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Tax Accounting Services

What It Is:

Tax accounting is the process of determining the amount of taxes you owe to each government entity. Government entities that can tax you, depending on your location and type of business, include municipalities, school districts, counties, the state, and the federal government.


Taxes can be one of the most confusing parts of accounting for your business, because every government entity wants a piece of your income pie. It is up to you and your accountant to determine how big of a piece they get and how often they are supposed to receive that piece. Depending on the type of business you have and where it is located, any of the following taxes may apply to your business.

Unemployment Taxes

Any business with full-time or part-time employees must pay unemployment taxes on both the state and federal level. Some types of contract employees also require businesses to pay unemployment taxes.

Income Taxes

All businesses must pay state, federal and, in some cases, local income taxes.

Sales Taxes

All businesses that sell merchandise must pay sales tax on a percentage of each product’s sales price. Some types of services, such as data processing, must also pay sales tax.

Usage Taxes

States that charge sales tax also charge a usage tax to businesses that purchase merchandise from out-of-state sources. Generally, the usage taxes are levied on the sales tax return form.

Property Taxes

Businesses that own or, in some cases, lease real estate must pay property taxes.

Equipment and Durable Goods Taxes

Also known as "personal property taxes," equipment taxes are charged to businesses with assets such as furniture, computer equipment, and production machinery. The amount of equipment taxes assessed on your property can be appealed if you disagree with its assessed value.

Excise Taxes

These taxes are charged to businesses that sell certain types of products or services. Some examples of these products and services include hotel rooms, gambling, gasoline, and cigarettes. These taxes are often in addition to sales taxes.

Issues to Consider:
Using a Tax Accounting Service

Most experts recommend using a tax accountant to help with your tax preparation and other accounting needs. Although you or your accounting personnel may be knowledgeable about taxes, a tax accountant who works with hundreds of tax returns each year can provide a more comprehensive tax preparation service that may include the following:


While income taxes are removed from every employee’s paycheck, all types of businesses (sole proprietors, partnerships, and corporations) are required to pay their taxes quarterly. A tax accountant can provide you with up-to-date bookkeeping services so at the end of each quarter, you can pay an accurate tax contribution. If you overestimate your contribution, you will lose access to available cash. If you underestimate your tax contribution, the government will fine you. Your accountant can set up your quarterly contribution schedule and ensure that you pay the correct amount each quarter.


Since you have to send in separate tax returns for different types of taxes at different times of the year, using a tax accountant to prepare your returns can be a huge time-saver. For example, in addition to filing your tax return quarterly, you may have to file a sales tax return monthly, quarterly, or annually depending on the amount of your sales. In addition, payroll taxes must be reported on a quarterly and annual basis.


A tax accountant can help you determine the tax consequences of various types of business decisions, such as changing from a sole proprietorship to a corporation, buying or leasing property, implementing employment retirement plans, or starting a new business venture.


A tax accountant can tell you how to best organize your records to defend your tax return filings should the need arise. A tax accountant can help you decide how long to keep each record. For example, human resources records are important for defending employee injury and termination decisions. Also, a tax accountant can help you set up a depreciation system in order to defend the evaluations of your property.


The more expenses you can claim, the less taxes you pay. A tax accountant can help you determine all the possible deductions for which you are eligible. He or she can also make suggestions for ways to lower your tax debt in the future. For example, a tax accountant can explain the concept of "doubling up" on paying your property taxes in one year to get a larger deduction. The suggestions should be common sense solutions that you can put into practice with your normal accounting routine.


Preparing for an audit is an ongoing process because it is the purpose of all your tax accounting procedures. A tax accountant can help you make sure your recordkeeping methods are organized and legal in the event of an audit.


Benefit plan records must be carefully maintained. Federal requirements for benefit records are stringent because a business owner is basically holding some of employee’s money for them. Good records ensure that a business is doing what it says it will do with employee’ money, whether it concerns retirement, investments, or insurance. A tax accountant can ensure that these records are kept in accordance with federal requirements.

Tax-related Issues

You should be aware of the following tax-related issues in order to converse intelligently with a tax accountant:


No matter how you maintain your business's books, the federal government has a simple formula for determining your taxable income. Businesses that operate on an accrual basis are taxed on income when they earn it and should deduct expenses when they incur them. Businesses that operate on a cash basis are also taxed on income when they earn it, but should deduct expenses when they pay them. The Internal Revenue Service (IRS) gives you a choice on whether or not to use the accrual or cash basis, unless you have inventory, in which case you must use the accrual basis.


