Do Small Businesses Need an Accountant?

When entrepreneurs start a business, many give little thought to the professional services they will need to function smoothly. Individuals go into business because they have a great idea and a vision to turn their passion into a profitable enterprise. The challenge is many of them do not have experience with the legalities and tax compliance issues that must be addressed for the company to survive. Need an Accountant?

While many entrepreneurs can handle their day to day bookkeeping, they will often find it helpful (and in some cases vital) to partner with an accounting firm that can help make sense of their books and ensure they are paying all necessary taxes.

Here are just some of the areas in which an accounting professional can provide skilled guidance to small businesses:

Entity Selection: Before you open your doors, it is important to select the proper entity to minimize tax liability and provide the ability to operate efficiently. Options for entity selection include Sole Proprietorship, Partnership, Limited Liability Company (LLC), Subchapter (S) Corporation and C Corporation. The correct choice will depend on the individual circumstances of each business.

Accounting System Setup: From the beginning, it is important to have your accounting application setup and customized to the needs of your business. This ensures you only enter data that is relevant to your operation, making it much easier to understand your ongoing financial reports.

Payment of Taxes: Most small businesses must pay quarterly estimated income and payroll taxes for both the owner and any employees you may have. Depending on the type of business you run and industry you are in, there may be other fees and taxes due throughout the year.

Sending the Proper Forms: All employees and certain contract workers require forms to be sent at tax time. It is important to send the right forms to the right people to ensure you are on the same page (literally) with the IRS.

Business Tax Deductions: There are numerous deductions small businesses can take advantage of to minimize tax liability and maximize your bottom line. Your accounting firm can advise you on which deductions are allowed and which are not allowed.

Long-term Record Keeping: In general, when the IRS does an audit, they look at up three years of tax returns. However, it is advised that you maintain records for the past seven years just in case. Your CPA will set up your system so your records stay organized and you can easily access them at any time.

Audit Defense: If the IRS ever decides to scrutinize your business, you will rest much easier knowing you have an experienced tax professional by your side during your audit to help show the IRS you are in total tax compliance.

Many small business owners may feel they do not need to hire a small business accountant but soon realize that they cannot be an expert at their own business and at small business finance and accounting. It is important for small business owners to invest all of their energy, expertise, and focus on building the business especially since they may not be trained in business finance and accounting. A professional accountant can take care of the books while the business owner can take care of the business.

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