When You Think You Need a Bookkeeper, Think Bigger
Every business will need a bookkeeper. Or they will need a bookkeeping function, whether it is all or partially software, online entry, or online tax record-keeping and tax preparation. Often the business owner will take on some or all these tasks, usually not as good a use of their time as managing and growing their business. At some point, most owners want a bookkeeper, whether as an employee or more likely a bookkeeping service.
Often, they think of the bookkeeping function as just the keeping of the books, the entry of income and expenses. They then take the output of the bookkeeping function and give it to a tax preparer. The tax preparer takes the chart of accounts and balances and fills out the tax return forms. To this point, these two functions, bookkeeping and tax preparation are often done by two different people or businesses.
There is nothing wrong with the “need a bookkeeper” approach as discussed so far. The problem is that staying focused on these two functions can cost you a lot of money. If you expand your thinking past that “need a bookkeeper” approach to a big picture business tax approach, you may save more in taxes than you think it will cost.
Why think about more than just bookkeeping and tax preparation?
When you start a new business, it is almost always with the goal of growing it, possibly even growing income, and funding a comfortable or even lavish retirement. Those are goals, but what are your plans? You probably have some detailed business plans. You may have a formal written business plan, especially if you will need funding. That plan could mention buying equipment in the future or buying or expanding store or business facilities and real estate. Your business plan may involve hiring employees as well. Those are great plans for growing the business, but there is nothing there about growing profits while minimizing how much the government takes.
That business plan is a great idea. A financial plan is even better. When you expand, buy facilities or equipment, or hire employees, there are income tax considerations involved in every one of those activities. Working with a tax professional and other accounting service providers will help you to plan for major business decisions as well as yearly planning to minimize the tax bite.
- Entity formation – The business tax entity will have tax consequences throughout the life of the business. Whether you want to function as a sole proprietorship, partnership, S-Corporation, Limited Liability Company (LLC), or a full corporation, you should get expert advice. It is difficult or impossible to change tax entity status later.
- Lease, purchase, and depreciation advice – Planning ahead for facility, equipment, vehicle, or other major purchases or leases can save tax dollars.
- Bookkeeping and tax preparation – Those bookkeeping and tax preparation functions can be rolled into one suite of services that cover all the bases.
- Retirement planning – The accounting or other tax advisor can structure retirement plans for you and your employees that will save the business tax dollars and build comfortable retirement plans that grow tax free.
- Audit response and representation – The tax professional is an asset to keep you out of trouble. If there are questions, or worse and audit, from the IRS, the appropriately licensed tax professional can represent your interests.
Maybe instead of that “need a bookkeeper” search you could widen it a bit into a “need an accounting service” search.