025 Bookkeeping vs. Taxes
We’re discussing the difference between bookkeeping and taxes. A lot of people ask me questions about taxes and it’s hard for me to give an answer because of the lack of specificity of their question. Hopefully this episode will clear up the difference between the two, how bookkeeping and taxes are related, and why I do continuing education for taxes even though I don’t do income tax returns.
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All right. Hi everybody. Welcome to money. Through ease, we've got a new episode coming out and I just want to welcome you if you're new here. I'm Reagan and I found it all easy accounting one year ago is officially been more than a year of me being a business owner and that's. Scary and awesome at the same time. So cool. Well, anyways, I'm glad you're here. And if you're new to listening to the podcast, this is probably a good episode for you to start on. If you've been here the whole time, I want to thank you for being here and welcome. You back and if? You like this podcast? Make sure that you're subscribed on whatever podcast platform. That you're listening on, that could be Spotify, Apple Podcasts, Google Podcasts, et cetera. There's a couple of other ones, but I think those. Are like the big three. And if your podcasting platform allows you to leave a review and a rating, I would love if you did. And I so appreciate getting messages and support because it can just be like, you know, somebody talking into the ether and not really having any feedback. I do get some feedback from people and I do appreciate hearing your thoughts and also hearing about topics that you want me. To teach about Oregon feedback on the topics that I already have taught. If you have something that you think I missed, then I need to like elaborate more on. Please let me. Know so rate. Subscribe, leave a review. Send me a DM over. On social media at all. Easy accounting on Instagram or via Facebook. And I'd love to hear your thoughts and just so you know, I do have a whole episode about all of the free resources that I provide. You can scroll back in the feed. It's free resources for your business, I believe is the episode title and I'm just going over all of the things that I provide to the small business community that are free. Some of it. May be that I ask for your e-mail address. That you could send it from my e-mail. Just but other than that, like I don't need anything from you. This is just how I am helping and supporting the small business community in 2023 by over delivering. So go listen to that episode about all the other ways that I can support you, even if you don't want to pay me a dime. And yeah, so let's get into the topic. Of today's episodes, we're talking about the difference between bookkeeping and taxes now. I think most people know the difference. However, sometimes when I'm talking to people and they're like, can I ask you a question and you know I'll be quote. UN quote off the. Off the clock, but I don't mind answering questions out and about. I don't mind answering questions in DMS when people. Aren't looking for advice, but they're just looking for some perspective or like some answers on where can I go to find this information. I do not mind that at all, but The thing is, is that sometimes people ask me a question and they can't actually be 100% sure about what they're asking me. And let me explain what I mean. So last week I taught a webinar to a entrepreneurial group. They're kind of like a mastermind group and so there's all sorts of different. Business owners in. There, and they're all in community with each. And I was hired to teach a webinar to this group because they often have people come in that are in the baby stages of owning a business and need some direction and guidance because none of us are really taught like what it means to run the business and what it actually takes. And so they hired me to come on and talk about small business. Accounting and bookkeeping and taxes. And I was more than happy to teach on these topics to that. Group they were. And by the way, if you are part of an entrepreneurial group, right like that and it doesn't have to be specific to any industry, it could be whatever and you would like I am available for hire to teaching small groups. So that could be virtually that could be in person, whatever topics that fall under my. Umbrella of topics of things that I've talked about on my podcast materials that I share on social media and my website. I'm available to. Each uh small group presentation webinar about those topics as well. So if you're part of one of those groups and you think that they could benefit from me coming in teaching on some stuff, answering a bunch of questions, I can share resources. I can share workbooks that I've created all of that good stuff. Send me a DM, get on a consult with me and just put in the notes or whatever that you're interested in. Hiring me for small group education. I'd be more than. Happy to do that. So