Written by Luke Frye
Accountants are smart, hard working, and they basically do everything for you, right?
Well, yes and no.
Typically your tax accountant (maybe you call them an EA or a CPA) is focused solely on filing your federal and state income taxes. This means there’s still a lot of “financial admin” you’ll have to take care of on your own to keep your business running.
Here are five financial tasks you’ll need to get done to keep your business running smoothly.
You’ll need to take care of these yourself or commission your accountant to do in addition to tax filing.
Renewing business licenses
Chances are, you need to have a business license both in your state and your city. (Yep, even if you’re a freelancin’ sole prop.)
The good news? If you’re not allergic to paperwork, it isn’t too hard to apply for the licenses you need. Call your state and city licensing agencies to confirm what license(s) you need and get instructions on how to apply.
Sorting out business licenses isn't a standardized process, which is part of why many accountants don't help with licensing renewals.
Renewing your LLC
Heads up: renewing your LLC may work on a different timeline to your business licenses and tax returns. This task is really more of an administrative thing that may be mailed to your lawyer or your address — whoever you’ve listed as your authorized Registered Agent.
Advising you on whether or not you should be paying sales taxes in other states
Sales tax is sticky. Like a-honey-bear-in-a-bee-hive-sticky. The nuances by industry, state, city, and county are way more than one person can know.
It’s your responsibility to know if your business has a sales tax nexus in another state (put simply: if you do, you’ll also need to file a separate state tax return wherever your business has a nexus). Sales tax nexus is when a product or service (including digital goods) is subject to sales tax. That means you may need to collect and remit sales tax for cities, counties, or states you don’t live in. Avalara, TaxJar, and Tax Butler are a few companies that specialize in this area.
CPAs may be able to advise you on your sales tax nexus obligations, but make sure you’re explicit about requesting they do the research for you. If you don’t, your CPA will just make sure your business is sales tax compliant based on the info you give them.
Sales tax nexus is a very separate tax with annoyingly serious penalties for getting it wrong.
Also, just because you’re only operating digitally, doesn’t mean you’re not subject to sales tax nexus in other states. Digital goods and out of state sellers are being increasingly taxed and audited.
Knowing whether or not you need to pay income tax in other states
Just like sales tax nexus study, your tax accountant may not do a nexus study to know if you should file a return in a particular state. You’re on the hook if you don’t, so make sure to have a proactive conversation if you have property, jobs, or moved.
Auditing your books
Surprise! Your accountant will not audit your bookkeeping. (There is a breed of accountants built specifically for auditing your books. They are strange, and they don’t like tax accountants because they think we’re boring.)
Instead, your tax preparer will use the bookkeeping you provide to prepare the return. And they will flag something with you if it looks obviously funky. But they won’t go through your books with a fine-toothed comb before they use them to prepare your tax return.
This means that if there’s fraud in your books, your tax return may be prepared with that info. The moral of this story: you’re responsible for accuracy in your books. Hire a bookkeeper if you can’t (or don’t want to) do the task yourself.
So WTH is an accountant for, then!?
Your accountant is typically there to file your federal and state income taxes. On top of that, any accountant worth their salt will always help you find the information you need when you reach out with questions, set reminders for due dates, and file renewals.
The best plan of attack for dealing with any of the extra financial admin tasks we’ve just outlined above is to (and, warning... this sounds dumb) read your mail, scab and save the mail you receive from state and local agencies as well as the IRS to a cloud-based system, and keep track of any dates of expiration and renewals for licenses and entities (e.g. LLCs).
I’d suggest saving digital copies of all your financial documents (meal and travel receipts as well as expensive items like computers and equipment over $2500, every business-related application, etc.) in at least one cloud-based storage service (Google Drive or Dropbox, for example).
It’s tedious in the short-term. But it will help you stay prepared for tax time, even if you lose the physical copies in a fire and flood, or some kind of episode with your crazy-ex...
Of course, if you want to outsource any of these tasks, it’s likely your CPA can take them on for an additional fee. Keep in mind, this is going to be an “on request” kind of service. So make sure you bring it up with them proactively rather than thinking they’re taking care of everything in the background.
Luke Frye is the founder of Timber Tax, a tax filing service for creative professionals and small business owners. You can Book a call with him here.