How Accounting Quality May Affect Your Taxes
Posted on: 28 December 2021
When an accountant does work for a client, their efforts almost always affect the taxes of the business or person. Accounting quality can significantly influence what you may or may not pay in taxes. You will want to know the ways this can happen so let's look at four of the most common.
Methodology
An accountant will almost always move a business onto the accrual system. Accrual is one of the two accounting systems used for tax purposes. The other is cash. With accrual, you realize gains and losses when they go on the books. In a cash system, you realize gains and losses and the money comes and goes.
Within the world of accrual accounting, there are also what are known as the generally accepted accounting principles. GAAP is a widely used system, but it's not legally required in all cases. However, you will usually have a much easier time processing taxes, financial statements, and balance sheets if you use GAAP or something close to it.
Computations
Ultimately, the job of an accountant is to compute a bunch of things. Tax payments represent one corner of that world. However, your tax bill inherently flows from your accounting. Ideally, you want to have an accountant who uses processes that don't leave you over or under on your tax obligations. When someone goes under, there's a risk of penalties. If they go over, there's no assurance the government will refund the money.
Responding to Inquiries
Anyone who runs a business long enough will get a notice from the IRS about something. If you're working with an accountant who does top-quality work, they'll have the resources needed to quickly and thoroughly respond to any notices. They can identify where the problems supposedly occurred. If they need to make corrections, they can help you address those. Likewise, they can provide supporting documents if you need to refute the claims in an IRS notice.
Consistency and Transparency
Individuals and businesses should both strive for consistency and transparency when they handle their taxes. Accounting quality makes it easier to produce consistent and transparent results. Working with an accountant ensures the work will follow a process. In a broad sense, this should help you in dealing with tax agencies. Agencies generally are less likely to flag filings that use consistent and transparent processes. That means less all-around aggravation for you, allowing you can focus on your finances.
For more information, contact an accountant near you.
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