March 9, 2022

Do I Need a Personal Accountant?

Eric Bank
Former Citadel Director of Business Analysis

Accountants are experts at preparing tax returns, maintaining a business's books and records, and helping you record and track your income and expenses. If you need assistance with any of these tasks, a personal accountant might be the right answer.

Often, people use the term "accountant" imprecisely for bookkeepers, tax preparers, certified public accountants, and tax advisers. Bookkeepers help you by inputting income and expense data into a system or spreadsheet, keeping your budget up to date, and perhaps paying bills on your behalf. They might help you with a simple tax return but typically are not tax experts.

An accountant is someone trained to handle accounting and bookkeeping chores. They may have a college degree in accounting. 

A CPA has an accounting degree (often at the master's level) and has received certification from the American Institute of Certified Public Accountants. A CPA can do bookkeeping, but that's not a good use of their time, as they are usually too expensive for the job. CPAs may be independent professionals or partners in an accounting firm. 

For DIY types, personal/business financial software and tax preparation packages can handle most individuals' bookkeeping and accounting tasks. However, using software requires time and attention to detail, items that may be in short supply if you live a busy life. Nonetheless, today's software products have evolved to the point where they are easy to use and capable of performing many tasks automatically, such as downloading transactions, running a payroll, and categorizing your spending.

Tax Return Preparation

Small business owners and wealthy individuals are the most likely to need (and justify the expense of) a personal accountant for tax return preparation. Medium to large companies have either accounting departments or use the services of an accounting firm. 

An accountant's first job is to ensure your tax return is correct. Secondly, you'd like your accountant to find every legal way to reduce your taxes. When you use another party to prepare your taxes, that person must sign the tax return right below your own signature. That puts you and the preparer on the hook for mistakes (or worse). 

Business owners and self-employed individuals must keep meticulous books to ensure the proper filing of tax returns and justify tax deductions if the IRS decides to audit. An accountant may work with a bookkeeper to maintain your records or take on the task directly. In either case, the accountant must file your return correctly with all the necessary documents and submit it by the filing deadline. They must also inform you of any payments due the taxing authority, including estimated payments for the current year.

Playing Your Part

An accountant's nightmare is to be handed a shoebox of receipts at tax time. Having an accountant organize the information is time-consuming and expensive. You can do your part by keeping your records up to date, sorted, and categorized. Not only will this save you money, but it will also help you manage your budget throughout the year. Whether you do it manually, through a software package, or with a bookkeeper's assistance, taking charge of your own records is the best way to stay on top of your financial situation.

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