(disclaimer: this is not legal advice consult with a licensed professional)

The U.S. Bureau of Labor Statistics estimates that there were 1,392,200 accountants and auditors throughout the United States in 2020. Does this surprise you? There has always been a need for accountants in every industry, with the BLS projecting growth in the profession of 7% in the upcoming decade.

Accountants are able to take on various different roles within the profession, from bookkeeping and administrative tasks to tax return preparation and audits. Choosing between the two main categories, tax vs audit, is a decision that plagues many small business owners, making it important to weigh the main differences to make the most informed decision.

Our team at SynkBooks is filled with bookkeepers and accountants tackling different roles in the profession, giving us the insider scoop on critical factors to consider. Our insight can help you make the decision on what path is right for your business. Let’s dive in.

What is Tax?

A tax accountant specializes in the rules and regulations imposed by federal and state governments. Taxation involves not only filing tax returns, but also planning and implementing different strategies based on your situation. Improper planning can leave you wondering “why do I owe money on my tax return?

There are two main categories of taxation: corporate and individual. Corporate taxes include LLCs, Partnerships, and Corporations, all of which are subject to a March 15th filing deadline

On the other hand, individual taxes are generally due by April 15th. Many tax accountants work in both categories; however, specializations can be requested depending on your employer and preferences.

What is Audit?

An audit involves closely examining a company’s financial statements for the detection of material misstatements. Account audits include implementing various testing methods, such as selecting samples and corroborating multiple different supporting statements. Moreover, an accountant can conduct an audit on different subjects, such as a certain expense category or balance sheet item.

Audits include two different parts: evaluating internal controls and ensuring the financial statements are free from major misstatements. Third parties often rely on the financial statements and audit opinions from accountants, making accuracy a top priority for auditors.

What are the Main Differences Between Tax and Audit?

Audit vs tax accounting is a tricky decision your business needs to make, which is why we’ve laid out different factors to help you understand the details of each field.

Scope

Auditing involves analyzing documents prepared by the client and issuing an opinion. The scope of work is expanded in auditing compared to tax with auditors required to make subjective decisions based on professional judgment and reasonableness. This is not ideal if you aren’t required to issue audited financial statements.

On the other hand, tax accountants take financial statements already prepared and adjust the taxable income based on legal methods outlined in the Internal Revenue Code and state agencies. Additionally, the major goal of tax accountants is to file favorable income tax returns for your business.

Timing

A main difference between audit vs tax accounting is the timing of work. Auditors are busy in January or February of each year since corporate financial statements need to be issued by the March 15th tax deadline. This means you will need to have your books closed shortly after year-end to meet the auditing deadline. 

Tax accountants have a designated busy season from January 1st through April 15th each year with any tax returns not done being completed in the fall. Your business returns will need to be filed by the March 15th deadline and your individual return by the April 15th deadline. 

Flexibility

Another difference between tax and audit is the flexibility you have. Auditors have more flexibility in the scope of the work since personal interpretations and subjective judgements are used. The business environment, transaction complexity and service level all lean towards more flexibility. However, this means that your business will need to find a separate tax accountant when you receive an audit, increasing professional fees. 

Tax accountants don’t get as much leeway as the Internal Revenue Code needs to be meticulously followed. For example, PPP and EIDL loans are treated differently for tax purposes, making it essential to have a professional working alongside you to accurately prepare your tax returns. 

Client Relationship

The relationship you will have differs between tax and audit. Account auditors are required to maintain independence, meaning little to no other services can be offered to you. Furthermore, there can be no personal relationships with you since that interferes with independence and objectivity. This can be an issue when looking to develop close ties with your accountant professional. 

On the contrary, many tax professionals maintain a close relationship with their clients, often considering them their friends. A personal approach is encouraged to understand your full tax situation, leading to the ability to offer various other services, such as tax planning. The level you want to get to know your accountant professional will impact your decision on tax vs audit.

Costs

Auditors generally charge more compared to tax auditors. This is because audits generally require more resources and time. On the other hand, the costs associated with preparing a tax return are less, depending on the complexity. 

All businesses will need a tax return filed, but not all businesses will need an audit. 

Professional Qualifications

When looking at auditing vs accounting, there are professional qualifications to be aware of when choosing a candidate. Some auditors and tax accountants will have a Certified Public Accountant license. Many auditors will be required to have a CPA license. 

However, tax accountants don’t need to have a CPA license to file returns. The IRS only requires a Preparer Tax Identification Number (PTIN) to sign off and file tax returns. You want to be sure your auditor or tax accountant retains the necessary licenses to prepare your forms. Keep in mind, the more licenses they have, the more fees these professionals will charge.

Travel

Travel is another difference between tax and audit. Auditors frequently travel to the client’s location, sometimes out of state. This means that your business has the ability to engage auditors from different locations, depending on their travel policy. 

Tax accountants can work from anywhere with internet access since many preparation programs are cloud-based. This opens the door for flexibility to remotely prepare your tax returns, minimizing travel fees you will be paying. 

Business Growth

Having both a tax accountant and auditor can help your business achieve growth. Auditors ensure your financial statements are free of material misstatements while a tax accountant provides assurance that your business is compliant with regulatory agencies. Both are beneficial for your business when trying to achieve growth. 

How Do I Choose Between Tax and Audit?

Analyze Business Needs

The first way to choose between tax and audit is to understand your business needs. Do you need more assurance on your financial statements? Who is preparing your tax returns? These are questions you need to ask yourself. 

If your business is looking for expanded assurance on your financial statements, an audit will be the most beneficial. However, if you are a new business with minimal activity, a tax preparer will be the best course of action. 

Weigh Costs

Sometimes the choice between tax vs audit doesn’t come down to your business needs. In fact, costs are a deciding factor for many small business owners. Audits can be expensive, making it a less viable option for small businesses. 

On the other hand, a tax preparer is more cost-effective for small businesses. Analyze your current budget to see if an auditor or tax preparer is viable for your situation. Odds are you may need to budget each month to save up for professional fees. 

Understand Third-Party Needs

Small businesses with funding from third party investors or financial institutions may be required to have an independent audit of the financial statements. This is to provide added assurance that your business is reporting accurate financial statements. 

Reach out to lenders to determine their requirements. Maybe you will only need to supply a tax return; however, if you do need to obtain audited financial statements, it is a good idea to understand your obligation ahead of time to find the right company. 

Summary

Understanding the basics, main differences and how to decide are important factors when it comes to tax vs audit. Both fields have promising benefits, giving your business the tools needed to grow and remain compliant with regulatory agencies.

Whether you are looking to have more in-depth analysis of your financial statements or expanded tax planning opportunities, both auditors and tax accountants should be considered. Business owners live a busy lifestyle, managing the day-to-day operations and trying to grow their business. 

Running your own bookkeeping function is doable but is ideal to add to your mounting to-do list? That’s where SynkBooks can help. We offer a variety of different bookkeeping services, giving your business the ability to focus on client relationships and growing your business. Reach out to a team member today to learn more.


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