anyways, back to the story. Last week I was teaching a webinar to a small business. Community and after the presentation we had a Q&A session and a couple of them were asking me very specific questions about taxes. And I was having a little bit of trouble answering because sometimes it's the case that you ask. Me something and I'm like. Let me just make sure that I am answering this correctly and I need to go research it and. I will get back to you on that. Some time it is somebody asking me. Well, I had to report, you know, this information to the Department of Revenue and I couldn't claim, you know, this or that. And to that I respond well, which Department of Revenue because we've got, you know, the IRS and that Department of Revenue. Which is the federal agency. And then we've got each state has their own Department of Revenue or Department of Finance, depending on what state you're in. And then you've got. But a bunch of other different state local, you know, county or parish citywide agencies that may be asking you to report your gross revenue at all sorts of different levels. And so I was not able to answer a question because the person could not give me specific information as to which. Agency. They're even talking about. And this kind of highlighted for me that when we say things like taxes or oh, I got to pay my taxes, it could mean literally 100 different things depending on where you live, who you have to report information to, what licensing you're applying for there. It's just a ton like. Any state board agency, federal level agencies, city specific agencies, industry specific. Words that you need to get a license from in your state, like it just could mean so many different things, and unless we can get clear about our language together when we're talking about taxes, none of us can be sure what the heck is going on. And when it comes to accounting and bookkeeping, the details like are the most important. Right. So it's really important when we're discussing taxes and especially if you want to ask me a question, I need you to be specific about who which agency are we even talking. Thing about and that way I can either let you know the answer if I already know it, which I live in Louisiana, so most of it is federal taxes and then like the state specific sales and payroll taxes and income taxes in Louisiana that I can usually speak to because that's what I have the most experience with. However, I do have. Across the United States, so if I'm not familiar with a certain states agencies or tax code. Then, as long as I know which state and which agency we're talking about, I can easily look that up and help you find an answer. So it is important to be as detailed as possible if you want to ask me a question. Otherwise I'm going to probably have to say let me get back to you on that either way. So I thought it would be a good idea to talk about. The difference between bookkeeping and taxes, and why we need to be so specific about the language we use when we're talking about small business finances and this was a topic that was suggested to me by a listener. So I want to thank you for sending me this suggestion because I was like, you know what? You're right, sometimes I can get all up in my accounting head and using big words that people cannot relate to as much as I try to make accounting and small business bookkeeping relatable, sometimes it can be a little heady and a little bit of an accountant speak thing that we're just not even speaking the same language. And so I. Want y'all to understand me better? And so thank you for sharing this idea with me and providing. A topic. So it's all about bookkeeping versus taxes. Let's start with bookkeeping. I have done a podcast episode on what bookkeeping is, but just as a refresher, bookkeeping is an action that you take as a business owner, and you're doing bookkeeping on some sort of periodic basis. That could be. Every day you do bookkeeping tasks. Every week you do bookkeeping tasks, and especially every month. And you have to be doing bookkeeping every month to keep track of your finances. Bookkeeping is record keeping. We are translating our records. That could be the transactions that we take every day, the transactions that we make every day, the receipts that we've got, basically we're tracking. How much money is being made in? And how much money is being spent bookkeeping tasks? Sharpen your bookkeeping routines and systems and you can hire me to do that ioffer training on QuickBooks Online products. Because I am a QuickBooks Online advanced pro advisor. That means that I have taken QuickBooks Self certification courses and I've taken the advance. One, and I've also been certified in their payroll products. So what that allows me to do is to help identify which QuickBooks products are going to be right for you and your business. And then I can sit down with you and actually train you on the best practices that are customized for your workflow for the way that you run your business. So anybody