Consulting 101: Are Tax Consultants Different from Accountants?

January 26, 2024

Many small business owners often mistake accountants for tax consultants as the former file their tax returns. But there is more to taxes than just filing returns. Ask someone who has been in arbitrary cases challenging tax notices that impose hefty fines. As a small business owner, you will face many financial situations where you may seek expert advice. Knowing whom to consult in which situation is the step in the right direction to avoid unnecessary delays. 

This article is to help you understand the service offerings both experts provide and know whom to consult in certain situations. 

What Is the Role of an Accountant?

A professional accountant’s main role is to prepare a comprehensive income statement, balance sheet, and cash flow statement quarterly and annually. Anything and everything needed to make these books of accounts come under the purview of an accountant. 

Setting Up Accounting System: It starts with setting up an accounting system, a payroll system, invoicing format, accounts receivable and payable policies and procedures, and evaluating internal controls to ensure the system created is running efficiently. 

An accountant can set up a process on how the business transaction, once initiated, will be recorded in the books and how the cash from that transaction will flow. For instance, James raises an invoice for his services. Right from generating the invoice till the amount is received and spent, the accountant records the transactions in relevant segments. A professional accountant can automate most of these transactions with a point of sale or invoicing software. 

Financial Reporting and Budgeting: A skilled accountant goes beyond reporting transactions to analyzing the financial reports, identifying the gaps and highlighting the areas that need immediate attention. 

  • An accountant can help you prepare a cash flow forecast and a financial budget so you know your financial situation. 
  • They can help you prepare the financial reports needed for a business loan or raise funding from different sources. 
  • They can also help you save costs and provide broad tax benefits. For instance, an accountant can help you claim deductions on vehicle expenses by collecting and storing supporting documents. 

What Is the Role of a Tax Consultant?

Tax consultants start their careers as accountants and later specialize in tax laws. Consider the difference between a general physician and a heart surgeon. A general physician can treat normal ailments and give reference to a surgeon in case of chronic illness. Similarly, an accountant can do basic tax filing. But if you want to plan your estate, incorporate your company, or expand overseas, you need to consult a tax expert. 

Tax Planning: A tax consultant has in-depth knowledge of corporate tax laws and is updated with changes. He/she goes beyond daily transactions into planning and strategizing your business and share structure, executive shareholder compensation, and estate plan. Tax consultants formulate a structure considering your business, location, and tax laws. They create a business structure that can save you a hefty amount in taxation. 

For instance, a tax consultant can guide you on creating a family trust or setting up an employee stock option. In some cases, the family trust might be the right option; in others, a holding company might work well. 

Handling Tax Authorities: Apart from tax planning, a tax consultant is also your representative in front of tax authorities, whether for information, audit, replying to a tax notice or presenting your case in front of a tax arbitrator. 

When you understand the difference between the two, you can decide whom to consult, depending on your financial situation. A professional accountant may not represent you in front of an arbitrator as it needs high-end knowledge of tax laws. Similarly, a tax expert may be too expensive to prepare account statements. 

Contact KSSP Partners LLP in the GTA to Help You with Accounting and Tax Consultation 

At KSSP Partners LLP in Markham, you can avail the services of a professional accountant and a tax consultant, saving you from explaining your situation several times. They can work together to address your unique problem. To learn how KSSP Partners LLP can provide you with accounting and tax consultancy, contact us online or by telephone at 289-554-5997.