An accounting firm can help you determine which method is best for your business. Although cash basis accounting is appealing because it is straightforward, accrual accounting has the advantage of being more flexible, and it provides a better matching of costs and revenues, resulting in a more meaningful financial statement.


Accrual basis accounting allows you to spread out your expenses throughout the year, which in turn lowers the amount of tax contribution you must pay each quarter and improves your cash flow. For example, although you might only pay your insurance every six months, you divide up the cost over a 12-month period.


The IRS assumes ownership of all payroll taxes from the moment the money is earned by the employee. Therefore, your business is expected to make all tax contribution deposits - federal withholding, unemployment, Social Security, and Medicare taxes - as often as you process payroll. This deposit is made by adding up all your employee’s taxes per paycheck and depositing a check in that amount at your bank, which then remits the taxes to the IRS. When your payroll reaches a certain level, the IRS requires you to file tax deposits electronically through the Electronic Federal Tax Payment System (EFTPS). A tax accountant can help you set up your EFTPS account.


Depending on your location and type of business, you may have to pay other types of taxes, such as sales tax or property tax. To determine any other taxes you must pay, contact the individual government entities where your business is located, including the city, county, and school district offices. Your tax accountant also can help ensure that you pay the appropriate taxes for your business.

What to Look for in a Tax Accountant

When choosing a tax accountant, you need to decide what level of expertise is necessary for your business’s tax needs. While certified public accountants (CPAs) are always ideal, they charge the most for their services. Other people have the training necessary to prepare tax returns and provide other tax-related services. For example, if your business is a simple one, you might only require a bookkeeper’s expertise, or you can use an enrolled agent. Enrolled agents are licensed by the IRS to prepare tax returns, although they do not have the comprehensive accounting training that CPAs have.

When you interview a prospective tax accountant, look for an accountant who:
  • Specializes in taxes
  • Specializes in your industry
  • Has clients similar to your business, as far as revenue and operating style
  • Is willing to answer your questions and ensure that you truly understand your tax planning
Ask a prospective tax accountant the following questions:
  • How much experience do you have with the type of tax return I will be filing?
  • How much experience do you have with my type of business (corporation, sole proprietor, partnership, service, retail, manufacturing)?
  • What type of certification and training do you have?
  • How long have you been in business in this area? If it has only been a short time, why? Did you recently move here or graduate from school?
  • Can you provide client references?
  • How aggressive are you in taking questionable deductions in areas such as travel, auto, and home office expenses? How much documentation do you require for these types of deductions?
  • Will you assist me in the event that I am audited?
These questions should help you gauge how knowledgeable a tax accountant is and how comfortable you would be with his or her tax accounting services. For example, if you want to aggressively seek out tax deductions, you need an accountant with the same philosophy. On the other hand, if you greatly fear a tax audit, you want an accountant who will force you to document every item on your tax return.
Asking about references and experience is not just a way to make sure that your tax accountant is well trained - it is also a way to save yourself money. If you select one who is already experienced with your type of returns and business, that accountant will have less of a "learning curve" and will charge you fewer hours to prepare your returns.
You also want an accountant who will take time to clearly answer all your questions. Ultimately, you are responsible for your tax return since your name is on it, so you should always review your return before sending it in.
How Much It Will Cost You:

Generally, the bigger the accounting firm and the more experience tax accountants have, the more you will pay for their services. Most tax accounting services charge by the hour. The hourly fee for a CPA firm’s services can start between $100 to $150 an hour. On the low end, if you hire an individual CPA with less experience, you might be able to pay as little at $30 to $80 an hour for tax return preparation and ongoing tax accounting services.

A small accounting firm typically charges $150 to $400 per quarter to perform ongoing tax accounting services. To prepare your tax return, a small firm would typically charge $50 to $80 an hour for the staff accountant’s work, and $100 an hour for the manager or owner to review the tax return.
If you use the services of a non-CPA, such as an enrolled agent, you can expect to pay less for tax services. For example, to prepare the simplest tax return, a Schedule C, you might expect to pay an enrolled agent about $200 and a CPA between $350 to $400. For a more complicated return, the fee for an enrolled agent’s service’s would jump to approximately $300 and a CPA’s fees to approximately $500.
If you continue to use the same accounting firm each year, your fee may decrease over time as the firm becomes more familiar with your business and you become more familiar with what they need in order to quickly perform your tax accounting needs.
Keep in mind that the more preparation you do before you arrive at the accountant’s office, the less it will cost you. For example, if you hand your accountant a shoebox of receipts, you will pay for the time it takes to sort the receipts. Also, if you want an accountant to come to your office, you will probably pay an hourly rate for travel time.

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