ItDepends

Some clients insist on adjusting transactions after the tax return is prepared and filed.

Others could totally care less or don't even know about it.

many of my small business retail clients don't even use QB or other software, and they just present a simple spreadsheet (some of these are really detailed and good, actually).

My question is. how important are these adjusting transactions?

Are the clients that don't do this putting themselves in a bad position somehow?

AlexCPA

Per Circular 230, please note the following:

§ 10.21 Knowledge of client’s omission.
A practitioner who, having been retained by a
client with respect to a matter administered by the
Internal Revenue Service, knows that the client has
not complied with the revenue laws of the United
States or has made an error in or omission from any
return, document, affidavit, or other paper which
the client submitted or executed under the revenue
laws of the United States, must advise the client
promptly of the fact of such noncompliance, error,
or omission. The practitioner must advise the client
of the consequences as provided under the Code
and regulations of such noncompliance, error, or
omission.

Accordingly, as a tax professional, all you can really do is advise the client regarding the possible implications of these errors ("errors" assumes that these post-filing changes are not being made with nefarious intent). However, moving forward, I would request that the client confirm in writing that financial statements have been finalized prior to the filing of tax returns. Furthermore, I would make clear that a pattern of subsequent adjustments to tax return amounts will result in disengagement.

Even more of my antics may be found on YouTube (over 1,000,000 views and counting):
https://www.youtube.com/channel/UCXDitB . sMwfO19h7A

sjrcpa

How are you going to handle next year's tax returns if they have changed 2019 books? RE won't tie.
My clients get "yelled at" for doing this.
If there truly were errors, then we amend. Otherwise they are to be hands off and/or call me to discuss.

ItDepends

My apologies, I did a poor job of explaining the situation.

Client provides completed and accurate books.

Tax preparer completes and files the tax returns.

Client then asks the tax preparer for the adjusting transactions to make the BOOKS "match" the tax return. Things like depreciation, gifts over $25, and meals (etc) that were reported slightly differently due to the way these things are deducted on the tax return.

Every once in a while, clients ask me to go into their QB, or provide a summary, as to adjustments they THEY should make to help match their books to the tax return we filed.

They don't want me to change the tax return. They want to now change the books so it matches the return.

sjrcpa

Wiles

We use their QB data file as our internal trial balance. Or in case of QBO, we adjust it live.

ItDepends

Last year, I was honest with the (retail tax preparation only) client and I told her that, as an EA, I don't have any formal education or experience with providing the required adjusted entries. But proceeded with us anyway and I gave her some simple adjustments so that the balance sheet matches the depreciation I took on the tax return. I'm not an accountant, but I've learned some simple bookkeeping fundamentals over the years.

This year she is back and asking for services again, as she is happy with us as her tax preparer and does not wish to go elsewhere.

Again, I disclaimed my lack of experience with adjusting entries, and admitted that if she wants these, she's definitely better off with a CPA.

She came back with, "well, how important is it if we don't do it, or if it's not right? What kind of problems would I be looking at down the road?"

I don't know the answer. I can sort of provide them, but I don't know if it's correct.

I kind of feel like, in an audit, "it doesn't matter that much". If the income and expenses are categorized and accurate, and if the equity flow to and from the business is accurately accounted for, that's all they really care about.

I picture my (surprisingly smart and tax compliant) body shop guy who gives me a simple spreadsheet, his payroll reports, and an ending business bank balance (no software or bookkeeper). He's very accurate and compliant and he does not co-mingle anything. There are no entries to make anywhere - and he's just fine and legitimate.

But then my spider sense asks, "well then why does everybody do these entries? I must be ignorant of something here."