Tax Preparation & Financial Statements
A Certified Public Accountant (CPA) is a business advisor for individuals and businesses, for profit and non-profit. The CPA has been given the title of Most Trusted Advisor as they are required to adhere to regulations, guidelines, and confidentiality. A properly utilized CPA will become intimate with your accounting records giving them a better understanding of your business than any other outside professional, allowing them to provide guidance on many business decisions. CPAs are experts in the financial world, required to pass a stringent test and certification before they can practice.
CPAs specialize in accounting practices know as General Accepted Accounting Principles or GAAP. By understanding these principles, two primary services are provided to clients: Tax Preparation and Financial Statements.
Historically, CPAs only dealt with financial statements. Since CPAs were experts in GAAP, it was only natural that they take on the role of the IRS's professional help in tax preparation. Over time new laws were made and the tax code has become very complicated. Because CPAs have worked with the IRS for a very long time and continue to research the laws and regulations, they are experts in minimizing taxes. There are several Supreme Court Cases that have ruled that people should not pay a cent more than they are required to do so. CPAs have become the first line advocates for individuals and businesses to ensure that no one pays that extra cent.
Finding the right CPA for taxes is critical to your business, especially when you are in an unique market that many CPAs don't understand. Internet businesses, such as bloggers, YouTube Channels, or e-tail (online retail and marketplace ecommerce) have unique tax situations that most CPAs don’t understand. The real big myth here is that these types of business cannot take advantage of the big tax breaks that larger companies have access to. With proper planning, organization, and tax return preparation, those same large company credits are available to any business owner, even the single owner/operator running their business out of their basement or garage. Many times, there are credits available for small online business that the larger companies can't take advantage of. Unfortunately, many of these credits are missed by most CPAs when working with online business as they don't understand the unique market.
Call now and we can discuss some of the ways that we can help save on your year end tax bill.
The second service offered by CPAs are financial statement preparation. Financial Statements are made up of the Balance Sheet, Income Statement (Profit & Loss), Statement of Equity, Cash Flow Statement, and the Notes to the Financial Statements. Usually statements are required by a bank to provide proof of maintaining loan covenants or to get approved for a loan. Financial Statements are also required for various other reasons by government agencies such as a public works license. As an e-commerce business, you probably don't need a public works license and aren't looking for a loan from a bank large enough that would require a financial statement.
At Cyberspace CPA, we recommend that you do not get a financial statement unless you have a need for one, if your books are kept by a professional. You might consider getting an annual statement if you do not have a professional keeping your books which we will address later. But usually, they are an expense that you can bypass since proper bookkeeping techniques will provide the information needed to make most business decisions.
However, a financial statement can still be beneficial to you if your CPA recommends it. There are four levels of financial statements: Audited, Reviewed, Compiled, and Prepared. A Prepared or Compiled statement costs much less than the other two levels and can provide similar benefits to you as a business owner. The best use of this statement would be to get approved for a loan. The second benefit is to clean up your accounting records. Third, is to provide a report in which you can analyze your business.
- As small business owners, usually when trying to get approved for a loan, the bank wants to see your tax return. Like most people, you probably don't like to pay taxes. Tax Accounting rules are different than GAAP, which is what the bank wants to see. Because of the differences in rules, it is possible to show a loss for taxes thus legally avoid paying taxes while still showing a profit on your GAAP records. By giving the bank a GAAP financial statement instead of your tax return, you could be more likely to get approved.
- When a CPA prepares a financial statement, they comb through your records to ensure they are properly kept in accordance with GAAP. As they go through your records they will make adjustments to fix any errors and can possibly detect embezzlement or other types of fraud.
- From fortune 500 companies to the smallest one man shops use the basic financial statements. This allows CPAs to analyze your company with other companies that are within your same industry.
In all cases, if your books are clean or kept by a professional you can probably avoid the cost of the statement and just print your reports from your accounting software. Where it is recommended and your books are kept by a professional, to prepare a statement should be quick which means lower cost. If your books are not kept by a professional, again we recommend considering an annual statement to ensure your records are in accordance with GAAP and to provide oversight on any employees. Having a CPA go through your books and ask questions of a bookkeeper annually can provide an additional layer of security from embezzlement.
If you have need of a Financial Statement or want to talk about other services we provide, please call for a free consultation.
