Over 50% of all companies that I speak with (excluding my clients, of course) are not filing their tax returns on time. What’s the main culprit? The firm preparing the tax returns is NOT the same firm that is doing the bookkeeping. There are a lot of critical questions around how the accounting is done from month to month for certain transactions. Whether it is shareholder loans or buying equipment, there are different tax and accounting treatments that need to be applied for different transactions.
If different CPA firms or companies are doing the bookkeeping and tax preparation, then critical questions may not be asked throughout the year. What typically happens is that the CPA firm that is doing the taxes might get the “finalized” financial statements or set of books from the bookkeeper in February or March. Tax returns are due March 15th. The CPA firm preparing the taxes is forced to ask 12 months of critical questions in a very short time frame. If you have a sizeable CPA tax firm then there is no way to complete that by the deadline.
What steps can you take to avoid costly penalties for filing late?
- Step 1 – Implement a formal accounting platform like Quickbooks Online so you can be more efficient.
- Step 2 – Team-up with one firm that can do you bookkeeping, create your financial statements and prepare your taxes.
CASE STUDY: The Three Amigos Law Firm
Robert, Charles, and Kelly were great friends from law school (names have been changed to protect the guilty). Later in their careers, they teamed up and started a law firm together. This was the situation:
- Each partner took home about $150K a year
- The tax attorney and bookkeeper worked for different firms
- Extensions were filed every year and taxes were not completed until September
- Each quarter they were not sure whether to pay quarterly taxes to get ahead of the game or to reinvest and hire more people
We worked with the Three Amigos to help them understand when they should be hiring and how much to reinvest into the business. By forecasting their hiring needs, we made more accurate quarterly payments and avoided all underpayment penalties. By filing their taxes on time and avoiding the underpayment penalties, we were able to save the firm $15,000 in late fees and penalties from the previous year.
If you are an attorney and you want more detailed info about how to minimize taxes and maximize profits, check out this free digital book entitled "Accounting for Attorneys: How to minimize taxes, maximize profits and create more time for the things you love"
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided in this website is not all inclusive and such information should not be relied upon as being all inclusive.