What Are Taxes And How Can A CPA Help You?Accounting - What It Means
What are Taxes?
Throughout history, governments have used money from citizens to carry out many functions and pursue their ambitions. These mandatory levies are imposed on individuals and corporations by the government to generate revenue that are referred to as taxes.
Taxation transfers wealth from households or businesses to the government. Without taxes, governments would not be able to fulfil their duties, maintain and develop society, and create an enabling environment for its inhabitants to live.
The government needs money to pay salaries, build and develop infrastructure, subsidize healthcare and agricultural products for citizens, maintain its armed forces, fund public welfare, carry out scientific research, preserve culture and arts, engage in trade with other nations among many other things. As such, a compulsory financial charge is imposed on the citizens by the government in order to fund various public spending and expenditures.
Fiscal capacity is a government’s ability to raise taxes. When expenditures exceed tax revenue, a government accumulated debt. A portion of taxes may be used to service past debts. Failure or resistance to paying tax, along with its evasion is a crime and punishable by law.
There are different parameters used to differentiate taxes. Depending on its effect on the economy, taxes may either be progressive or regressive. Depending on who is paying, tax may either be individual (income) or corporate tax.
Tax may also be direct or indirect. Direct taxes are those which are imposed and collected directly from on the consumer or end-user. Examples of direct taxes are property taxes, payroll taxes, wealth taxes, and inheritance taxes.
Indirect tax is a tax which is not imposed directly on the person (consumer) who bears the economic burden of the taxation, but through an intermediary (such as manufacturer, importer or service provider) who passes the cost to the buyer. Examples of indirect taxes are Value Added Tax (VAT) or sales tax.
Who is a CPA?
While taxes are inevitable and part of our civic duties as responsible citizens, most people still find it a cumbersome and complicated process to deal with. Depending on your financial situation, it may be worth hiring a professional who could save you the time, stress and money.
One of the most trusted professionals you can use to handle your taxes is a Certified Public Accountant (CPA). While you can certainly take care of the day-to-day accounting yourself – especially if you have good accounting software – or hire a bookkeeper, there are instances when the expertise of a CPA can help you make sound financial decisions, avoid costly mistakes, especially if you own a business.
CPAs are accountants certified to handle any tax and accounting situation for individuals or corporate organizations. A CPA holder has received the training and education to address tax issues for both businesses and individuals. This gives them an edge over ordinary accountants who may not be trained in the intricacies of the tax system.
What Can A CPA Do for You?
There are many positives to hiring a CPA. Let’s have a look at them below.
- Cover your flanks
CPAs can help you cover your flanks and prevent any shortcoming regarding your taxes. This implies any area which may make you pay extra taxes, file wrong tax returns or attract the attention of the Inland Revenue Service (IRS), with a CPA managing your taxes, you’ve got yourself covered. This is because they understand the tax system so well and as such, can save you a lot in the future in terms of time, money and stress. CPAs can help you create a budget for unpaid taxes and set up payment plans with the IRS for taxes.
- Tax management for your business or side-hustle
Did you know that there are many possible tax write-offs you could qualify for if you own a small business or side hustle? Hiring a CPA can help you lower your taxes in ways you might have otherwise missed. Their expertise comes in handy when filing your 1099s and navigating ways to get tax write-offs.
- Know your financial health
The state of financial health in terms of your assets and liabilities will be clarified if you seek the services of a CPA. They can help you keep track of your expenses and help plan your finances. They can highlight areas where adjustments need to be made, and areas where resources can be directed to improve your financial standing. CPAs can also help you reduce your debts, pay lower interest rates and speed up the payment process without hurting your finances.
- Make better financial decisions
CPAs can help you make better financial decisions. Because of their financial savvy, they can advise their clients on the best ways to manage their money and multiply your sources of income. They can offer advice on the proper valuation of a business, types of investments available such as real estate, equity, fixed instruments, including sales and mergers. CPAs can also advise on the tax implications of certain investments.
- Help with taxes you owe
If you owe taxes, you should get a suitable CPA holder to advise you with the repayment process. A Certified Public Accountant would help you understand what you owe and set up repayment plans with the IRS. Since the CPA understands the language of the IRS, they are more likely to stand up for you when you have tax issues than your regular accountant.
- Prevent and detect fraud
CPAs can also help you prevent and detect fraud in your business. Because their accounting and auditing skills are frequently reviewed, they do ensure not only early detection of fraudulent practices but also make sure your organization complies with standard accounting procedures.
- Understand changing tax laws
Keeping up with tax laws and percentages can be confusing. This makes most people file wrong tax returns which could create serious problems down the road. A CPA would help you clarify what existing tax laws mean and what implications they have for your finances. They can also help you get the latest tax benefits.
- Improve your credit rating
Because your CPA keeps regular checks on your finances, helps you make sound investments and keeps tabs on your bills and liabilities so that you can offset them on time, you indirectly place yourself in good financial standing when financial institutions review your credit history. They would view you as a less risky client and creditworthy because you have control of your finances.
- Secure your kid’s future
If you wish to secure the future of your kids such as paying for college or setting up a trust fund, by making regular financial contributions, a CPA holder can give your professional advice, and you set it up. They can also suggest ways to help you maximize your money and put in place processes which would ensure that the funds would be properly managed and utilized.
- Make sense of numbers
Numbers could be confusing and deceiving even for those of us good at maths. A Certified Public Accountant is trained to detect mistakes, unravel information hidden in numbers and help you fix them. Making sense of numbers would enable you to make better financial decisions.
- Save time and money
Because you do not understand the intricacies of the tax system, which seems complicated and cumbersome, getting a CPA to handle your taxes is your best bet. Due to their financial dexterity, they would save you time, energy and resources.
- Help face the IRS
Everyone dreads the IRS and as such, avoid any issue with them. However, when such a scenario occurs, a CPA is in a better place to stand up for you than a regular accountant. As highly trained professionals, CPAs have a better understanding of the complex tax codes and as such, put up a better representation for their clients. This may involve preparing documents or presenting oral and written arguments to appeal an IRS decision.
Hiring a Certified Public Accountant (CPA) is a very effective way of not only understanding and paying your taxes promptly, but a way to improve your financial education by tapping from their expert knowledge. Invariably what you pay as fees to hire and retain a CPA would be gained not only in monetary terms but also knowledge and experience which are invaluable.