Botkeeper
Tax professionals know the need to file extensions is a common occurrence, especially among small businesses. While extensions can provide a temporary reprieve, they’re often symptomatic of deeper issues, particularly poor bookkeeping practices on the part of the client. Filing an extension can offer relief, but it also delays the inevitable and can strain client relationships and compliance efforts. Not to mention it can really cost them the big bucks in interest and penalties.
Accountants are often in a unique position to help businesses avoid these pitfalls. Let’s explore how poor bookkeeping practices can lead to extensions, and offer strategies for accountants to help clients better prepare and avoid last-minute panic. We’ll also highlight how automating your firm’s bookkeeping can help keep clients on track and avert the need to extend.
The Link Between Poor Bookkeeping and Tax Filing Extensions
For many businesses, tax time is the annual reality check that their financial records are not as organized as they thought. The scramble to get documents in order often leads to accountants having to file for an extension just to buy more time. As an accountant, it's vital to help clients understand that these extensions are typically a sign of underlying issues — chiefly, disorganized or incomplete bookkeeping.
Poor bookkeeping can manifest in several ways:
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Missing Receipts and Invoices: When businesses don’t keep consistent records of income and expenses, it can take weeks, if not months, to gather the necessary information for accurate tax filing.
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Outdated or Inconsistent Accounting Systems: Manual or outdated accounting systems often lead to incomplete data and discrepancies in financial reports.
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Lack of Regular Reconciliation: Businesses that fail to reconcile their bank accounts regularly often find that their financial statements don’t match their actual cash flow, making tax preparation a nightmare.
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Inaccurate Categorization of Expenses: Small business owners frequently misclassify expenses, leading to inaccurate tax deductions and potential penalties.
Filing an extension due to poor bookkeeping is often avoidable. If your firm is struggling to get timely, complete information from your clients, then automation could be the answer to many of your challenges.
Avoiding Extensions: A Proactive Approach for Accountants
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Set Expectations Early
One of the first steps accountants should take is educating clients about the importance of maintaining organized records. Start the conversation well before tax season and explain that poor bookkeeping practices may result in delayed filings and unnecessary costs. Reinforce the benefits of staying on top of financial data throughout the year, not just when taxes are due.
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Encourage Monthly or Quarterly Bookkeeping Reviews
Accountants can help clients by encouraging regular reviews of their books. These check-ins, whether monthly or quarterly, keep business owners engaged with their finances and minimize errors that might accumulate over time. Even if your firm is handling the client’s books, you often rely on the client’s input to get it right.
By creating a culture of consistent record-keeping, businesses will be less likely to face last-minute tax season stress, and accountants won’t have to scramble to file extensions.
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Leverage Automation, and get the Bookkeeping Out of the Clients’ Hands
You have probably met the stubborn client who insists on handling their own books, but regularly dumps an inscrutable mess on your lap.
Many businesses simply don’t have the internal resources to manage their bookkeeping efficiently. Offering bookkeeping services allows accountants to take control of their clients’ financial processes, ensuring records are accurate, organized, and compliant with tax regulations.
Outsourced bookkeeping can be especially helpful for businesses that have limited staff or inconsistent accounting procedures. By outsourcing these tasks, accountants can guarantee that books are closed properly each month, drastically reducing the risk of having to file for extensions.
On the firm’s end, automating this process and involving the client by inviting them into your software can remove much of the grunt work around reminders, paperwork submission and more. Botkeeper does this and much more — saving time and effort for the firm, while saving money for your clients.
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Create a Year-Round Tax Preparation Plan
One of the best ways to help clients avoid the need for extensions is by implementing a year-round tax preparation strategy. Regular communication with clients about tax liabilities, potential deductions, and upcoming filing deadlines helps keep tax season manageable.
Accountants can work with their clients to prepare quarterly tax estimates and ensure proper documentation of all transactions. This not only helps businesses avoid filing extensions but also minimizes the risk of being hit with large tax bills at the end of the year — which will make you a hero.
The Consequences of Filing Extensions
While filing for an extension is not inherently harmful, it does come with some downsides you already know, but should share with your client:
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Interest and Penalties: Even with an extension, taxes owed are still due by the original filing deadline. If a business owes taxes and doesn’t pay by that date, it may incur interest and penalties.
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Delayed Refunds: Businesses expecting a refund will have to wait longer to receive their money, which can impact cash flow.
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Increased Scrutiny: While occasionally filing for an extension is something experts agree won't increase the likelihood of audit, filing for an extension year after year can raise red flags with the IRS. Consistent delays in filing may suggest underlying financial mismanagement, increasing the possibility of audits. And NO ONE wants one of those.
By helping clients get their bookkeeping in order through regular reviews or, in the case of automated bookkeeping, ongoing reviews (which are even better) accountants can not only prevent these consequences but also ensure a smoother, less stressful tax season for both parties.
Practical Tips for Accountants
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Educate clients on the importance of good bookkeeping practices and the potential risks of disorganized records. Explain how small, regular updates can save time and money. If they make regular errors or omissions, encourage them to let your firm handle their books for them. True, that definitely means more business for your firm, but it can also mean overall savings for the client. Especially if their books are frequently a raging dumpster fire you end up having to put out.
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Introduce automation tools such as Botkeeper, as mentioned earlier. It gets your firm out of the day-to-day effort involved in keeping the books current, and provides a forum for communicating with your client specifically about their finances — that opens opportunities in advisory. And way more sanity for you.
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Offer customized services that cater to the specific needs of different businesses. Tailoring solutions to each client helps ensure they’re receiving the level of support they need.
Tax filing extensions are often a sign that businesses need more consistent and thorough bookkeeping practices. More to the point, it’s often a sign that they really need YOU to do it for them. By providing guidance, offering small business accounting services, and leveraging automation, accountants can help clients avoid the need for extensions while fostering healthier financial practices year-round. Ultimately, these proactive measures lead to smoother tax seasons and stronger client relationships.
Once you have control of your client's bookkeeping, automating it brings you a step closer to accounting perfection. Botkeeper Infinite, at just $69/month per client is the perfect solution. Get started with it today!
