Tax Law (Questions About Taxes)/What is this CPA doing?

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Question
Why would our CPA file an extension with the IRS, without notifying their clients (me and my family), even after it was specifically requested that we wanted to pay our taxes on a quarterly basis and not all at once around October of this year.  We made sure that all supporting documentation, bank statements, anything that was needed or relevant to our business, was delivered to them early March.  After the initial visit and review of the "package" we get every year asking if anything has changed and to list everything tax related (as if we were new customers), we were told we were missing some documents, which we were able to gather up and turned the in the data along with copies of the original paperwork, within a three day period.  At that time, I advised the secretary that we did not have any other documentation or expenses to submit, and to please finalize the paperwork needed to change payment of our taxes from once annually, to a "per quarter" basis.

I have yet to receive anything from the office in regards to our request. Last week I decided to call the office and find out if the paperwork was submitted and if the changes requested were made.  I was given some excuse that because there were discrepancies on our information, when compared to the previous year filing, that they felt it was best to request a copy of what the IRS has on their files so that we don't submit/omit something that may result on an audit. I asked if anything had been filed, and I was told that an extension was submitted.  When asked as to when this extension was done, I was told that somewhere between 4/10 - 4/15.  I thought it was weird that they did not have a copy of the records themselves......it doesn't sound right.

I then requested a copy of the extension, along with a written request of the documentation they are missing or whatever they thought they were missing and stopped them from filing. That was two weeks ago, I have not seen anything in the mail from them.  I don't understand why the delay, since they do not get paid until the work is completed.  We have been paying penalties for two years in a row due to this so called "extensions".  I don't understand why delay our paperwork but my family is afraid to give this job to someone else since their CPA already started the procedure (or so they say). Thank you for your time and thank you in advance for you advise.

Answer
If you were hoping that I could give you a credible and useful answer to your question, then I am sorry I cannot.

I cannot, in just a few sentenced, explain the entirety of the problems that exist.

Your CPA is too busy, and when they are going to be late they file extensions.

Effectively when you knelt at the alter of the CPA with your precious offering in hand (or shoebox), you turned over the decision making to them, regardless that you made a special request for timeliness, that is only a suggestion.

If you had set a date certain in your first or any subsequent meeting, that at the end of March a completed return would be done, and had followed up before it was due and then when it was due, you would have been the squeaky wheel, but my guess is your CPA felt that you were a very smooth ride.

There are 3 distinct facets in financial record keeping. Bookkeeping, Accounting, and Tax Preparation. Do you know what each of these are and which your CPA is actually performing for you? Do you know for which you are responsible? and which your CPA takes responsibility for?

If you said that you are responsible for and are doing the "bookkeeping" you are right. You are the one that records and manages the monetary transactions. If a check is written, you record it in the check register, if a sale is made you record it. If you buy something with a credit card, you note whether it is an expense or an investment. That is a smattering of "bookkeeping".

At the other end is "tax preparation". What is it? It is the simple process (yes, simple) of transcribing the final accounting numbers to the tax forms. There is no voodoo, or magic in putting totals from one page to another, there is no real through, which is why, the firm you contracted with is probably using seasonal help (students, housewives, chronically unemployed) to actually do your taxes; not licensed, qualified, educated, certified employees.   In fact that is exactly what tax preparation software does. It fills a form. your CPA probably uses a tax prep software package. Sure, the resident CPA will sign the form where it needs to be signed. . . or more likely the software that office uses will digitally sign it without his involvement.

Are your or your CPA liable for the tax return, and its accuracy? If you said that you have read the block of text above your signature on the tax return and know that you are solely responsible for the accuracy of the tax return you would be correct.

If you thought since your CPA did the tax return, or because you are paying a "CPA" to do the tax preparation instead of "just a tax preparer", you had some added protection, assurance, insurance, added separation, or insulation, you would be wrong.

That leaves the section in the middle. The "Accounting". What is it? Who does it? And who is responsible if it is wrong. As to responsibility, if you answer YOU again, you'd be right. But who does it? You'd think that your Certified Public ACCOUNTANT would do it, since its in the title. But does he?

Does your CPA require that you provide him the information for a "balance sheet" and "Profit and Loss statement" (P and L)? if so, you did the accounting. Did he just want a copy of your QuickBooks file, or a few print outs from your QuickBooks (or other "accounting" software)? then YOU did the accounting. Right or wrong, you did it, and you didn't even know you did it?

So what is it? Accounting is taking the bookkeeping records, and doing the formulaic processing, of determining depreciation for investments, or determining gain or loss on the sale of an asset, etc. Adjusting the balance sheet to include new investments in the business.  If you are using an accounting software then that is all dome within the software. It is your data that you entered, if it is wrong it is your problem.

Is your CPA just taking the P&L and balance sheet figures and inserting them mindlessly into a tax prep software package?

Can you do that? Oh yes you can. AND you would then have the luxury of reviewing that information and make sure it jives with what you know about your own business, make corrections if needed; and if worst case scenario, you were audited you'd have a much better chance of remembering how you got to the final numbers better than your CPA that has probably mindlessly filed a few hundred other tax returns between the time your was entered and subsequently audited.  

Tax Law (Questions About Taxes)

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Richard Fritzler

Expertise

Specializing in Business and Corporate taxation. Comparing the advantages and requirements of different business entities, such as Sub-S Corporations, LLC`s, Partnerships (Both Limited and General), Doing Business as a Sole Proprietor, or Using a C-Corporation. Issues regarding K-1 distributions, 1040, schedule C, 1120, 1120s. Are you considering domiciling a Corporation in a low tax state? I can review the benefits and misinformation that exists.

Experience

I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

Organizations
National Small Business Owners Association.
Publications
Contributing author to "The Corporate Standard Newsletter".


Publications
Contributing author to "The Corporate Standard Newsletter".
Ezinearticles.com articlesbase.com

Education/Credentials
I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

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