Insights from a CPA on Small Business Bookkeeping and Tax Collaboration
It’s tax season! And in the world of business finance, bookkeeping and tax preparation go hand in hand.
Since We Got Your Books is all about helping small businesses thrive, we brought in tax expert Samuel Anthony, founder of Arrowpoint Tax Services, to share his perspective and best practices for seamless collaboration between tax professionals and bookkeepers.
With over 25 years of experience in the field, Sam is a CPA and CGMA who currently teaches tax and accounting courses and has served as VP of Finance and Treasurer before running Arrowpoint for more than a decade. Quite the résumé!
Here’s what we learned from Sam to help your business improve its tax processes.
The Cost of Bookkeeping Errors
Let’s start with why DIY bookkeeping can create problems.
When asked about the impact of bookkeeping errors, Sam revealed that tax preparers often spend about 20% of their time correcting client records—time that could be better spent on proactive tax strategies.
The misconception that tax preparers will fix all bookkeeping errors is a common pitfall. As Sam explains, “The devil is in the details. Most tax preparers don’t have the time, nor is it profitable for them, to look beyond the obvious. Their focus is on completing accurate returns, not overhauling disorganized records.”
This underscores the importance of having a professional bookkeeper managing your records regularly.
Common Tax Preparation Challenges
As Sam points out even the most diligent entrepreneurs make mistakes. Some of the most frequent issues are mentioned in our previous blog and reiterated by Sam:
Inadequate bookkeeping infrastructure: Missing supporting documentation can lead to discrepancies.
Commingling business and personal finances: This complicates tax reporting and can increase audit risk.
Misclassified transactions: For example, not distinguishing between business meals and entertainment expenses.
Missed deductions: Small businesses, especially LLCs, often overlook expenses that could reduce their tax liability.
Why Professional Bookkeeping Matters
Professional bookkeepers understand the nuances of financial reporting. Here are the top reasons to invest in their expertise according to Sam:
Consistent, accurate record-keeping ensures timely and precise reports.
Professional bookkeepers often collaborate closely with tax preparers to handle complex transactions.
By outsourcing bookkeeping, small business owners can focus more on growing their business.
Tax-Saving Opportunities through Organized Bookkeeping
The big gain when working with professionals is the savings opportunity. Sam emphasizes that an efficient bookkeeping system doesn’t just ensure compliance—it can also reveal these tax-saving opportunities.
He cites these key examples below:
Tracking R&D costs for valuable tax credits.
Capturing overlooked expenses, such as home office deductions.
Identifying personal expenses that may be deductible, depending on the business structure.
When to Hire a CPA vs. a Bookkeeper
A common question for small businesses: Do I need a CPA?
The reality is that not every small business needs a CPA year-round. While reputable bookkeepers and tax preparers can handle most day-to-day needs, CPAs provide specialized services for complex issues or audits.
Sam advises, “There’s no requirement for small businesses to use a CPA. Some bookkeepers and tax preparers are just as knowledgeable. Clients should know when a CPA’s technical expertise is necessary and find reputable professionals for their needs.” He advises small businesses to assess their needs and seek reputable professionals accordingly.
Best Practices for Seamless Tax Collaboration
Collaboration is key for you to maximize your return. Sam emphasized that bookkeepers and tax preparers should align their practices to benefit their shared clients. A productive partnership between your bookkeeper and tax preparer can help maximize your return and make tax season stress-free.
Here are Sam’s key pointers to foster a productive partnership:
Understand Basic Tax Principles: Your bookkeeper should have a working knowledge of relevant tax regulations to anticipate issues and assist with accurate reporting. A bonus is a bookkeeper with industry-specific expertise can identify unique deductions and optimize expenses for higher returns.
Maintain Open Communication and Collaborate Year-Round: Build a strong relationship with your tax preparer by maintaining ongoing communication and conducting regular check-ins to review key decisions—such as adjusting S Corp owner compensation to maximize retirement contributions—before they become missed opportunities.
Organize Financial Records Efficiently: Properly categorized transactions make tax preparation faster and more accurate, eliminating unnecessary back-and-forth. Your bookkeeper is well equipped to help you with this.
Engage in Advanced Tax Planning: Schedule planning sessions with your tax preparer, bookkeeper and key stakeholders before the start of each year to uncover potential tax savings.
Leveraging Insightful Financial Reports: Getting detailed reports such as product line performance and cash flow projections from your bookkeeper and sharing with your tax preparer gives you a deeper understanding of your financial health
Use Consistent Documentation Formats: Self-employed individuals should structure reports to align with the Schedule C format, matching the trial balance. This consistency simplifies tax preparation and improves filing accuracy for CPAs.
Key Takeaways
Effective bookkeeping isn’t just about tracking expenses—it’s about empowering small business owners with the financial insights they need to succeed. By partnering with a professional bookkeeper and a tax preparer, you can:
Avoid costly errors and penalties.
Capture all eligible deductions.
Streamline tax preparation and save time.
If you’re in the market for a savvy, experienced tax preparer, Sam is your guy. Reach out to us to get in contact with Sam. And if you’re ready to elevate your bookkeeping process, We Got Your Books is here to help.
