What is Tax Accounting?
By its definition, tax accounting is a framework of many accounting methods. It focuses on taxes rather than public financial statements. In simpler terms, it tracks funds coming in and going out of a business or an entity.
It applies to individuals, organizations, and other entities. Even if an entity is exempt from tax, they need to participate in tax accounting to prove it.
Tax accounting is governed by the Internal Revenue Code and other laws of the land. These laws must be followed during the preparation and filing of tax returns.
Depending on the entity, there are different types of tax accounting. These are tax accounting for individuals, businesses, and tax-exempt organizations. Tax accounting is mandatory and can save you a lot of headaches down the line. Let’s look at a few reasons why tax accounting is important.
Seven Reasons Why Tax Accounting Is Important
1. Everything Needs To Be Accountable
Tax accounting is a process that applies to everyone and all industries. It has existed for thousands of years, and it still works to keep track of money.
Financial records are critical for any entity, be it an individual or a large organization. It can help them find how money flows and optimize it better.
Entities through which a lot of financial transactions take place require a solid tax accounting strategy. This can keep a business healthy and free from other types of implications.
2. Helps Organize Any Business
Tax accounting is a process that can help with organizing the financial structure of a business.
Any establishment that has money flowing through it needs to be able to account for it effectively. Tax accounting helps build transparency for your finances. This is especially true if you fall under the non-profit bracket.
Tax accounting ensures that there are no complications with financial records. It makes them easier to access and more organized. This can also help you share your financial records a lot easier.
3. Keeps You Safe From Legal Issues
A significant function of the tax accounting process is to keep you on the right side of the law. Financials are one of the most closely looked at aspects of a business, and for a good reason.
A lot of organizations tend to land in trouble because of a badly structured financial framework. A proper tax accounting process can help prevent this from ever happening.
Tax accounting makes sure that you are working within all the laws of the land and regulations. There are times when a company is under review. Proper accounting can ensure smooth sailing even under the most arduous scrutiny.
4. Lets You Avoid Company Audits
An audit is probably one of the most dreaded things that can happen to a business. It involves checking all your financial records by government representatives. This process can take a lot of time and be very messy.
This can happen due to improper tax accounting or inconsistent financial records. Claiming too many business expenses and write-offs can have the auditors at your door.
The key is to have a proper accountant who can help you navigate through your finances effectively.
5. Mandatory For Complex Businesses And Large Transactions
As a general rule of thumb, the bigger the business, the more complex it becomes. When we talk about complexity here, we’re referring to the financial structure.
Tax accounting strategy is important for a lot of businesses, there are just too many variables in play that can be overlooked. This requires a solid accounting strategy.
And when you’re talking about big businesses, there are also large sums of money involved. Tax accounting can handle the influx of large amounts of money effectively and easily.
6. Delivers More Accurate Projections
Business prediction and projections are important for the company and its stakeholders. It gives you measurable targets which your company can aim for.
But the problem arises when the predictions are not accurate. Any prediction is only as good as its reliability. It can set unrealistic expectations, which can lead to disastrous goal-setting.
Tax accounting allows for more accurate predictions for all entities. Proper accounting can give you details about how money flows through a system. This means that projections are accurate and much easier to create.
7. Improves Management Decisions
Any organization is only as good as the decisions they make. And in these competitive times, there is considerable pressure on them to consistently make the right calls.
Tax accounting acts as a tool to assist the management make the right decisions. It gives the stakeholders a clear picture of what the company’s financials are.
All this financial data ultimately may lead to better decision-making for the company. It directly impacts their profitability. This makes tax accounting an important tool in the arsenal of every company.
Why Do You Need A Professional Tax Accountant To Manage Your Finances?
1. Organize Financials During Audits
Audits are a problem in more ways than one for businesses. Things come grinding to a halt, and people are subject to a lot of scrutiny. It also means endless paperwork for everyone involved.
This is a perfect time to look at a tax accountant. Some professional agencies can communicate with the IRS directly. They can help you by organizing the financials of your company which the IRS can easily understand.
This can save you a lot of stress and get things done the right way for your company as well.
2. They Can Handle Rapid Growth
Growth is something every company wants for itself, but not all of them are ready for it. This is because growth is not one-dimensional like on paper. It involves a lot of factors, including financials, laws, and other aspects.
