Do Bookkeepers Do Taxes?
Accounting and taxes are two different manners of dealing with the finances of a business. Although there is some overlap between what bookkeepers and accountants do, the difference can assist business owners in their relationships with financial service providers.
What Bookkeepers Do
Record Every Day Sales
The usual functions of a bookkeeper include keeping records of a firm’s financial activities on a continual, daily basis. Income, expenditure, receivables, payables, wages, bank receipts, and payments are some things included in cash flow. This compilation of the financial data is put into categories or timelines for tracking cash flow.
Maintain Ledgers and Journals
While recording transactions, bookkeepers also keep ledgers, journals, and other books that will enable a business to examine changes within a period and sort the finances in a way that makes reporting more straightforward. This is one of the subtopics of the bookkeeping function.
Perform Bank Reconciliations
Bookkeepers balance account totals from internal company records with monthly bank statements to check that the books are correct. This check can find differences between the bank reports and the internal records.
Manage Payroll
Besides keeping records of expenses under payroll, bookkeepers may also help run payroll activities such as computation of wages and tax deductions for each employee, preparing pay checks, reporting payroll taxes, etc.
Analyze Internal Financial Statements
Even though they do not generate general purpose financial reports, most bookkeepers generate internal financial statements from their records. The most common statements are income statements, balance sheets, cash flow, and trial balances. They aid management in understanding the present and future financial position of their business.
Bookkeeping Does Not Typically Include:
Filing Business Tax Returns
Bookkeepers offer most of the base monetary information used to complete organization accounts. Yet they do not typically create or submit official tax returns. This comprises income tax returns, sales and use tax returns, and filings relating to payroll tax, and other related taxes. Responsibility for this role lies with the accountants and tax practitioners.
Tax Consultation Services
Bookkeepers also do not formulate tax planning strategies or give consultation on legally admissible strategies of minimizing taxes. Specialized consulting services are only accessible to credentialed accountants and taxation attorneys. Although bookkeepers have adequate finance knowledge, this includes less financial planning and sophisticated tax avoidance and submission.
What Accountants Do
Compared to completing daily transactions and recording continuous processes, accountants pay more attention to figures analysis and external reports preparation.
Everyday accountant responsibilities include:
Analyze Financial Statements
Bookkeepers record the initial information while accountants interpret what such information means for taxation and the company’s financial position. With their professional background and experience thinking outside the box, they reveal patterns and data that can escape the owner’s attention.
Due to the high stakes, there should be preparation and filing of business tax returns by the accountants with the business owner.
By employing bookkeepers’ records, accountants legally file local, state, and federal taxes for clients. They also prepare and file these returns within the required time and deal with audit requests in case of occurrence. This function is usually subcontracted from bookkeepers to accountants.
Avail Tax Planning Advisory Services
More on this is the proactive tax planning service where accounting expertise is applicable. This means comparing the current tax position of a business under various contingencies and then making strategic suggestions on how a company can legally reduce the amount it pays in taxes. The consultative services benefit business owners by ensuring they make the most profits.
What Can Bookkeepers Do for Taxes?
Specialized Training Required
Bookkeeping, filing tax returns, and consultation with clients cannot be accomplished using the same approach. Huge emphasis should be placed on the training as new codes are constantly introduced in the market. It is common for most accountants to possess a bachelor’s or master’s degree in accounting. Further in the specialization of taxes, other high stakes designations include the Certified Public Accountant (CPA) or the Enrolled Agent (EA). Many employees who manage the finances of a company are capable bookkeepers. Still, they have acquired tax preparation training as well.
Legal Restrictions
Besides the training, it is unlawful for a bookkeeper without specific qualifications to prepare tax returns for a fee. As of today, only the certified public accountants, attorneys and enrolled agents that possess the proper PTINs issued by the IRS can receive payment for the preparation of federal tax returns. Most states similarly regulate this task regarding paid tax return preparation at the state level. Most, however, permit registered tax return preparers or other specified qualifications to prepare returns for monetary consideration. In the majority of cases, the designations of bookkeepers do not meet legal specifications of fee-based tax preparation.
When Bookkeepers Can Assist
Support Preparation Process
Skilled bookkeepers are then helpful because they can assist in the completion of the return but cannot prepare them on their own. Since bookkeepers keep daily records of a business’s transactions, they understand account-related issues to respond to an accountant’s inquiries. They also gather needed papers and forward complete trial balances or other accounts completed by the preparers.
Must Tax Prep Be Under an Attorney’s/CPA’s Supervision?
In some circumstances, the bookkeeper may even complete tax returns. At the same time, a Certified Public Accountant or an attorney supervises the work and, in most instances, these professionals sign off on their work. It allows the bookkeeper to be more involved with the tax matters, while the supervising professional will always look at the accuracy and compliance. While bookkeepers can work autonomously to keep their employer’s or their client’s accounting records, they cannot legally complete client returns on their own without other professional supervision.
Finally, if business owners are in doubt, they should consult specialists in state laws and IRS rules of paid tax preparation. It is also essential to know what job is within the capacity of bookkeepers so that you look for the right help for your taxes. Despite the mentioned limitation, bookkeepers are highly helpful to accountants as assistants much of the time.
