Well-kept financial records form the basis for success in any business endeavor. Be it a small business, a growing corporation, or an individual entrepreneur, the organization of your financial records during the entire year will make the process of filing taxes much easier. Even though there is a difference between bookkeepers and CPAs in terms of what duties they perform, in most cases, they collaborate in order to provide you with accurate financial records ready for filing.
The vast majority of business owners looking for bookkeeping services near me think that these professionals are supposed to keep the records of all transactions only. In fact, good bookkeepers not only organize and keep the accurate financial records of their clients but also reconcile accounts, organize the documentation, and prepare reports for the accountant or the tax preparer to file taxes.
Why Bookkeeping Services Near You Need to Work With Your CPA
Though bookkeeping and tax preparation play unique roles, both are interdependent tasks. Bookkeepers deal with recording daily transactions, whereas CPAs or tax preparers use that information for the preparation of tax returns and giving tax planning suggestions.
If bookkeeping is not done in an organized manner, then the tax professional will have to spend extra time on rectification of those records, rather than preparing the returns. Similarly, when you are doing the work with your CPA and he or she finds some accounting adjustments, such changes must be communicated to your bookkeeper for maintaining the accuracy of your financial records.
Proper bookkeeper and CPA coordination will help the business in:
- Decreasing the stress in tax season
- Maintaining accurate financial information
- Identification of any missing transaction at an earlier stage
- Lessening bookkeeping adjustments
- Preparing comprehensive financial statements
- Enabling tax planning all year-round
- Decreasing filing errors
Instead of working separately, bookkeepers and CPAs work together in keeping financial information updated.
What Information Gets Shared Between the Two
Coordination between the two requires sharing of a number of financial records, including but not limited to:
Statement of profit and loss (income statement)
- Balance sheet
- General ledger
- Trial balance
- Bank reconciliation statements
- Aging report of accounts receivable
- Aging report of accounts payable
- Payroll statements
- Fixed asset report
- Loan report
- Sales tax report
- Adjusting entries for year end
Additional records that may be required by your CPA could include depreciation report, past year tax return, business loan agreement or supporting record of any other major transaction.
Information flow happens in both directions. After reviewing your books, your CPA may suggest adjustments in depreciation, accrued expense, distribution to owner, or other accounting entries which will be recorded by your bookkeeper.
In case information flows promptly, you can save yourself from duplicate work and minimize the risk of misreporting.
How Bookkeeping Services Near You Prepare Records for Tax Season
The process of preparing for tax season starts far earlier than the arrival of the tax deadline dates. Bookkeeping services near me assist businesses to keep organized documents through the whole year for easier tax filing.
One of the key roles of a bookkeeper is to record all financial transactions in a company's account. These transactions include payments received from customers, bills from vendors, payroll costs, deposits made into banks, credit card transactions, and any activity related to money paid by the owner.
Another very important activity of a bookkeeper is the process of balancing the company's bank accounts and credit cards. Bookkeepers balance accounts by comparing accounting documents with bank statements to check whether all transactions have been recorded accurately.
The bookkeeper will also group income and expense items based on standard accounting principles. This will make it easy for your accountant to determine the deductible expenses and file the tax returns accurately.
With tax filing time coming close, the bookkeeper ensures that the books are prepared through:
- Reconciliation of all bank accounts.
- Matching of credit card accounts with their monthly statements.
- Correct recording of outstanding invoices.
- Current vendor payments.
- Completeness of payroll data.
- Matching of loan balances with statements from lenders.
- Recording of fixed asset purchases.
- Organizing receipts.
This way, you gettax-ready bookswhich your accountant can use for tax filing purposes without having to go back and correct anything.
Most bookkeepers also produce year-end financial reports that reflect the financial performance of your business for the year. The reports will form the basis of the tax filing process.
What Happens When Books and Tax Filings Don't Match
The most difficult thing that you have to face when it comes to taxes is finding out that your bookkeeping records do not correspond to numbers indicated in your tax report. This issue can create some confusion and requires additional work.