A tax accountant is your best asset when it comes to expanding your operations. You need to build new tax frameworks for incoming businesses. Also, you need to ensure that you abide by the laws of the land.
Accountants can help you with all of these tasks through financial insights and advice. They will make sure that your finances align with the law and your objectives.
3. Help You Stick With Your Core Skills
There have been times in the past when companies have carried out bookkeeping internally. But this is not a long-term solution because it hinders growth. Tax accounting is something that you cannot execute without professional help these days.
At some point in time, your company will grow too big to take care of as far as accounting is concerned. This is the right time to get an accountant on board.
This leaves you free to focus on your core competencies as a brand and leave the numbers to the professionals. Compare the time it takes for you to get it done yourself and hiring an accountant. You may find that hiring them works out to be cheaper.
4. Finds Profit You’re Missing Out On
The first sign of trouble is usually when your business is growing, but profit stays the same. This means you might be losing money without you not even knowing about it.
Profitability is critical for any business. And as it grows, some areas might not reflect the same improvement financially. Accountants can help you track your money from start to finish.
Accountants can even make suggestions on how to improve your revenue. They can do this through effective changes to your process pipelines. You can get an in-depth diagnosis about your business and recommendations. This can in turn increase your profits.
5. Makes Acquisitions Easier
Acquisitions are when two companies come together, and they mean a lot of red tape and paperwork. This can be intimidating to handle and is one of the primary reasons accountants are involved.
An acquisition has a lot of moving parts, and it can be difficult even for experienced people. Accountants ensure that you have a clear-cut strategy to handle mergers or acquisitions.
With them, you get a sound financial strategy that safeguards your interests. You can also depend on them on how to progress once the acquisition is through.
Tax and Accounting Houston TX
How To Find The Best Tax Accounting Firm?
1. Set Your Budget And Compare Fees
The first thing you need to do is fix a budget that you’re comfortable with. After which, you should start looking for likely accounting agencies in your area.
Accounting can get expensive quickly if you haven’t read the fine print. Make sure that you ask all the relevant questions during the initial discussions. This will prevent issues with your agency down the line.
Don’t settle for an agency that tries to talk you out of your budget. There are a lot of professional agencies out there that are financially viable for your needs; you just need to find them.
2. Look For Proper Tax Education And Experience
Experience and education are everything when it comes to tax accounting. This is something that a lot of people forget when hiring a professional agency. There is a lot that goes into proper tax accounting. Check if your accounting firm has the proper people with the right tax education.
It also helps if they’ve worked with big accounting firms like PWC, KPMG, E&Y, or Deloitte. Working for big firms like these is a testament to their skills in handling difficult situations.
3. Ask Them About Their Certifications
There are so many different certifications for tax accounting, and you need a firm that has most of them.
Some of the certifications are Certified Public Accountant, Chartered Global Management Accountant, Certified Management Accountant, and a lot more.
During the initial discussion, this question can be put to your firm. You can for the certifications of the accountants who are handling your company. This can help you make a better, more informed decision.
4. Creative Strategy Is Preferred To Linear Thinking
Accounting is a space where there is adequate room for creativity. Linear and by-the-book approaches may not be viable for all circumstances. This should be well within the legal norms, of course.
The advantage you will have with non-linear thinking may have better solutions to a problem. A good example of a linear solution is saving taxes through IRA or 401K and pre-paying expenses.
Creative accounting is when a firm can help you save on taxes with a tailored strategy for your business.
5. Good Tax Advisors Ask You Questions
This is something that you need to keep in mind when interviewing accounting firms. In this niche, the more things they ask about you, the better. If you find yourself asking all the questions without much enthusiasm from their end, this may not be a good fit for you.
The more aspects of your finance an accounting firm knows, the better their strategy for you will be. They can deliver considerable savings for you and help improve profitability. If you’re looking for a reliable tax accounting firm in the Houston or Cypress areas in Texas, do get in touch with us.
Disclosure: SCF Securities, Redfish Capital Management, and SCF Investment Advisors do not offer legal or tax advice. Accounting services are provided by Henry D. Nguyen, CPA. This material is not intended to replace the advice of a qualified tax advisor or attorney. Please consult legal or tax professionals for specific information regarding your individual situation.