Professional Tax Preparation is Part of a Process
Professional tax preparation involves many of the same requirements as other “professionals.” Professional baseball or football players rely upon their expertise in the context of the expertise of the entire team of specialty professionals. If you choose to work a professional for tax preparation, they should be collaborating with others to achieve the desired results.
- The bookkeeper(s) – throughout the year, the bookkeeper(s) maintain the ledgers and transaction records. They should be professional in their organization and categorization of financial data. Collaborating with the tax preparer allows them to structure their reports to the preparer such that the professional tax preparation function is efficient, accurate, and meets current tax rules and return forms instructions.
- Tax planning professionals – this can be a tax or other accounting professional(s). Their job is to help the business owners in making tax-advantaged decisions. Often the important decisions come with major real estate or business equipment purchases. Those are purchases that may be written off in one tax year in some cases, or they must be depreciated. The decisions as to which way to go and how to depreciate if chosen are part of tax planning.
Other areas of tax planning involve employees, retirement plans, and benefits structures. Planning for owners’ retirement is of great importance. Planning for expansion of the business, hiring of employees, and expansion of facilities are all involved as well.
- Audit avoidance and representation – Another professional function is best handled by an appropriately licensed tax professional. This isn’t a once-a-year involvement. Continual monitoring of changing tax laws related to business is critical to not only tax minimization but to lowering the risk of audit. Should an audit become necessary, an appropriately licensed tax professional to represent you with the IRS will help immensely.
Professional tax preparation is the reporting function of this team. If your tax preparer works with these professionals, it should save you tax dollars while lowering your risk of audit. You want to take maximum advantage of tax laws with minimal risk of mistakes resulting in IRS scrutiny.
One estimate is that there are more than 800 federal tax formsi. Many of those are business related, often focused on specific types of business or business functions. Professional tax preparation services require expertise in federal tax law and constant monitoring of changes in forms and instructions for their completion.
Though the services and team members above can be considered as necessary for business tax minimization and accuracy, there are other services that can be gained from those.
- Estate Planning – The owners of a small business have profit goals that go far beyond this year’s taxes. Building assets are goals. Estate planning helps owners to set out documents that will specify what is to happen to assets in the case of their death or inability to manage their affairs.
- Entity Formation and Change – The business entity structure for taxes is critical. Most small businesses start out as sole proprietorships or partnerships. However, other structures may be better at startup or later as the business grows. Entity formation consultation to decide about partnership, S-corporation, LLC, or full corporation is a valuable service.
Do your research before selection of professional tax preparation services.