can do bookkeeping because it's simply a matter. Of record keeping. And nobody knows your business better than you. And I won't sit here and tell you that I do know your business better than you. However, you may not have the financial literacy if you've never done bookkeeping before. To understand the way that finances get reported in the United States on your taxes. That is why I do offer training because it is. A low cost way to have me, a professional and advanced provisor come in and help you get your books set up. And help you. Establish your routine that is going to work for you to have a. Accurate accounting, we'll talk later about why it's important to have accurate accounting, but just know that bookkeeping, we don't need a degree, we do not need a license. You don't need a certification to do bookkeeping. There is no like national standard or required licensing or even state to be a bookkeeper. Anybody can be a bookkeeper. It's very important to choose the right bookkeeper for you. And I also have a podcast. I'm saying about. That so you can go back and listen to those. That's what bookkeeping. What is bookkeeping? And then also how to choose a bookkeeper. But just know that we don't need to have any sort of special certification. To do what we do, there are three major steps in business bookkeeping that I do for my clients, and that you need to do for yourself as a business owner or hire it out on a regular basis. And those three steps are categorization. So actually sitting down with your transactions and deciding on categories for each one of those. Reconciling your accounts, which just means balancing your checkbook, balancing what happened in your account, making sure that all the numbers make sense and that they are reported on your statement exactly how they happen in real life and then financial reporting. So creating those financial. Reports that allow you to do that analysis and review of your business finances. Those are the three steps of bookkeeping as far as I'm concerned, you can get way more detailed with exactly what all of that entails, and I will teach you about those things. But those are the three things that. I cover in the training on QuickBooks Online, so if you. Don't know how to do one of those. Get on a consult with me and we can look at what your systems are, what your routine is. Already see if we can fill in some holes, maybe. Make things a little bit more accurate. Tweak some things so that. It works better for you. All right. So that's bookkeeping. Now let's talk about taxes and then we'll talk about the difference between them. Taxes or something that is levied by the government. It can be any government. So in the United States, we have the federal government, we have state governments. We have local, probably county or parish. If you're in Louisiana, that's equivalent to a county in another state. So County or parish governments, and then we've got, like, local city Township government. Doesn't matter where you are in the United States, you will be reporting how you made money to one of these agencies. If you make enough money, taxes are something that we do periodically, so not as often as bookkeeping. Usually we have different agencies, and they all have different tax returns. That's what I'm talking about. When I shared that story earlier about people asking me questions and for advice, but they can't tell me which tax return they're talking about, or which agency specifically they're having trouble with. There's a bunch, and if I don't know where you live, I can't know which taxing authority we're talking about. Preparing a tax return. Is something that can be outsourced, but you can also prepare your own tax return. A tax return is reporting information. To that agent. Here's what my. Income was or here's what expenses I'm claiming. This is a return that is reporting information to an agency because you're required to by law and we are not going to sit here and argue about whether or not we should be required to report and pay taxes on our income. I do not care if you're one of those people that a sovereign citizen that believes that we shouldn't have. To pay taxes. This is probably not the podcast for you. I've had people come into my comments section on Instagram wanting to argue with me about taxes and not even like United States taxes like Canadian taxes. And I'm like, well, I definitely don't deal with anything that has to do with Canada.
We are all, if we're citizens of the United States, if we're living and working here, even if we're not citizens required to report and pay income taxes, preparing a tax return is something that you can do yourself, or you can outsource it to somebody else. You do not need special education. You do not need special licensing or credentialing. None of that is required. Seriously, all anybody can do your tax return. Anyone can prepare their. Own tax return. And you can hire anybody else to do your tax return. Would you want to just hire anybody?
You're fired.
