Tax & Accounting FAQ

For a straightforward individual return (Form 1040), you can expect to pay between $200 and $500. More complex situations – such as self-employment income, rental properties, or international filing requirements – typically range from $500 to $1,500+. At Arc & Ledger, we offer transparent pricing so you know exactly what to expect before we start.

A CPA (Certified Public Accountant) has passed a rigorous exam and meets ongoing education requirements, allowing them to offer audit, attestation, and advisory services. A general tax preparer may only handle basic returns. However, an Enrolled Agent (EA) – like the practitioners at Arc & Ledger – is federally authorized by the U.S. Department of the Treasury and can represent you in audits, appeals, and collections nationwide, similar to a CPA but with a tax-specific focus.

Watch out for preparers who charge a percentage of your refund – this creates an incentive to inflate deductions. Other red flags include refusing to sign the return, not providing a PTIN (Preparer Tax Identification Number), guaranteeing a specific refund amount before reviewing your documents, or pressuring you to direct your refund to their account.

A good accountant typically charges $300–$800 for individual returns and $800–$2,500+ for business returns, depending on complexity. The cheapest option isn't always the best – look for credentials (EA, CPA), transparent pricing, and experience with your specific situation. A skilled accountant often saves you more in taxes than their fee costs.

A CPA can perform audits of financial statements, issue attestation reports, and represent clients before the IRS. A general accountant without a CPA license or EA designation cannot do these things. Note that Enrolled Agents (EAs) also have unlimited IRS representation rights – the key difference is that EAs specialize in taxation while CPAs have a broader scope including auditing and financial reporting.

Yes, bookkeepers typically charge less ($25–$75/hour vs. $100–$300+/hour for accountants) because their work focuses on recording daily transactions, reconciling accounts, and maintaining financial records. Accountants handle higher-level tasks like tax strategy, financial analysis, and IRS representation. Many businesses need both – a bookkeeper for day-to-day work and an accountant for tax planning and compliance.

At minimum, you should meet once a year for tax preparation. However, quarterly check-ins are ideal – they help with estimated tax payments, catching issues early, and proactive tax planning. Business owners and self-employed individuals benefit most from regular touchpoints to optimize deductions and stay compliant throughout the year.

An accountant can prepare and file tax returns, develop tax strategies, represent you before the IRS (if they hold a CPA license or EA designation), provide financial advisory services, and handle complex compliance requirements like FBAR/FATCA filings. Bookkeepers focus on recording transactions, reconciling bank statements, and producing basic financial reports.

The $600 rule refers to the IRS threshold for reporting payments. If a business pays you $600 or more in a year for services, they must report it on a Form 1099-NEC. Similarly, payment platforms like Venmo, PayPal, and Cash App must issue a 1099-K when payments exceed certain thresholds. Important: even if you don't receive a 1099, all income is taxable and must be reported.

Statistically, high-income earners ($200,000+), self-employed individuals, and those claiming the Earned Income Tax Credit (EITC) face the highest audit rates. Cash-intensive businesses, returns with large charitable deductions relative to income, and those with unreported income flagged by information returns (W-2s, 1099s) also draw scrutiny. Having a credentialed tax professional (EA, CPA, or tax attorney) prepare your return can help reduce audit risk.

Never volunteer information beyond what's asked – answer questions directly and concisely. Don't say "I think" or guess at numbers – if you're unsure, say you'll provide documentation. Never lie or misrepresent facts. Most importantly, don't go alone – you have the right to professional representation. An Enrolled Agent or CPA can handle the audit on your behalf, and you don't even need to be present.

Home office deductions, vehicle mileage for business use, health insurance premiums for the self-employed, retirement contributions (SEP-IRA, Solo 401k), professional development/education expenses, and state sales tax deductions are frequently missed. Many self-employed individuals also forget to deduct the employer-equivalent portion (50%) of their self-employment tax.

Common red flags include: reporting significantly more deductions than your income level supports, large cash deposits without matching reported income, claiming 100% business use of a vehicle, rounding numbers on your return (suggests estimation rather than record-keeping), consistently reporting losses on a Schedule C business, and mismatches between your return and the information returns (1099s, W-2s) the IRS receives.

Keep meticulous records throughout the year – don't wait until April. Make quarterly estimated tax payments if you're self-employed. Max out retirement contributions (they reduce taxable income). Track every legitimate business deduction. File on time, even if you can't pay – the failure-to-file penalty is 10x worse than the failure-to-pay penalty. And most importantly, work with a qualified tax professional who knows your situation.

The top mistakes are: missing filing deadlines, not making estimated tax payments (triggering penalties), failing to report all income (the IRS already has your 1099s), missing legitimate deductions because of poor record-keeping, choosing the wrong business entity structure, and trying to handle complex situations (international income, IRS notices) without professional help.

The four main types are: (1) Tax Accounting – preparing returns and minimizing tax liability, (2) Financial Accounting – producing financial statements for external stakeholders, (3) Management Accounting – internal reporting to help business owners make decisions, and (4) Forensic Accounting – investigating financial discrepancies and fraud. Most small businesses primarily need tax and management accounting.

Not exactly. A ledger is a specific tool used in bookkeeping – it's the master record where all financial transactions are organized by account (cash, accounts receivable, revenue, etc.). Bookkeeping is the broader practice of recording, classifying, and maintaining financial transactions, which includes maintaining ledgers along with journals, bank reconciliations, and financial reports.

Ledger accounting refers to the process of recording and organizing all financial transactions in a general ledger – the central repository of a company's financial data. Every transaction is categorized into accounts (assets, liabilities, equity, revenue, expenses) using double-entry bookkeeping, where each entry has a corresponding debit and credit to keep the books balanced.

Key warning signs include: unexplained adjusting entries, transactions recorded just before or after period-end, revenue that doesn't match bank deposits, duplicate payments to vendors, missing supporting documentation, unusual write-offs, and financial statements that don't reconcile with tax returns. Regular reviews by a qualified accountant help catch these issues before they become serious problems.

The journal comes first. Transactions are initially recorded in the journal (also called the "book of original entry") in chronological order. They are then posted (transferred) to the appropriate accounts in the general ledger, which organizes transactions by account type. Think of it as: the journal records what happened and when, the ledger organizes it by category.