can answer those questions as they will often know answers to most of the things you’re dealing with. If you are being audited, it is best to go through your accountant, but if that is not the case, asking your bookkeeper questions is your next best bet.
Records have to be kept for many years and many things fade over time. Receipts, your memory, and more fade over time making electronic record-keeping extremely important to do now. Keeping electronic copies is a good way to avoid things from getting lost and fading over time. Quickbooks is a great place to keep things like records and receipts. Things you can get online, such as bank records, aren’t things you necessarily need to keep electronically since they are already stored online. The things you want to keep are important items that cannot be found online. These can vary for everyone, so think carefully about what these items may be. Essentially, if the IRS would want them, you need to have them.
Your tax preparer or accountant is going to need to know things like did you have any stock trades, or did you buy a house. They need to know if you disposed of an asset that’s been depreciated, and much more. They usually have an annual tax planner or questionnaire where they ask you all of these things. The data then gets translated into IRS forms, so it’s essential to get your information in the right format, in the correct categories, and totaled up so they can get it right on the tax form.
Emails are a great way to work with your tax preparer as it leaves a record of what is asked for. Phone calls can be hard to transcribe and can also lead to information being forgotten or left out. Emails are also easier to respond to as you don’t have to take significant time out of a busy day to answer a phone call that can be written in an email.
When working with accountants, know what level of accountant you are working with. There are senior, junior, and entry-level accountants and you may get any one of those. Don’t be afraid to ask to talk to a more senior accountant if you feel like you need more help. Every person has their own unique skillset and personality which needs to fit with your own. The best scenario is someone you can afford, who you like, and who knows their stuff.