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Eliminating the Gaps between Your Roles as a Bookkeeper

For most independent bookkeepers, the clients are the business owners. The right way to do bookkeeping is all about perspective. What point of view do you take when you are executing a client’s bookkeeping? For most bookkeepers, the end goal is to get the client tax prep ready, but what exactly is tax prep ready?
Most times bookkeeping is done on the same grounds as tax returns. This is usually a cash basis, although if your client has accounts receivable or accounts payable, you might run accrual basis financials to include that activity. All expenses that can’t be deducted on the business tax return are either excluded from the books altogether or posted to an equity account like the owner’s draw, shareholder distributions or loan to owner/shareholder. Note that depreciation and reductions are only recorded once in a year and they are recorded using the numbers the CPA provides. It doesn’t matter how long the purchase for a piece of equipment lasts for, it has to be under the safe harbour threshold because they are posted as expenses instead of assets.

There are some Shortcomings of the Tax-Prep-Ready Perspective

but it is essential to file the accurate tax returns to avoid issues with the IRS. One of your numerous roles as a bookkeeper is to make sure that the Certified Principal Accountant has the correct facts and information to file a proper tax return that does not exaggerate or cut down your client’s taxable income.
Of course this is only a minute part of your duties. Your clients will be using their bookkeeping to run their business all year round while the CPA uses it to file their tax return just since a year so accuracy is if utmost importance. So the ideology that bookkeeping is only used for taxes is wrong as your actions matter in the day to day the needs of your client.

But this is only one very small part of your role. Your clients’ bookkeeping is used to file their tax return one day each year, but your clients use their bookkeeping to run their businesses 365 days a year. In other words, you only need to be concerned with what the CPA thinks of your bookkeeping when it’s time for him to prepare the client’s tax return. The rest of the year, your clients’ needs are more important. Those needs are very rarely served by tax prep ready books.
One of the most essential roles is to provide bookkeeping and reports that your client can use to make informed and smart business decisions. You keep your clients’ books in a tax-prep-ready state all through the year, it could be giving your clients incomplete information for this purpose as this is not what he or she would need to run their business.
You can start bridging the gap between your roles as a bookkeeper by informing your client of the different purposes of their books. Information is power and this is usually a start in teaching your client the difference between what the CPA needs during tax season and what he or she needs to run the business properly during the year. You need to make it clear that you are in their employ to provide the information they need to run their business properly and profitably during the year and that the reports that go to the CPA and the reports that they get differ for tax reasons.

The bookkeeper also needs to structure his or her bookkeeping in a way that it provides the clients, their certified accountants and you with everything you need to know precisely and correctly. The bookkeeper can use accounts that are netted under Other Expenses for expenses that are not tax-deductible. This is to let your client see his or her total financial picture for management purposes. This will also enable your CPA to know which expenses are not tax deductible to exclude them from the tax return filing.
The bookkeeper can also post asset purchases to the balance sheets even if they fall under the ‘safe harbour’ mark. When it’s time to file taxes, provide your client’s principal accountant with a list of assets purchased in the year so that they can file them as advantages for your clients.
The fact that the principal accountant is not your client does not mean that you need to not be in accordance with him or her. When you change the way you view your bookkeeping method, you can provide both your client and CPA what they need without being at odds with anyone to keep the bookkeeping, accounting and taxing train running smoothly.

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