I am a small business owner. Is it okay if I have the same person who does my annual tax return also do my bookkeeping? Is this a good idea?

Chris' answer is most thorough. In my 30 years of running businesses, I've always separated the two functions.

The [paranoid?] concern I have with this question is that, without oversight, it's easy for bookkeepers to embezzle. Just make sure you have mechanisms in place to deal with that.

I both agree and disagree with the previous answers.

I personally provide both tax and bookkeeping service without a problem, but I definitely understand the concerns. Not all accountants/bookkeepers are created equal. While some do have specialties, others offer a full set of services. The advantage to having one good accountant/bookkeeping doing both is that he/she is thoroughly aware of your business and its financial situation. That makes it easier to decide how your chart of accounts should be set up and perhaps even offer you tips on how to improve your record keeping, billing, POS, collection efforts, payroll processing, quarterly filings, etc. It also allows them to point out other tax savings they may not be aware of otherwise.

Where I mostly agree is the oversight comment. As a business owner, you must be knowledgeable of every aspect of the business's activities because you are ultimately responsible. Ignorance is not a defense in the eyes of the law, so saying that you had no idea something is wrong, or placing all the blame on this one person, will not prevent you from paying the penalties that come along with embezzlement, tax fraud, money laundering, violation of financial regulations, etc.

With that said, always sign a contract (retainer) with any 3rd party you utilize (non employees) and make sure they understand what is expected of them; especially what deliverables are due when (financial reports, invoices, payments, etc). That way, you have some legal protection, and a means to cancel the contract, should they fall behind in providing the services you are paying them for. As a non employee, it's the only way to provide some level of protection for both parties involved because it clearly establishes the business relationship, including the cost or pay rate (locking it in for 6 to 12 months), the total hours expectes to be worked per month, the circumstances under which either party can back out of the agreement, when additional costs are warrantied, etc.

Also, a retainer usually means that you are at the front of the line because your payments are guaranteed. And if tax filings are included, you should be saving a lot of money compared to paying for two people instead. Just be sure to go over the contract thuroughly, and have regular meetings where you can review the financial reports they provide and ensure that you understand what they mean, and can identify any areas of concern. That information is vital to the success and compliance of your business, and providing feedback and updates of your business will allow them to better serve you.

Again, while they are responsible for their own activities, you are ultimately responsible for the entire business, including their handling of your books/taxes.

At a certain point I agree with both Chris and Paul.

For a small business its really important to look over Cash flow on regular basis, it doesn't matter either your accountant or your bookkeeper is managing these regular tasks such as Cash flow, receivables and payable management, payroll, record keeeping etc.

The thing is you should have reports and data accurately and in timely manner.

A Bookkeeper is someobody who can spend much time managing your financials on regular basis as it requires a lot of communication between two parties which a Tax epert would not be able to do especially during the tax season or around the legal deadlines.

I have been working as a bookkeeper from last 5 years and have note that its always better to have two seperate parties for managing financials on regular basis, i.e. Day to day or monthly and for filing returns and raxes.

Few reasons are:

1 Cost: cost of a bookkeeper is much lesser then a Tax expert, especially if you have somebody oversease, like me.

2. UpToDate Books: A bookkeeper keeps uour books up to date at any point of time and can provide you reports whenever you need, which a Tax expert finds little hard due to certain reasons.

3. Review: This is the most important reason, A general understanding is that you can never find your mistakes, untill your work is reviewed by somebody else.

For this its good to keep these two tasks seperately so that your books can be reviewed regularly and can be improved as per the review analsis of your accountant, and yourself.

4. Receivables and Payable Management: Can you imagine that your Tax accountant is sending follow up emails to your customers and following up with you that if you have paid telephone bill or not? No you cant even imagine that, thats why you need a bookkeeper.

5. Final submission of accounts: Your tax accountant would find it difficult to make aome changes due to whatever reason, they would aimply make an adjustment entry to make things right. Just imagine you have coded some transactions in wrong account which needs to be rectified and changed with a proper account, your tax accountant would aimply pass on a journal and would correct those errors, but will that give you a proper overview of your financials on a monthly basis report?

Thats why you need a bookkeeper.

As per Paul he says that your tax accountant is much better to manage your bookkeeping needs as he knows your business well, I dont agree with him for this point.

I am working as a bookkeeper, and I never start any contract with having enough understanding of the Business structure and its process which is quite important to keep books in order.

These are the general thoughts over your query rest is all depends on your business structure and your needs.

Hope above mentioned pointa would help you.

Regards,
Amit Karnani
(Info@uptodatebooks.in)
UpToDate Solutions Pvt. Ltd.

To introduce why I am answering this question, I am a recovering accountant (at least Acct degree & Finance degree). My wife does the books (all of it) for our consulting, interim executive, and training business. I handle the setup and complex accounting questions for her and her customers. We advise our clients to separate the cash, payment, and invoicing functions from other bookkeeping. We also advise using a CPA to do taxes, with the bookkeeper having everything organized to minimize back-and-forth and CPA hourly billing. So, best of all worlds... The owner/CFO keeps the cash and near-cash handling in-house, which is really pretty simple. The firm saves money by using an external bookkeeper using either QuickBooks or anything else, preferably online... They get the oversight and tax insights of a CPA without the huge monthly bills.

Great question! I am a small business owner and a bookkeeper for many years. What I can tell you is there are CPA firms that offer both higher level accounting such as tax return prep and filing as well as bookkeeping services. In short, it is super duper expensive to have such a service do both.

I also concur with those who point out having proper checks and balances. It is very important as bookkeeping and tax return preparation impact one another but are two different types of specialization to have them done separately.

This has worked best for my clients. I would love to talk more with you about how we have assisted clients in keeping their books in pristine condition. Contact me for a free consultation.

I don't think there is anything wrong with having the same individual prepare your tax return and perform regular bookkeeping services. Most CPA firms and outsourced accounting practices will perform both functions. The key issue is to just make sure that the individual is competent and experienced in both areas and you should be fine.