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Are Bookkeeping Services Taxable

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Are Bookkeeping Services Taxable?

Taxes are charges paid by companies or individuals to the government coffers for the services they render. Though some services are exempted from specific taxes but with booming economies around the world, governments of different countries are adopting new strategies to generate revenue by taxing more services. This gives the reason why the question of whether bookkeeping services are taxable is important. It is difficult to provide a direct answer to this question because bookkeeping offers a variety of individual services in which one or two services appear taxable in some regions.

What are bookkeeping services?

Bookkeeping services are the mechanism by which financial transaction records are maintained and accounting information such as income statements and balance sheets are prepared. A bookkeeper will ensure that workers accurately file invoices and expenditures and manage payroll in day-to-day operations. When it comes to controlling the economic elements within an organization, bookkeeping services are deemed essential. This is because, by proper bookkeeping, the current, past, and prospective future financial status of the company will be known.

Bookkeeping services offered by firms

Financial services

This talks about fund-related issues of a company. Specifically, the financial statement entails the general cash flow structure of the business including income statements, the shareholders, and the business owner’s equity documentation, among others. The justification for getting this financial service working in a business is that it provides a clear picture of what goes on with the business per time.

 Account receivable and payable services

This service provides detailed information on tracking the funds a company is expecting to receive payments on and those they will be making payments to. It is similar to a credit and debit check on the accounting system of a business. It also helps to keep track of the funding dates, including to whom the firm is owing and where monies are expended. The bookkeeping facility also takes care of payment to regulatory bodies such as the internal revenue agency of which refusal to remit required payments can come with stiff penalties and harm to the business image.

Payroll bookkeeping services

As a major player in employees’ welfare, building and maintaining a decent payroll system is a task that should not be neglected. If our payroll is not right, workers’ salaries and allowances will get affected. If this happens at an odd or critical period, it can spark unrest and protest which is not good for the image of the company.

Monthly bookkeeping services

It’s normal for some to provide comprehensive spending and benefit breakdowns on a weekly, quarterly, and annual basis but that of monthly record-keeping is somewhat popular. Financial houses present monthly statements of account to owners and bookkeeping is not left out. The analysis and reports at this time help to keep a balanced record of a company’s finances and events. The services include the following:

  • Financial records creation.
  • Bank account monitoring for valid and fraudulent transactions.
  • Creation and execution of a budget.
  • Overdrawn account warnings.
  • Planning and analysis of the burden of taxation.
  • Suspicious transactions Warnings.

Tax preparation services

Tax preparation deals with preparing necessary documents such as tax forms that are requested by the internal revenue service. Bookkeepers can prepare these forms. Among other functions, they keep updated on records. 

This type of bookkeeping service is very popular and essential for doing things right with deduction of taxes from source and meeting up with remittance to the government.

Checkbook balancing services

Sometimes, a business internal account statement can be different from a banking statement. The account reconciliation process helps to reconcile both statements through an adequate bookkeeping checkbook balancing method to harmonize the differences.

Sales Tax

At the center of taxes in the world are sales taxes. They are taxes people pay to the government for some services as well as goods. This means not every service is taxable. In the US for instance, tangible goods and physical properties fall among taxable commodities. The manufacturing sectors play a major part in this area with physical products. 

In most cases, services which do not sell or manufacture physical products are not taxable. For instance, if you’re a freelancer who writes, you don’t have to bother yourself about taxation as much in many states. The word, ‘tangible’ is used to differentiate between those goods that are taxed and those that are not in this definition.

Common tax rules

Are bookkeeping services taxable?

Determining whether or not a service in a specific state is subject to tax has a set of rules that applies. This can be complicated sometimes because individual states have their own rules which often depend on:

  • The location where the company conducts the business
  • The location where the business benefits are received from the service.

Some services are taxed by most states, and many more services are taxed by certain other states. Taxation of utilities, however, is the exception rather than the norm. Few states tax the services of a physician or lawyer. Works carried out in conjunction with the selling of tangible personal properties are also subject to taxation.

While we have seen states that say unequivocally that they would not tax service companies such as bookkeeping services, it is very difficult to point out states that task bookkeeping services since each of these states taxes a different collection of services. For example, dry cleaning and haircuts in Iowa are taxed but not in Idaho.

It should be mentioned that some states now tax professional services and those taxes do not exclude accounting services, including bookkeeping services.

Governments in different countries are applying new taxation policies due to shifts in the economies of the world. For instance, America which used to be a manufacturing company is gradually moving to be a service rendering nation. To make up for this gradual change, they look in the direction of taxing some services which were not taxed in the past.

One reason many states have decided not to tax many service providers like bookkeepers is that it comes easy for other tax-friendly states to win those services to their side.

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