The professional bookkeeping service near me can help minimize such problems since bookkeepers keep all your records up-to-date throughout the year and consult with your CPA or tax preparer.
Here are some reasons why there could be a discrepancy between your bookkeeping records and your tax filings.
Omissions and Errors in Transactions
Sometimes income or expense transactions are forgotten, double-counted or misclassified, and this can distort the accuracy of the financial statements and result in errors when calculating the taxable income.
Year-End Adjustments
Usually, CPAs make some year-end adjustments before preparing your tax return. They include:
- Depreciation expenses
- Payroll accruals
- Adjustment for loan interest
- Inventory adjustment
- Adjustments of prepaid expenses
- Bad debt adjustments
If the year-end adjustments are not accounted for in your bookkeeping, there will be a discrepancy between your books and tax return.
Payroll Discrepancies
Payroll is another common reason why there could be discrepancies. Inconsistencies in payroll reports, payroll tax reports, and bookkeeping will affect wages,
Timing Differences
While some firms recognize transactions based on when money is exchanged, there may be different rules for the timing of tax reports based on the type of accounting you use. The bookkeeper and CPA have to collaborate to make sure your financial documents use the correct reporting method.
Why Matching Records Matters
The advantages for businesses whose bookkeeping matches their tax returns include:
- Better financial reporting
- Easy access to loans and financing
- Quicker tax preparation
- Improved cash flow management
- Less confusion during audits
- Better business decisions
In case a mismatch is found after filing your taxes, the two professionals can work together to find out what caused the mismatch and correct any mistakes.
Questions to Ask About How They'll Coordinate
Selecting a bookkeeper is not only about comparing costs, because your financial data can be used by a CPA or a tax preparer, which means you should understand the communication between the two.
When looking to hire a bookkeeper for my business, there are several questions you should ask beforehand.
Do You Work with External CPAs?
There are bookkeeping providers who collaborate regularly with external CPAs and there are those who perform tax preparation services alongside with their regular job. Both are fine, as long as everything is done properly.
How Is My Financial Data Sent?
Ask how exactly your reports and other documents are transferred to your CPA. A secure client portal or an encrypted system of document exchange is the best way to keep your confidential financial information safe.
How Frequently Do You Review My Accounts?
Reconciliation will help you make sure your accounting books are up-to-date. Most often, monthly reconciliation of accounts is enough, although certain companies might need to have theirs reviewed more frequently.
Will My Books Be Reviewed Before Taxes Are Filed?
Yearly review will help find all the errors, mistakes or unreported transactions before filing your taxes, which can save you time and avoid
How Will You Handle CPA Adjustments?
Find out if the bookkeeper service maintains adjusting journal entries that your CPA has sent you once your taxes have been prepared. Maintaining up-to-date accounting records helps ensure consistency in your financial reports going forward.
What Financial Reports will I be Getting?
Knowing what types of financial reports you will be receiving can assist you in monitoring the performance of your business throughout the year. The typical reports may include:
- Profit & Loss Statement
- Balance Sheet
- Statement of Cash Flow
- Accounts Receivable Aging Report
- Accounts Payable Aging Report
These reports will assist you not only in preparing your taxes, but will also help you make decisions regarding your business.
How Often Will My Bookkeeper and CPA Communicate?
Depending on the size of your business, the right communication schedule varies. For some companies, it makes sense to coordinate once per year before the start of tax season, while other businesses might benefit from quarterly or even monthly communication sessions.
Good communications between the bookkeeper and the CPA go a long way toward building an efficient financial management system throughout the year. Whereas the bookkeeper is responsible for the transaction and financial record keeping, the CPA uses such records to generate tax returns, give tax planning advice, and comply with tax laws.
Professional bookkeeping services near me are critical in the maintenance of tax-ready books, accounts reconciliation, financial record organization, and reporting which facilitate efficient tax preparation regardless of whether the firms offer both services or not. Many businesses thrive when using different firms forbookkeeping or tax preparation with The Fino Partners.
