Preparing for Tax Season
For the general public, the date January 1 signifies a long-awaited opportunity to relax from the hype and hubbub of the previous holiday season. People begin to relax knowing that they have at least 10 months before they must pick the perfect turkey again, and that New Year’s resolutions are optional.
For the business owner, however, the January 1 date signals beginning of what may be the most stressful season of all – tax season.
While others may say goodbye to visitors, ‘tis the season for business owners to revisit piles of receipts in preparation to potentially file multiple sets of taxes (depending on their business entity and type of product sold).
NYC Business Solutions recommends that businesses seek out a relationship with a Certified Public Accountant (CPA). However, as the April tax deadline inches closer, there is a tendency for an entrepreneur under pressure to care less whether a tax preparer, bookkeeper, accountant, or CPA handles the taxes. As long as the taxes get done, you have fulfilled your annual duty, right?
Wrong!
Though financial reporting may seem most important in the beginning of the year when you’re preparing your taxes, who you choose (or don’t choose) to help you is a choice that can affect your company for the rest of the year – and for years to come.
Do not assume that all accounting professionals are created equal when, in fact, training, scope of work, and legal accountability varies highly among the professions. Some professions train for weeks while others study finance and tax law for years. Anyone can offer to file your taxes or register your business, but only some professions are actually trained to know the ins and outs of your filings. Entrusting an unqualified professional to perform work outside of their expertise may result in real problems like not being informed of the additional tax burden that occurs when one registers a New York City business as an out-of-state corporation. Or losing a company’s operational history (which can affect your eligibility for city certifications like M/WBE) when a sole proprietor decides to transition to a corporation or LLC.
The bottom line is: as businesses grows, they will need the aid of an accounting professional more than once a year, for more than just filing taxes. Plan to succeed in 2013, by resolving to stop using a “bookkeeper,” “accountant,” and “CPA” as interchangeable words, and understand who these professionals are and the most appropriate capacity through which they may assist your business:
Tax Preparers
Tax professionals should be relied on for precisely that – tax return preparation only.
Most tax preparers whom you find at a walk-in tax preparation location are seasonal workers who may or may not continue to work in taxes throughout the rest of the year. Well-trained tax preparation persons are trained on how to accurately fill in tax forms and assess eligibility for any special tax breaks that have been granted for the current filing year. This means that the general tax preparer may not possess comprehensive knowledge of the tax laws needed to advise you on business registration or restructuring issues.
Bookkeepers
Financial reports, such as balance sheets, are often requested by potential lenders to assess a company’s performance. A bookkeeper is someone who is responsible for recording a company’s revenue and expenses to produce these reports.
Skilled bookkeepers may be trained to assist you in filing taxes and they are able to create tax forms, such as W2s and 1099s issued to employees and contractors, based on the company’s financial records. Bookkeepers are skilled in computing figures, but are not trained to provide analysis on how to improve your business based on the reports or give tax advice.
If you are computer savvy, you can do your own bookkeeping with Quickbooks.
Accountants
An accountant is a financial professional who is also capable of performing bookkeeping functions and preparing detailed financial reports. Because of the nature of their training (usually a bachelors degree in accounting or finance) and the scope of their work, accountants are more qualified to advise you on how to modify business operations to get the desired performance numbers you seek.
A general accountant may be relied on to accurately fill in tax forms, but as an “unenrolled preparer” the same accountant is not qualified to represent the company. If you have a general accountant who is enrolled with the IRS to prepare your business tax return, understand that this individual cannot legally sign your return and submit for you, nor can he or she assist you with an audit or go to an audit for you or to tax court.
Certified Public Accountants (CPAs)
Of all the accounting professionals, a CPA is the only licensed professional. They possess the skill and authorization from their state and the IRS to “do it all” for your business from its registration to its financial management – preparing reports, giving business performance advice on those reports, completing tax forms, AND standing by your side before the IRS in the event an audit.
CPAs are experts because they must pass a rigorous series of state written exams on the law affecting business registration and tax matters. They also must take continuing education classes. You can rely on all CPAs to possess a standard set of intricate knowledge.
Paul Smith is the Center Director of NYC Business Solutions, Bronx. If you have comments or questions for him, please drop him a note in the comment section below! And, don’t forget to share this post with your network via Facebook, Twitter, email, etc.