Do Bookkeepers Do Taxes? A Look at Their Role
Understand the core responsibilities of a bookkeeper. Clarify their crucial role in financial record-keeping and how it relates, or differs, from tax preparation.
A bookkeeper is a financial professional responsible for recording an organization’s financial transactions. This article explores the specific functions of bookkeepers and clarifies the extent to which their services include tax-related activities. While bookkeeping provides the necessary foundation for tax preparation, the roles are distinct.
The Core Responsibilities of a Bookkeeper
Bookkeepers meticulously record all financial transactions that occur within a business, serving as the initial point of data entry in the accounting cycle. This includes documenting sales, purchases, payments to vendors, and receipts from customers. They manage accounts payable, ensuring bills are paid on time, and accounts receivable, tracking money owed to the business.
A core function involves reconciling bank accounts and credit card statements, matching internal records with external financial statements to identify discrepancies. This process helps maintain accuracy and detect potential errors or fraud. Bookkeepers also maintain the general ledger, which is the central repository for all financial data, classifying transactions into appropriate accounts.
They generate fundamental financial reports, such as income statements and balance sheets, which offer insights into a business’s financial health and performance. These reports are typically for internal management use or as organized data for other financial professionals.
Bookkeepers and Tax Preparation
Standard bookkeeping services generally do not encompass the preparation and filing of various tax returns. The primary role of a bookkeeper is to organize financial data, not to interpret complex tax laws or submit official tax documents to government agencies. Their meticulous record-keeping, however, is essential for tax preparation.
Bookkeepers gather and organize necessary financial information, including income, expenses, and deductions. This organized data, which often includes profit and loss statements and balance sheets, is then provided to a qualified tax preparer. The tax preparer relies on this accurate data to complete and file the appropriate tax forms.
Some bookkeepers possess additional qualifications, allowing them to perform tax preparation services beyond their core bookkeeping duties. For instance, a bookkeeper who is also an Enrolled Agent (EA) or a Certified Public Accountant (CPA) is authorized to prepare and file tax returns. Their tax credential grants them the authority to interpret tax law and provide tax advice, services generally outside the scope of a bookkeeper without such credentials.
Distinguishing Financial Professional Roles
Understanding the differences between financial professionals helps determine who to consult for specific needs. A bookkeeper focuses on recording day-to-day financial transactions, providing the raw, organized data. They ensure that all financial activities are accurately documented and categorized.
A tax preparer is a qualified professional who prepares and files tax returns and offers tax advice. Many tax preparers must obtain a Preparer Tax Identification Number (PTIN) from the IRS to prepare federal tax returns for compensation. Non-credentialed preparers often participate in the IRS Annual Filing Season Program (AFSP) to gain limited representation rights before the IRS.
An accountant is a broader term that encompasses a wider range of financial services. While bookkeeping falls under the umbrella of accounting, accountants perform higher-level analysis, financial planning, and often tax preparation. They may also engage in auditing financial statements, providing assurance on their accuracy.
Certified Public Accountant (CPA)
A Certified Public Accountant (CPA) holds the highest credential in the accounting profession. CPAs have met rigorous education and experience requirements and passed the Uniform CPA Examination. They are licensed by state boards of accountancy and can perform all accounting functions, including audits, tax preparation, and financial consulting, often with a fiduciary responsibility to their clients.
Enrolled Agent (EA)
An Enrolled Agent (EA) is another federally authorized tax practitioner who has unlimited representation rights before the IRS, meaning they can represent any taxpayer for any tax matter. To become an EA, individuals must pass a Special Enrollment Examination (SEE) administered by the IRS or have specific IRS work experience. EAs must also complete continuing education requirements.