Because tax returns, bookkeeping is very low barrier of entry. Skill level, preparing tax returns and knowledge and analysis and critical thinking. To do accurately, you really need to be able to sit down and parse through large amounts of information. To report things accurately on a tax return, why do you want to make sure that it's so accurate? If you report that you made more income than you actually made in real life, you could pay more in taxes. Nobody wants to do that. If you are under reporting, they could come back later that agency and say we know that you've actually made more than you. And now you owe us more in taxes. And we've tacked on penalties and interest because you underreported and then you didn't pay. Taxes are something that need to be done accurately as accurately as possible because of the. The bookkeeping that you do for your business is not checked by anybody. If you're like a small business, there are larger businesses and. There are like. Auditing requirements for, you know, bigger corporations and stuff. Maybe you have somebody to answer to answer to like a bunch of shareholders that want to make sure that the information you're showing them is accurate. But for most small business owners. The bookkeeping gets reported as their income on their taxes, so they want their bookkeeping to be accurate so that their taxes will be accurate as well. It doesn't take a lot of skill to do the bookkeeping, whereas the taxes I think you really have to have an understanding of how all of that flows together, how all of it must be reported. By law and like I said before, anybody can prepare taxes and by this I mean that anybody can have a P-10. What is a P-10 Regan? It is your preparers tax ID number. So people who are preparing tax returns for other people, whether or not they're making money, but especially if they are making money. Off of preparing tax returns need to have an identification number with the IRS. So if you're preparing somebody else's return, the IRS needs to know that you prepared it because what happens is that people will file a bunch of fraudulent return. On behalf of their clients, they report incorrect information and not preparer can actually be in trouble and be subject to fines and possibly imprisonment, not just the people who put their trust in that preparer. They're not exactly the only people that are at fault. It's still incumbent on the repair to practice. Diligence to make sure that we protect taxpayers data that we keep on file. You know, all of that good stuff. So when you're preparing tax returns, as I do for some of my clients like payroll and sales tax, you need to have a P-10 that prepares tax ID number. So anybody can have that there is a small fee to register for that number and then every year I do complete continuing education to maintain my annual filing season program requirements. So I do 18 hours of continuing education and that is really important to me to do to stay fresh. On the tax. Because bookkeeping does flow onto my clients, tax returns. Just because I'm not preparing their tax returns, somebody else is preparing them. They're doing those tax returns based on information that I have compiled and parsed through and categorized. So it behooves me to have my clients bookkeeping as accurate as possible when they go to file their taxes. They get the most out of their deductions. Now in the United States. You can have. A certified public accountant so that your Cpas, I am not a CPA. Cpas have to have certain education requirements that they have to meet. They also have to sit for like a licensing exam, and so that is licensed by each state. So each state has a CPA like licensing board and then you have enrolled agents. So those are your EAS, and they have actually been licensed by the IRS. So that is on the federal level. Cpas and enrolled agents eras. Can represent clients in the Court of Tax. They can do all sorts of stuff that just your regular tax preparer can't do, and so they do have stricter education requirements. They have to sit for exam, they have to go through certifications each year. So there are different levels of tax repairs, but anybody can go just get a. E10 number and then take those continuing education requirements and then call themselves a tax preparer. So it's important to vet the person that's going to be doing your tax return. As I'm sure you already know, that is what we do on a regular basis at all. All different levels of government agencies who are levying taxes. So let's say your city government where you live and where your businesses has a business license requirement where you have to report your gross receipts to them. So they want to know how much money your business is. Making every year. And then they actually charge you a license fee just so that you can operate. In your city, and so that would be an example of a local tax, even though it's a license fee like it's still something that is collected and you have to report accurate information to them. And then you have to pay whatever they ask you to pay based on that information. So it's the same thing all the way from the top down. We've got the federal government. Agency the IRS. That is who you have to report your income to. And if you own a business and you don't have any other income, you report your business, profit or loss to. And that is considered your income. If you're a. Sole proprietor or a single member LLC. So we're reporting income to them. We're also taking expenses and tax deductions against that income. So anything that you have to pay ordinarily or that is necessary for you to run your business, you can claim as a deduction. Right. And so that is the IRS and so. There's a difference between. Your tax return that you file that is reporting information to that agency and then the tax liability, the liability is what you actually