Can a Bookkeeper Do Tax Returns? Understanding the Roles and Qualifications
When it comes to managing a business’s finances, both bookkeepers and accountants play essential roles, but they serve different functions. While bookkeepers focus on the day-to-day tracking and organizing of financial transactions, the question of whether they can handle tax returns is one that often arises. This blog will clarify the distinction between the services provided by bookkeepers and accountants and explain when each should be involved in the tax process.
Download Our Free Brochure →The Role of a Bookkeeper: Day-to-Day Financial Management
A bookkeeper’s primary responsibility is to maintain accurate and up-to-date records of your business’s financial activities. They track income, expenses, and other transactions, often producing financial statements like balance sheets and profit-and-loss reports. By keeping the books organized throughout the year, bookkeepers ensure that all transactions are categorized correctly, which is crucial for making informed business decisions and preparing for tax season.
Common tasks performed by a bookkeeper include:
- Recording daily financial transactions
- Reconciling bank statements
- Preparing financial statements
- Managing payroll, invoices, and accounts payable/receivable
- Maintaining up-to-date records for tax preparation
While bookkeepers are skilled in managing these tasks, their role typically does not include filing tax returns. However, some bookkeepers may offer tax-related services, which leads to the question of their qualifications to do so.
Can Bookkeepers Prepare and File Tax Returns?
In most cases, bookkeepers do not prepare or file tax returns. While some bookkeepers may offer tax services, they need to meet specific qualifications to legally file taxes in the United States.
IRS Requirements for Tax Preparation:
To prepare tax returns on behalf of others, a bookkeeper must have an IRS Preparer Tax Identification Number (PTIN). Without this qualification, they are not authorized to file taxes for clients. Therefore, while it is possible to find bookkeepers who can do your taxes, it is quite uncommon.
Most businesses rely on bookkeepers for the year-round task of maintaining accurate financial records. When tax season comes around, these businesses typically turn to a Certified Public Accountant (CPA) or tax professional, who has more specialized knowledge of tax laws, deductions, and regulations, to handle the filing.
Case Study: When a Bookkeeper and CPA Work Together
The Problem:
A small marketing agency had been using a bookkeeper to maintain their financial records throughout the year. When tax season arrived, the owner realized they had never asked whether their bookkeeper could file their tax return. The bookkeeper informed them that while they could help organize the necessary documents, they did not have the qualifications to file the return.
The Solution:
The bookkeeper quickly organized all of the agency’s financial records from the past year, ensuring everything was ready for the CPA. The CPA used the meticulously maintained records to file the tax return efficiently, saving time and preventing errors.
The Result:
By having up-to-date financial records prepared by the bookkeeper, the agency avoided paying the CPA extra for cleaning up the books. The agency also maximized its tax deductions because the CPA could focus on the business’s tax strategy rather than sorting through disorganized records.
This case highlights the importance of having a clear understanding of each financial professional’s role. While the bookkeeper kept the records accurate, it was the CPA who handled the specialized task of filing the return and ensuring the agency complied with tax laws.
Why It’s Best to Have Both a Bookkeeper and an Accountant
Many small business owners mistakenly believe they can have either a bookkeeper or an accountant, but the reality is that both are necessary for effective financial management.
- Bookkeepers keep the day-to-day finances in order: This ongoing work ensures that your financial statements are always accurate, which is essential for making business decisions throughout the year. Additionally, maintaining clean books simplifies tax preparation.
- Accountants specialize in tax preparation and filing: Accountants, especially CPAs, have the expertise to handle complex tax filings, find deductions, and ensure compliance with tax regulations. They can also provide advice on tax strategy and help you plan for the future.
Having an accountant step in at tax time ensures that your business can take advantage of all eligible deductions and avoid penalties. However, paying an accountant to do a bookkeeper’s job—such as organizing or cleaning up your books—can get expensive. That’s why it’s more efficient to have a bookkeeper maintain accurate records throughout the year.
RBO’s Approach: Comprehensive Bookkeeping Services
At RemoteBooksOnline (RBO), we focus on providing detailed, accurate, and consistent bookkeeping services to help businesses stay financially organized year-round. While we do not file taxes, our expert bookkeepers ensure that your financial records are in perfect shape when it’s time to hand them over to your CPA or tax preparer. This streamlined process saves you time and money, allowing your CPA to focus on tax strategy rather than cleaning up disorganized records.
Ongoing Support from RBO:
Our dedicated team ensures that your books are always up to date, so you’re never scrambling during tax season. Whether you’re a small business or an enterprise, RBO offers flexible bookkeeping solutions that grow with your business, ensuring you’re always prepared for tax season.
