I ended my article about “tell your accountant about out of state operations” with a brief mention of changes to the way I work with business clients. Here are the additional details.
Through the years, I have always had some business entities (meaning, corporations and partnerships) who would meet me once a year at tax time, hand me a summary of income and expenses that they prepared themselves, usually in a spreadsheet, and let me plug in the numbers into the computer.
There’s nothing necessarily “wrong” with that. Most of these businesses are fairly simple and straightforward. All are well below the threshold where a balance sheet or additional financial detail are required to be reported on the tax return.
But I am no longer going to operate this way when working with business clients.
For all entities, I now require some sort of year-round relationship. Meaning, at least once a year (outside of tax season) I must have a chance to look at their books. At year-end, I must perform a bank reconciliation and create a general ledger. Ideally this will be done quarterly and perhaps monthly, but it will vary from client to client.
This rule applies on a case-by-case basis to sole proprietors as well. Some simple sole proprietors can continue handing me their summary of income and expenses, but for more complicated sole proprietors, there must be at least one check-in during the year.
I am making this change because of concerns about the regulatory environment I operate in. The IRS requires books and records to be maintained, and while it may technically be okay for a C-corporation to keep a summary of income and expenses in a spreadsheet, it makes me uncomfortable to just use a spreadsheet to prepare a corporate return.
