Gary Bode, CPA: IRS Form 1065, Form 1120 and Form 1120S tax preparation has managerial uses too
Absolutely! Tax preparation and subsequent CPA expense are a fact of life for Partnerships, C Corporations and S Corporations. Minimizing tax expense is the traditional, expected role of the CPA tax preparer. But they can do more:
- Form 1065, Form 1120 and Form 1120S all incorporate a Balance Sheet component, which your CPA can help interpret for managerial implications. After all, you’ve already paid to have it prepared. The IRS uses it to monitor your company. Shouldn’t you know what they know?
- Tax positioning and tax planning strategies deserve at least an annual conversation between the CPA and client.
- Correcting the underlying QuickBooks bookeeping when errors are encountered during Partnership and Corporate tax preparation.
Taxation issues, especially those concerning transactions involving Partners and Shareholders, are complex. And IRS taxation changes too. For example, for Form 1120, in 2011, the expected tax rate changes of Dividends may increase, from the current maximum rate of 15%, to the Shareholder’s marginal tax rate, perhaps 39.6%. C Corporations caught with substantional E&P in 2011 will certainly incur higher taxes, perhaps $246 more on every $1000 of Dividends distributed, over 2010. AET probably increases from 15% to 20% too. Any proactive local Wilmington NC CPA tax preparer would forewarn C Corporation clients of course.
So, saving on taxes is a traditional CPA tax preparer role on IRS Form 1065, Form 1120 and 1120S. And of course CPAs work hard on that year round.
Tax positioning and tax planning should be another function of your local Wilmington NC CPA tax preparer. I put in a minimum of 40 hours of Continuing Professional Education a year. Usually more. Much of it on either annual updates for tax preparation of IRS Form 1065, Form 1120, and Form 1120S, or, implications for tax planning on Partnerships, C Corporations and S Corporations. Now, some single major strategy, like the Form 1120 one, described above, seldom appear.
“Tax positioning for Partnerships and Corporations usually consists of multiple strategies that aggregately create tax savings.”
Gary Bode, Wilmington NC CPA and Tax Accountant
It is common to think Partnership, C Corporation and S Corporation tax preparation differ immensely, and of course they do. But they all incorporate a Balance Sheet into the tax return. And Balance Sheets aren’t always used by management, unless there’s a CPA or tax accountant, on staff. Even accurate QuickBooks bookkeeping doesn’t automatically make a Balance Sheet useful. So, why does the IRS require a Balance Sheet in the tax return? Well, sometimes they don’t if the underlying assets fall below a certain amount. But then the NC DOR, which uses the IRS forms as an initial basis, does require the Balance Sheet on their returns.
The Balance Sheets in IRS Form 1065, IRS Form 1120 and Form 1120S help delineate changes to the Partner and Shareholder equity accounts. And loans between Partners or Shareholders and the company of course.
But the Balance Sheets give a Financial Statement analyst plenty of good management information. As anyone dabbling in the stock market knows. The IRS surely uses the Balance Sheets to explain, or red flag, changes in financial position from one year to the next. Generally, as a CPA tax preparer, my clients are untrained in accounting or financial statement analysis. So, since they’ve paid me to prepare the return, I take that extra bit of time to look at the Balance Sheet, beyond just ensuring it is accurate in reflecting the underlying QuickBooks bookkeeping. And then share any managerial insight gleaned with that client. Can any local Wilmington NC CPA tax preparer interpret a Balance Sheet? Sure. Do they take the time and then communicate managerial implications of it during the hectic tax season?
If you’d like a free initial consult with a CPA tax preparer specializing in Partnership and Corporate returns, please contact us at (910) 399-2705.