Bookkeeping Adjustments for Business Tax Returns

[kdhill]

What is the extent of the bookkeeping adjustments that most of you out there do for a business tax return? Some of my clients have incompetent bookkeepers and I end up doing a lot of the work they should be doing. What I've always done is make sure all of the balance sheet accounts are reconciled and have support. I also review the profit & loss transactions for anything that should be reclassified. I also record the depreciation and amortization expense. This all sounds simple enough, but it isn't always. There's a lot of back and forth with the client and it's very time consuming and frustrating. So my question is: Is what I'm doing standard practice for the industry or should I just go with my client's numbers, for the most part? What kinds of adjustments do you all do for a business tax return with a balance sheet?

[Uncle Sam]

What you're doing is the basic minimum. However - you also need to reconcile any data that requires filings such as 941 and payroll taxes with W-2s, 1099s and 1096 filings with amounts charged as deductions on tax returns, sales and use tax filings (if sales tax is required for that business), liability balances with external data such as business credit card and bank loan balances at year end, as well as segregate short-term vs long term liabilities, and be certain to reconcile owner (if partnership and corporation) loan and equity balances for determination if there is basis for taking business losses.
I also wish to mention that should sales tax issues be involved - that your gross receipts reconcile to the amounts reported on any sales tax returns (adjusted of course for calendar vs fiscal periods) as well as any other type of financial data required to be reported from any other type of tax or regulatory agency.
You should not just rely on client prepared data if you're signing a tax return as a preparer.

[TaxGuyBill]

There's a lot of back and forth with the client and it's very time consuming and frustrating.

Are you charging your clients for that extra work? You should be. When charging the client for it, be sure to tell them WHY it is costing more. Tell them if they find a better bookkeeper to do those things, you would not need to charge them more for that extra work.

Because you are being paid for your extra work, hopefully it shouldn't be too frustrating.

[TAXNJ]

To save you time and effort:

• Follow preparer responsibilities in Circular 230
• Make sure your business insurance is current
• List responsibilities in Your Engagement Letter to potential client
• Prepare estimate of work to be done based on specifics in Your Engagement Letter to potential client
• If potential client agrees, have client sign Engagement Letter, get deposit

• If potential client DOES NOT agree, tell them it was nice talking to them

[TAXNJ]

Some information important to note.


12 Due Diligence Best Practices for Tax Return Preparers

https://www.tscpa.org/docs/default-s...rsn=8566f2b1_4


GUIDANCE TO PRACTITIONERS REGARDING PROFESSIONAL OBLIGATIONS UNDER TREASURY CIRCULAR NO. 230

....“You generally may rely in good faith and without verification on information furnished by your client, but you cannot ignore other information that has been furnished to you or which is actually known by you. You must make reasonable inquiries if any information furnished to you appears to be incorrect, incomplete or inconsistent with other facts or assumptions. “.....


https://www.irs.gov/pub/irs-utl/guid...rcular_230.pdf

[kdhill]

Uncle Sam, I do all of that too.I guess I'm just wondering at what point I tell the client, go fix your books and then bring them back to me. I don't think it's my job to be their controller.

[kathyc2]

Uncle Sam, I do all of that too.I guess I'm just wondering at what point I tell the client, go fix your books and then bring them back to me. I don't think it's my job to be their controller.

True bookkeepers are a vanishing breed. Vast majority is people entering info in QB type program without any knowledge of how it all comes together. None of my corporate accounts have anyone on staff that could have the books tax return ready.

It's your call if you want to assist with the accounting or not. If you choose not to, be prepared for the potential of having them go somewhere else.

[kdhill]

I guess that's always an option.

[Rapid Robert]

None of my corporate accounts have anyone on staff that could have the books tax return ready.

If they could do that, they could probably make more money working as tax preparers instead of bookkeepers.

"What is the extent of the bookkeeping adjustments that most of you out there do for a business tax return?" Like you, I make sure bank accounts and credit cards are reconciled to the printed statements. I also look for double-counted income in Quickbooks "Undeposited Funds" that have not been properly reconciled with deposits. Some people have a real hard time understanding how Paypal, Square, etc type payments are processed (the gross amount received vs. the net after transaction fee). Also, if any loan payments are being made, look for failure to separate interest from principal payments.

I find the Quickbooks "Income Tax Summary" and tax line mapping to be invaluable. After a one-time setup in the chart of accounts, this makes it much easier to prepare the tax return year after year, and highlights new accounts that were created during the year and need review. And of course, you should be looking at prior year amounts to ensure they have not changed, so that your 1065/1120S Schedule L is accurate.

And a small note about TaxNJ's references to Circ. 230 - recall that Circ. 230 only applies to EAs, attorneys, and CPAs, as well as (voluntary) AFSP participants. The vast majority of PTIN holders do not fall under Circ. 230 requirements, because preparing a tax return is not considered representation before the IRS. It's still a good source of guidance, however.

[kdhill]

Thanks to everyone for your replies to my question. It would seem that QuickBooks (and some other accounting software programs) enables people to have a place to plop down their transactions. They call it bookkeeping but it's really just record keeping. I guess I shouldn't complain because it allows me to bill for more time. I don't charge a bookkeeping rate either....my time is my time. Many of them know this and don't seem to mind. My dilemma is putting the time in, during a busy tax season, to do all of the bookkeeping as well as the tax return. I think what I need to do is a quarterly review of their books with adjustments so it doesn't all snowball into tax season!