I have worked in the accounting profession as a bookkeeper for almost 20 years. I won’t say I’ve heard it all—such a declaration would be inviting trouble. Year after year, though, I get many of the same questions at tax time from small business owners.
Likewise, between January and mid-April, many of the other accountants I know report hearing the same questions.
“Wouldn’t it be nice,” we muse, “if there were some sort of primer we could give our clients so they would know what to expect before they meet with us?” Not only would such a primer help us maximize our time with our clients, but it would also alleviate much of the frustration we know our small business clients feel when they meet with us.
If you are a small business owner reading this, thank you for wanting to understand what your accountant wishes you knew about doing your business taxes. I can promise you we appreciate it. None of us likes for our clients to feel frustrated or unhappy, but many of us don’t know how to approach our clients with this information.
Every year, I get at least one panicked phone call from a small business owner who is sure their bookkeeper has made a mistake in their books. The reason? Their accountant reported a much higher profit on their tax return than what the business owner has in their bank account, and now the business owner owes a huge tax bill…which is also higher than their bank account balance.
With very few exceptions, the net income that appears on a small business’ profit and loss statement will not match the small business’ bank account balance at year-end. This is due to loan payments, owner’s draws, and capital contributions, just to name a few things.
Before you conclude someone has made a mistake, ask your bookkeeper to explain your net income—or profit—number to you. Compare this information with what your accountant tells you during your tax appointment.
Your accountant and bookkeeper want you to understand these things, so don’t be afraid to ask!
This is a question your accountant really wants you to ask before the end of the year.
Unfortunately, most small business owners ask if there is anything they can do to reduce the amount owed after their accountant has prepared their tax return. The answer is usually, “No.” With a few exceptions for retirement plan contributions, any activity that will impact your tax liability must take place by the end of the tax year. April 14th—or even January 1st—is too late to do tax planning.
Your accountant would like to meet with you no later than the end of November to discuss strategies you can employ to reduce your tax liability before the end of the year. Many accountants prefer to meet with their clients every quarter. Regardless of how often you meet with your accountant, please make sure to have at least one meeting prior to the end of the tax year. This will save you both frustration and money at tax time!
We understand you are anxious to get your taxes filed, especially if you are expecting a refund or if you need your return to apply for business financing. While advances in automation are dramatically streamlining the tax return preparation process, properly preparing your return still takes time.
If you need your return done faster, there are some things you can do:
1. Get your documentation to us as soon as you can. The earlier you turn in your documentation, the greater your chances are of us being able to turn around your tax return quickly. The further along we get into tax season, the more returns we have to file. Most accountants have a “first in, first out” approach to processing returns, so get your files to us as soon as you can!
2. Be prepared for your tax appointment. Most accountants provide their clients with a tax organizer. We understand completing this organizer is the last thing you want to do with your time. However, taking a couple of hours to go through the organizer and compile the requested information will help us prepare your return faster. It will also save you from a bunch of back-and-forth emails or phone calls with us as we seek clarification that could have been provided in advance.
3. Be patient. Accountants often get hundreds of emails and phone calls a day during the off-season, and these messages multiply at tax time. We spend hours culling through our messages, often late at night or early in the morning before our “real” work starts for the day. Most accountants will give you a projected date for the completion of your return, so please don’t ask for a status update before that date. These “Update, please?” emails really do slow us down.
Accountants love it when they have the option of speaking with your bookkeeper. As a bookkeeper, I can often resolve an accountant’s question in a 10-minute phone call. If a client hasn’t given their accountant permission to speak with me directly, though, that question has to be routed through the client first. This can literally add days to the time it takes for the accountant to get an answer to their question.
That said, your accountant also needs to be able to speak with you about some things. Generally speaking, your bookkeeper will probably only have information about your business activity. Any questions your accountant has about your personal finances will need to be answered by you.
If you want to allow your accountant and bookkeeper to communicate directly about your business financials, ask both providers what you need to do to formally grant this permission. Ethical accountants and bookkeepers will not disclose financial information to a third party until they have permission from their client.
I am often asked by new clients if I can turn around a year’s worth of bookkeeping quickly so that their accountant can file their tax return by the initial filing deadline. These clients don’t want to file an extension because they are afraid doing so will increase the chances of their return being audited.
This is, quite simply, untrue. Filing an extension will not increase your chances of being audited. What will increase the chances of an audit is a mistake made while rushing to file your return before the initial filing deadline.
If your bookkeeper can’t get your books compiled soon enough for your accountant to do a thorough job on your tax return, file an extension. You will need to estimate the amount of tax you owe and make a payment with your extension in order to avoid late payment penalties and interest. But if you overpay, you will recoup the overpayment as a refund when your tax return is filed.
This is by no means an exhaustive list. However, these are the top questions those of us in the accounting profession hear from small business owners every year.
We wish you knew the answers before coming to us at tax time. This is not because we don’t like answering your questions. In fact, we love it when our clients seek to understand their finances better! But we can also tell how frustrated our small business clients can be by their tax situation. Hopefully, this “primer” will help alleviate some of that frustration for next tax season.