pay to them in money and dollars and cents. So you're reporting and information return, you're reporting to them how much income you had. And then on that return? Is calculated your tax liability, so they have formulas based on how much income you had and then you calculate yourself what your tax liability is. And so they're going to tell you, like, you either did already pay in taxes throughout the year, you know, if you have a W2 job that is withholding federal income tax or maybe you paid an estimated payments throughout the year for your business. If you have made enough payments throughout the year to cover your tax liability, then you don't owe anything, right? And if you've overpaid throughout the year in tax withholding and estimated payments, if you've overpaid throughout the year more than what your tax liability. Ended up being. That's when you get a refund, right? Because like we said before, the government does not want to keep. Their money, they do not want to keep the money that they're not legally allowed to have. So if you, if you make more an income payments, estimated payments, income withholding throughout the year, then your tax liability is when you go to file your tax return, that's when you get a refund. And we love it. We love getting a tax refund, but if you have a tax liability and then you did not make enough. In estimated payments or in tax withholding from like a W2 job throughout the year, that's when you owe taxes. That's when you have taxes that are due to be paid and so that is the case for. For the IRS, that is the case for state departments and any city or local taxes that you are required to report and that are levied, you know, every year, every quarter, every month, there's different periods that you have to send in different information returns. And it varies based on the state, the federal agencies. Local tax authorities, et cetera. While you can outsource the tax preparation, you can pay somebody to prepare your tax returns for you to make sure that they get filed on time, that they get filed accurately. All that good. Stuff what you cannot outsource is paying your taxes. So the taxes that are levied by different levels of government, you know, you have to report your information to them, but then they have to collect that tax based on what you've reported. And that is obviously not something that can be outsourced. You cannot pay somebody else to pay. Your taxes for you like you. Can only pay them to file your return. For you, right? So that is the difference between tax returns, not tax. Funds tax returns, which is reporting information and then paying your tax liability due now I've talked before about how bookkeeping flows onto the tax return depending on what type of business entity you have. So I'm not going to go over that again, but briefly, just remember that bookkeeping needs to be accurate because. That is what gets reported on the business tax return. If it's incorporated or a part. Or it gets reported on your individual return. If your sole proprietor or single Member LLC you report the business income and expenses and profit or loss on your individual tax return. So that's why I do bookkeeping the way I do is to report information accurately so that when you go to file your tax return your bookkeeping. Their financial reports are accurate, so that's what I do. I do bookkeeping. I do not do. Individual tax returns. I do not do business tax. Returns, but let's talk about. The tax returns that I actually do for my clients right now. So I don't like to say, Oh yeah, I do taxes, even though I technically do, because people have such a misunderstanding about which taxes I'm talking about. So let's just be clear, if you. Want me to file your individual? Will federal return? I won't do that. However, if you are my bookkeeping client and you have payroll, you've got employees on payroll and then you also have products that you sell that you have to charge sales tax on. Here are the two types of tax returns that I will do for you if you're my bookkeeping client. That is, payroll tax returns and sales tax returns. Payroll tax returns are required. If you have employees and you withhold taxes from their pay per law, once again, we're not gonna argue about whether or not that's legal or right or whatever the hell doesn't matter to me, I'm here to help you stay compliant with what the loss is full. So on the payroll tax return, we report what wages you pay to your employees and then. As the business that has employees. You are not only. Withholding their Social Security and Medicare taxes from their paycheck, as well as their income tax withholding. But you have to pay half of their Social Security Medicare taxes. That is an expense to your business because when you have employees, you pay part of that tax for them on their behalf. In some states, you also pay, you're required to pay their unemployment. Some states have withholding requirements, some do not. For instance, like Texas does not have a state income tax. So if you are an employer in Texas and you. Employees who live in Texas and work for you in Texas, you're going to withhold federal taxes from their pay, but they won't have a Texas income tax that also gets withheld from their pay. Right. So, but most states do have income tax withholding requirements. Like I said, they also have an employment taxes that either. You or your employees pay in Louisiana. Employers pay the unemployment tax for their employees. There may be other local taxes that are applicable where you. That is something that we would talk about on a consult call if you wanted to talk about bookkeeping and you were like, I also have employees and I want you to run my payroll. I'd be like awesome, let's do it. Then I would sit down and. Look at what are your. Requirements as far as. Payroll tax goes and then we would talk. About