I am a small business owner. Is it okay if I have the same person who does my annual tax return also do my bookkeeping? Is this a good idea?

she has been doing my taxes for a few years now and we are very happy. Would it be okay if she also did my monthly bookkeeping? I just don't know if I should have one person do my annual tax person, and another person do my monthly bookkeeping?. Thank you


If your concern is from an ethical standpoint or a concern over a segregation of duties, there is no problem at all having your tax person handling your bookkeeping.

The bigger issue is something that few people understand about accountants. There are different specialties within accounting, and you should go to the right specialist for the right task. Tax accountants are experts in tax law, filling out tax returns and finding ways to minimize taxes. They must immerse themselves in the field to maintain their expertise. Financial accountants (which include bookkeeping) are experts in debits and credits and keeping all your transaction straight in your accounting software so that you can get good financials each month. Financial accountants have to immerse themselves in your day-to-day accounting so that they can keep it accurate and up to date. Full disclosure, this is the work that my firm specializes in, we don’t do any taxes.

Because each type of accountant must immerse themselves in their individual fields of expertise, they don’t have the time to focus on the other expertise. Not that they are both not great accountants, they just have a different specialty.

Here’s a good analogy. If you developed a heart condition, would you go see a neurologist? No, you’d go see a cardiologist. They are both outstanding physicians and know a lot about the human body, but the cardiologist spends all their time thinking about, studying, and treating heart conditions and is going to be the best equipped and most knowledgeable about treatments for your heart condition.

The last point I’ll make is that tax work is very seasonal and requires incredible focus and incredibly long hours leading up to major tax deadlines. This is not only during the period from January to April 15th, but also leading up to major deadlines on August, September and October 15th. Companies I have worked with that used tax accountants in the past for their bookkeeping find during these periods their tax accountants are forced to put all other work besides taxes on hold until their tax work is complete. What often happens in these situations is that these company’s bookkeeping falls three or four months behind. This can be devastating for a small business that needs to know if they are making money or losing money on a very up to date basis.

So my suggestion is to find yourself a good bookkeeper that can handle your books. Your tax person may even be able to suggest a good resource, and deep down may be glad to do so because her first love is taxes, not bookkeeping. My firm could likely handle the work as well.

Hope my thoughts above are helpful and addressed your question, but feel free to reach out to me if you have any follow up questions.

Answered 9 years ago

Chris' answer is most thorough. In my 30 years of running businesses, I've always separated the two functions.

The [paranoid?] concern I have with this question is that, without oversight, it's easy for bookkeepers to embezzle. Just make sure you have mechanisms in place to deal with that.

Answered 9 years ago

I both agree and disagree with the previous answers.

I personally provide both tax and bookkeeping service without a problem, but I definitely understand the concerns. Not all accountants/bookkeepers are created equal. While some do have specialties, others offer a full set of services. The advantage to having one good accountant/bookkeeping doing both is that he/she is thoroughly aware of your business and its financial situation. That makes it easier to decide how your chart of accounts should be set up and perhaps even offer you tips on how to improve your record keeping, billing, POS, collection efforts, payroll processing, quarterly filings, etc. It also allows them to point out other tax savings they may not be aware of otherwise.

Where I mostly agree is the oversight comment. As a business owner, you must be knowledgeable of every aspect of the business's activities because you are ultimately responsible. Ignorance is not a defense in the eyes of the law, so saying that you had no idea something is wrong, or placing all the blame on this one person, will not prevent you from paying the penalties that come along with embezzlement, tax fraud, money laundering, violation of financial regulations, etc.

With that said, always sign a contract (retainer) with any 3rd party you utilize (non employees) and make sure they understand what is expected of them; especially what deliverables are due when (financial reports, invoices, payments, etc). That way, you have some legal protection, and a means to cancel the contract, should they fall behind in providing the services you are paying them for. As a non employee, it's the only way to provide some level of protection for both parties involved because it clearly establishes the business relationship, including the cost or pay rate (locking it in for 6 to 12 months), the total hours expectes to be worked per month, the circumstances under which either party can back out of the agreement, when additional costs are warrantied, etc.

