Effective tax preparation is essential for the financial health and success of any business, but navigating the ins and outs of tax laws and filing requirements that frequently change can present challenges for new and established companies alike.
Lyvonnia Poppell, who serves as principal-in-charge of Montgomery-based Jackson Thornton’s tax practice, acknowledges that the process can be complex and tedious. She also understands that business owners may be more inclined to focus on their products and services than on the intricacies of accounting.
“The devil is in the details when it comes to business accounting,” Poppell says. “Whether you’re a new or experienced business owner, assessing your willingness and time to devote to the accounting function of your business is crucial. If you decide to hire or outsource the accounting function, make this decision promptly to avoid a period with no reporting and a subsequent catch-up period.”
What other advice do Alabama tax experts have for their business clients to make tax preparation go more smoothly? Recommendations to stay organized, start early and communicate regularly are at the top of their lists.
“Our general advice to business owners is to start early and be organized,” says Rachel Taylor, CPA at JamisonMoneyFarmer PC in Tuscaloosa. “Staying on top of your bookkeeping is important. It is much easier to keep your books updated all throughout the year than it is to catch up at the end of the year.”
Gerry Kassouf, director at Birmingham-based Kassouf & Co. Inc., wants to see records that are compliance-ready. “If the accounting is being done in-house and then transmitted to an external accounting firm, we want to see detailed cash receipts and disbursement journals with good descriptions of income and expenses.” He adds that it’s also important to keep payroll records in good order, particularly as having remote workers and out-of-state employees is increasingly more common. “There are special tax return items that need to be accounted for in those situations.”
Amy Stapler is a CPA with BMSS and manages the tax department of the firm’s Huntsville office, and she says BMSS regularly emphasizes to its clients the importance of getting their information to their tax preparer in a timely manner. “As soon as your books are closed, contact your CPA, because last-minute preparation doesn’t benefit anyone.”
Stapler is also a strong advocate for regular communication throughout the year, especially when big changes occur — like starting a new product line or buying or disposing of large assets. “We don’t know what we don’t know,” she says. “We rely on our clients to give us information so that we can make sure that their tax preparation is successful and that we’ve helped reduce their tax liability, which is ultimately our goal.”
Megan Randolph, CPA at Warren Averett in Birmingham, agrees that communication is the key to building a successful relationship with clients. “Planning ahead of any transaction is vital and can help ensure taxes are minimized. The tax preparation process should really be the culmination of planning with your client and being aware of their business, any new issues that arose during the year and tax projections prepared during the year.”
It’s understandable that new and younger companies are going to want to concentrate their efforts on the initial success of their business and may be more inclined to focus on getting day-to-day operations up and going rather than on record keeping.
“We often find that start-ups and new companies don’t always know what to do,” says Stapler. “You’re a new company, you’re worried about cost, and we totally understand that. But it’s critical when you’re a newly formed business to know that tax planning and communication is an investment rather than an expense. The initial preparation for getting your company on track is not something that you want to cut costs on; it’s going to add value.”
Young businesses that find they need frequent or even daily assistance should consider hiring an in-house accountant, Poppell advises. “If not, outsourcing the accounting function to a CPA firm that provides services such as payroll, sales and use tax, business personal property tax, and income tax reporting can be beneficial.”
And, again, getting a head start never hurts. Randolph encourages businesses to meet early with their tax preparer to establish a timeline for gathering data and to set due dates for tax preparation documents.
“Each business is unique,” says Kassouf. “We find some clients are very organized, and others need to be coached on organization.” He also suggests that new clients work with their accountants throughout the year to avoid any surprises. “The purpose for that is so the accountant can take a look at what’s being done early on and make recommendations to the client of things that they can be doing differently in those early years.”
In the end, Randolph says, “It’s not necessarily the age of the company but rather the financial sophistication of the business owners that impacts the importance placed on the tax data collection process.”
“Every once in a while, we all need a little push,” says Kassouf.
Older companies face their own challenges. Poppell points to the importance of having a plan in place to handle the loss, particularly due to retirement, of experienced in-house accounting personnel.
“The accounting industry is currently facing a talent shortage, making it difficult to find and retain skilled personnel,” says Poppell. “Succession planning is key to long-term success. Identifying retirements and potential staffing losses early and implementing a succession plan can help mitigate these risks.”
Overall, more established businesses are more likely to realize the importance of and prioritize the tax preparation process.
“Maybe they’ve learned hard lessons from the past,” says Stapler, “but they also understand the value of communication in tax planning, which is really what makes the return preparation easier. Once you get to the tax return, it’s putting numbers onto a form; but it’s that planning and preparation that really makes the key to success.”
If a business finds an error on a previously filed tax return, it’s their responsibility to identify the cause and decide on the best way to correct it, typically in consultation with their CPA. “I don’t think you should ever let it pass without doing anything about it,” says Kassouf.
In some instances, the preparer may find that amending the return is not the best course of action. As Randolph explains, “Assume a company fails to report $1 in income. In a case like that it doesn’t make sense to incur the cost of amending. Also, the IRS is getting better at matching items, such as W-2s, interest and dividends and K-1s. So, in many cases errors are identified quickly by the IRS, and rather than filing an amended return, you just pay the additional tax.”
Mistakes happen, but what if a business suspects an employee is misusing company finances?
“I think that’s a situation where the lawyer receives a call, the accountant needs to be involved and potentially the insurance company for the business,” says Kassouf. “And that’s one reason we recommend a fidelity bond coverage.”
“It’s a good idea to do frequent reviews of bank activity and records in order to detect anything out of the ordinary,” recommends Taylor.
Katherine MacGilvray is a Huntsville-based freelance contributor to Business Alabama.
This article appears in the April 2024 issue of Business Alabama.