what that looks. Like so, that's payroll tax returns. I do those returns. For my client, obviously, once again I don't pay the taxes. That's what my clients pay, but my clients pay me to do the returns to make sure that they get filed on time and to make sure that they pay their taxes on time as W. So that's part of the compliance that I talk about, is just making sure that you're literally complying with the law. So then we have sales tax returns and sales tax varies from state to state. It is not a federal thing we have in Louisiana. We have a state tax and then each parish. Like I said, parish is equivalent to a county another. In another state. We've got parish sales tax and then we have like local sales tax. If you live in a city. So sales tax is once again a return that needs to be filed that you report what sales you had that are subject to sales tax. There are five states in the United States that do not charge. Levy collect sales tax, so if if you live in one of those states, good for you. But I don't. So my clients that are here in Louisiana and operate and make sales here have to charge their customer sales tax. So that's at the state and local level. Usually you do have to report any sales that were taxable and in some states services are also taxable. So in Louisiana, most services are not taxable like what I do. Accounting bookkeeping services is not taxable. However, if you are in Louisiana and you're repairing. Tangible property. So if you repair cars or you repair cell phones or computers like actual repair, service fees are taxable. It depends on the state and the locality where you live, and so you just want to make sure that you're being. Compliant and there. Are all sorts of programs and apps out there that will help you track and calculate that sales tax as accurately as possible? And then you file your sales tax returns and then you pay the sales tax on whatever basis they require. So it's usually monthly or could be quarterly or maybe you just. Have it set up to where. Like hey, when I have sales tax, I'll file it and I'll let you know and I'll pay it. But you could be audited and have to prove that like you had the sales you had and that you are actually charging the correct amount of sales tax as you're probably already aware, sales tax is included in the price of what you charge your customer. So it's a liability. It is not income to you, right, because you charge it to your customer. But then the that's not income. You don't get to turn around and spend that money. That is a liability. You collect it, but it has to be limited to the agency that levied the sales tax. Why sales tax does not show up on your profit and loss statement y'all it shows up on your balance sheet because it is a lie. Ability you collect it and you gotta turn around and pay it. So I don't do income tax returns anymore. But like I've said, bookkeeping does go on all of these tax returns. That is, your income tax returns with the federal agency, the state agency where you live. If you have to report income tax, that is not the kind of tax returns that I do. But the bookkeeping that I do for my client. That is what gets reported. Usually those are the numbers from the bookkeeping that go on the income tax returns. The work that I do, since it goes on the tax return, it is necessary for accurate reporting that the bookkeeping is as accurate as possible. I do continuing education, like I said, to stay fresh on the tax requirements. For my clients, just because the work I do is so important to that process. So if you want to work with a. Keeping in mind how your numbers get reported on your taxes, I want you to get on a consult with me. Here's what we're going to discuss on a console. What bookkeeping procedures you have currently, if any, and how to make them more accurate. Some of you may not be doing bookkeeping at all, and shame no, I'm just kidding. We're not shaming here. Some of you may not feel like it's necessary, but it is from the very beginning, before you even have somebody pay you money. You need to. Have a bookkeeping system and procedures that you can follow on a regular basis. And then we want to make sure that it's accurate and that it also works for you and your schedule and. Routine, because if it doesn't. You're not going to do it. So we're going to look at where you could find more deductions that are going to save you more money on taxes that you hadn't thought to look for. We can help you get your books. Caught up? If you're more than six months behind on reconciling your bank accounts, your credit cards, anything going on in your bookkeeping. If it's been more than six months, that is a catch up accounting job that needs to happen sooner rather than later so that it doesn't snowball out of control. Even more so if you want to talk about bookkeeping with me. Because you are understanding the difference between. Bookkeeping and taxes. I want you to get on a consult with me. That link will be in the show notes, but it's all easy. Accounting dot AS dot me forward slash consult and so I want you to get on a consult with me. And it's complementary and it's only 30 minutes. So you've got time to squeeze that into your schedule. Let's work it in and let's see what you've got going on. So book a consult with. Me. We'll figure it. I'll let you know where I see holes. You tell me where where information is bottlenecking in your business and we'll get it figured out. Thank you so much for listening to this episode. If you like the topic, come leave me a comment on Instagram. Come send me a DM, be happy to hear from you if you need further clarification, you want me to. Elaborate further on. Anything please let me know and I can talk. More about it here publicly. Or we can just chat in the DMV. You know how it rolls? Alright, I hope to talk to you all soon. Have a. Great weekend. Bye everybody.