Also, a retainer usually means that you are at the front of the line because your payments are guaranteed. And if tax filings are included, you should be saving a lot of money compared to paying for two people instead. Just be sure to go over the contract thuroughly, and have regular meetings where you can review the financial reports they provide and ensure that you understand what they mean, and can identify any areas of concern. That information is vital to the success and compliance of your business, and providing feedback and updates of your business will allow them to better serve you.

Again, while they are responsible for their own activities, you are ultimately responsible for the entire business, including their handling of your books/taxes.

Answered 9 years ago

At a certain point I agree with both Chris and Paul.

For a small business its really important to look over Cash flow on regular basis, it doesn't matter either your accountant or your bookkeeper is managing these regular tasks such as Cash flow, receivables and payable management, payroll, record keeeping etc.

The thing is you should have reports and data accurately and in timely manner.

A Bookkeeper is someobody who can spend much time managing your financials on regular basis as it requires a lot of communication between two parties which a Tax epert would not be able to do especially during the tax season or around the legal deadlines.

I have been working as a bookkeeper from last 5 years and have note that its always better to have two seperate parties for managing financials on regular basis, i.e. Day to day or monthly and for filing returns and raxes.

Few reasons are:

1 Cost: cost of a bookkeeper is much lesser then a Tax expert, especially if you have somebody oversease, like me.

2. UpToDate Books: A bookkeeper keeps uour books up to date at any point of time and can provide you reports whenever you need, which a Tax expert finds little hard due to certain reasons.

3. Review: This is the most important reason, A general understanding is that you can never find your mistakes, untill your work is reviewed by somebody else.

For this its good to keep these two tasks seperately so that your books can be reviewed regularly and can be improved as per the review analsis of your accountant, and yourself.

4. Receivables and Payable Management: Can you imagine that your Tax accountant is sending follow up emails to your customers and following up with you that if you have paid telephone bill or not? No you cant even imagine that, thats why you need a bookkeeper.

5. Final submission of accounts: Your tax accountant would find it difficult to make aome changes due to whatever reason, they would aimply make an adjustment entry to make things right. Just imagine you have coded some transactions in wrong account which needs to be rectified and changed with a proper account, your tax accountant would aimply pass on a journal and would correct those errors, but will that give you a proper overview of your financials on a monthly basis report?

Thats why you need a bookkeeper.

As per Paul he says that your tax accountant is much better to manage your bookkeeping needs as he knows your business well, I dont agree with him for this point.

I am working as a bookkeeper, and I never start any contract with having enough understanding of the Business structure and its process which is quite important to keep books in order.

These are the general thoughts over your query rest is all depends on your business structure and your needs.

Hope above mentioned pointa would help you.

Amit Karnani
UpToDate Solutions Pvt. Ltd.

Answered 9 years ago

To introduce why I am answering this question, I am a recovering accountant (at least Acct degree & Finance degree). My wife does the books (all of it) for our consulting, interim executive, and training business. I handle the setup and complex accounting questions for her and her customers. We advise our clients to separate the cash, payment, and invoicing functions from other bookkeeping. We also advise using a CPA to do taxes, with the bookkeeper having everything organized to minimize back-and-forth and CPA hourly billing. So, best of all worlds... The owner/CFO keeps the cash and near-cash handling in-house, which is really pretty simple. The firm saves money by using an external bookkeeper using either QuickBooks or anything else, preferably online... They get the oversight and tax insights of a CPA without the huge monthly bills.

Answered 9 years ago

Great question! I am a small business owner and a bookkeeper for many years. What I can tell you is there are CPA firms that offer both higher level accounting such as tax return prep and filing as well as bookkeeping services. In short, it is super duper expensive to have such a service do both.

I also concur with those who point out having proper checks and balances. It is very important as bookkeeping and tax return preparation impact one another but are two different types of specialization to have them done separately.

This has worked best for my clients. I would love to talk more with you about how we have assisted clients in keeping their books in pristine condition. Contact me for a free consultation.

Answered 9 years ago

I don't think there is anything wrong with having the same individual prepare your tax return and perform regular bookkeeping services. Most CPA firms and outsourced accounting practices will perform both functions. The key issue is to just make sure that the individual is competent and experienced in both areas and you should be fine.

Answered 5 years ago

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