Tax Accuracy Check: Is Your CPA Making the Grade?

Ensuring Accuracy: A Small Business Owner’s Guide to Assessing Your CPA’s Tax Filing

In the bustling world of small business, where every decision impacts your bottom line, navigating the complexities of taxes can feel like a daunting puzzle. It’s not just about numbers, because it's necessary for making informed choices that fuel your business's growth and stability.

You, the small business owner, are the unsung hero in this narrative. Your days are packed with decisions, from managing operations to strategizing for growth. Yet, lurking in the background is the ever-present question: Are my taxes handled correctly? Most business owners feel like they hand over their taxes, then just have to close their eyes and hope for the best. Blind trust is not required when it comes to tax filings! With a few quick steps from you, you can get more confidence in the work your CPA is doing.

In this guide, we skim the surface of tax management to give you a few key moves you can make to build confidence in your accountant's results. You can quickly Check your CPA, and turn what often feels like blindly walking through a tax maze into a clear road ahead with your CPA as your partner.

So, let's step into this world together, armed with knowledge and ready to turn tax time into a time of opportunity and insight for your business.

Review Financial Statements and Tax Returns for Consistency: Importance: Consistency between financial statements and tax returns is crucial for accuracy in tax reporting and financial analysis. Discrepancies can lead to tax audits, penalties, or financial misrepresentation, affecting business credibility and decision-making. Business owners should regularly review these documents side by side to catch inconsistencies early.

• Compare year-end financial statements with tax returns.

• Look for matching revenue and expense figures.

• Ensure asset and liability accounts are accurately reflected.

Regular Reconciliation Checks: Importance: Regular reconciliation prevents financial errors and fraud, ensuring that every transaction is accounted for and properly recorded. This process helps business owners detect discrepancies early, maintain accurate financial records, and make informed business decisions.

• Reconcile bank accounts with book entries monthly.

• Ensure all transactions are recorded and classified correctly.

• Verify that the ending cash balance matches the bank statements.

Monitor Journal Entries for Clarity and Justification: Importance: Monitoring journal entries ensures transparency and accuracy in financial reporting. Unexplained or unjustified entries can be signs of errors or misconduct, potentially leading to financial mismanagement. Business owners need to understand the rationale behind each entry to ensure their financial records are reliable.

• Review journal entries for proper documentation and authorization.

• Check for unusual or large entries.

• Verify the purpose and accuracy of each entry.

Ensure Complete Depreciation Schedules: Importance: Accurate depreciation schedules are vital for reflecting the true value of assets and determining tax liabilities. Incorrect depreciation can affect profit reporting and tax obligations, leading to potential financial and tax compliance issues. Business owners should periodically review these schedules to ensure they are comprehensive and accurate.

• Verify that all eligible assets are listed and depreciated correctly.

• Review the method and rate of depreciation for accuracy.

• Ensure depreciation expenses match both financial and tax records.

Cross-Check Payroll and Employment Taxes: Importance: Payroll and employment taxes directly impact a business's financial health and legal compliance. Discrepancies can result in penalties and damage employee trust. Business owners must ensure that payroll systems are accurate and taxes are correctly calculated and paid.

• Compare payroll records with employment tax submissions.

• Verify that withholdings and contributions are accurate.

• Ensure timely and correct tax payments to authorities.

Monitor Tax Liability Trends: Importance: Monitoring tax liability trends helps business owners understand their financial health and tax planning effectiveness. Significant unexplained changes can indicate potential issues or opportunities for tax optimization. Regular analysis allows for strategic adjustments and better financial planning.

• Track and compare tax liabilities over multiple periods.

• Analyze changes in relation to business performance.

• Investigate significant fluctuations without corresponding business changes.

Ask for a Tax Filing Summary or Explanation: Importance: Understanding the details of tax filings demystifies the tax process and ensures that business owners are aware of their financial and tax standing. It promotes transparency and allows business owners to make informed decisions about their tax strategies and financial management.

• Request a summary of tax filings from the CPA.

• Ask for explanations of complex or significant entries.

• Review the logic and strategy behind tax positions taken.

Understand the Basics of Tax Laws Applicable to Your Business: Importance: Knowledge of applicable tax laws empowers business owners to oversee their tax affairs proactively. It enables them to spot potential issues, ask relevant questions, and participate actively in tax planning, thus avoiding costly mistakes and penalties.

• Familiarize with tax laws relevant to your industry.

• Stay updated on tax law changes.

• Apply basic tax law knowledge to review tax filings critically.

Assess Understanding of Your Business and Industry: Importance: A CPA’s understanding of the business and industry context is crucial for effective tax planning and compliance. It ensures that tax strategies are customized, relevant, and beneficial to the business. Owners should assess their CPA’s industry expertise to ensure their financial and tax strategies are robust and appropriate.

• Evaluate the CPA’s knowledge of your specific business and industry.

• Discuss industry-specific tax considerations with your CPA.

• Ensure the CPA’s strategies are tailored to your business needs.

In the intricate dance of small business management, every step, especially in tax management, is a pivotal move towards financial stability and growth. This guide has illuminated key strategies to ensure that you can move forward feeling confident with your CPA and their tax filings.

Remember that you are not just a bystander in the narrative of your business’s financial story. You are the lead, the one who ensures the plot aligns with your vision of growth and success. Armed with the knowledge of how to effectively review your CPA's work, you can now approach tax season not with trepidation but as an opportunity to reinforce the financial bedrock of your enterprise. Engage with your CPA as a partner, not relying on blind trust. Together, with clarity and insight, you can transform the tax filing process from a maze of complexity into a strategic asset for your business's future.