Catch-Up Bookkeeping Services: How to Choose One That Finishes

What should a catch-up or cleanup bookkeeping service hand back when the job is finished?

A finished catch-up job gives you books in which every account is reconciled to its statements for every month in scope, the totals agree with what you already filed or each difference is listed, and you hold the file. A job that only sorted transactions is nearly done, not done. Reconciled means the books' balance for an account at each month-end equals the statement balance, with every difference explained.

Some differences are normal: a partnership or S corporation that completes Schedule M-1 or M-3 reconciles income per books with income per return there, because tax rules change what a return reports, for example for some meal expenses (Form 1065; Form 1120-S). A difference that tax rules do not explain may mean the filed return was wrong. Ask the provider to list it, not to force the books to match; whether to amend is a question for a CPA, enrolled agent or attorney.

This page is for you if your books are months or years behind, a return or lender date is coming, and a do-it-yourself try or an earlier bookkeeper stalled. Three points are then open: which months and accounts the work covers, who prepares the returns that depend on the books, and the order of work. A case is not simple when returns are also unfiled, an IRS notice has arrived, or payroll or sales tax filings are missing. Those cases need someone who can prepare returns and speak to the IRS (covered below), and a notice, an audit or years of unfiled returns come first (see "When is a catch-up service the wrong first step?"). Gather what you need before asking for quotes (list at the end). For the steps of getting books tax-ready, see catching up on overdue books.

Does the person catching up my books need to be a CPA?

Generally no, as far as the IRS is concerned. The IRS credential list covers preparing returns and representing taxpayers, not bookkeeping, so for the books themselves fit matters more than a title (IRS credentials). State rules on who may offer accounting services are not covered here; see local or online bookkeeper. Credentials start to matter when the work touches a return or the IRS.

An outside provider with none of those credentials generally cannot represent you in collection or an appeal, however good the books are (Publication 947). For more on the difference, see bookkeeper, accountant or CPA.

My returns are behind too: who can prepare them and speak to the IRS for me?

Whoever prepares and signs each late return needs a PTIN, and only a CPA, enrolled agent or attorney can represent you in every kind of IRS matter. Two providers can share the job if the scope says who does what.

• Preparing and representing are separate. The paid preparer signs the return, yet you remain accountable for every item on it (Topic 254). A power of attorney on Form 2848 names individuals, because firms cannot practice before the IRS (Publication 947).
• Information only. Form 8821 lets a named person see or receive your IRS information but not speak for you (Form 8821 instructions).

The written scope should name who prepares each late return, who signs and files it, and who holds the Form 2848 if a notice or audit follows. Form 2848 covers the IRS only, and a partnership under the centralized audit regime (the default unless it elected out) acts through its partnership representative, who signs it (instructions). State agencies set their own rules on who may speak for you on sales tax, state payroll or state income tax, which this page does not cover; name in the scope who handles those filings. Late returns themselves are covered in catching up on unfiled business returns.

How do I check a provider's credentials, online or local?

The checks are the same online or local: get the name of the individual who will do the work, the credential and its number, and confirm it with the body that issued it. For practice before the IRS, location does not matter, because a CPA qualified in any state may practice before it (Circular 230, sections 10.2 and 10.3). State licensing, payroll and sales tax rules can differ and are not covered here.

1. Name the individual. Ask who will prepare, sign and represent, not just the firm's name.
2. Check the credential at its source. The IRS licenses enrolled agents, state boards of accountancy license CPAs, and state courts or bars admit attorneys (IRS credentials). Ask for the state and license number and confirm it with that body.
3. Use the IRS directory as one check. It lists attorneys, CPAs, enrolled agents and Annual Filing Season Program holders, and is linked from choosing a tax professional. Preparers with a PTIN who are not listed may still provide quality service, so a missing name is a question to ask, not proof of a problem.
4. Ask who will answer questions after filing (Topic 254).

No official source ranks providers, and a review cannot replace a credential you verified yourself. Test any provider, online or local, with one batch first, as the written scope below sets out. For fit and software, see local or online bookkeeper; for a provider in another country, see hiring an offshore bookkeeper.

Who owns the books and the files when the job ends?

Who owns a finished ledger depends on your agreement and state law, but the tax system makes the taxpayer responsible for keeping sufficient books and records, and in many examinations the IRS asks for the accounting-software backup file and the administrator's username and password (IRS software FAQ). Create the file in the business's name, stay administrator, and give the provider a named user.

• Keep the original entries. Ask the provider to fix errors with dated correcting entries, not by deleting entries or building a replacement file, and to archive a copy before large changes. The IRS says a new file created for an examination, for example by re-entering one year, is not a copy of the books of original entry, and condensed data is not acceptable for a year under audit (same FAQ).
• Returning records is a rule for practitioners, and its reach here is unclear. A practitioner, such as a CPA, enrolled agent or attorney, must promptly return, on request, the client's records the client needs for federal tax obligations (Circular 230, section 10.28). A fee dispute generally does not excuse returning them; where state law lets a practitioner keep records during one, the practitioner need only return those that must be attached to your return, and must let you review and copy the rest. A document the practitioner prepared and is withholding until its fee is paid is not a client record under the rule (same section). The rule ties client records to the practitioner's representation of the client and does not say whether bookkeeping alone counts. A provider who is not a practitioner is not covered, and state law may add rules this page does not review. If a provider already holds your file, see taking over books from a former accountant.

Because a finished ledger can be held back, write the handover into the scope and keep administrator access from day one. At the end, collect a full backup, the reconciliation reports, the open-items list and your originals, and remove the provider's access. The IRS tells tax professionals to remove authorizations for people who are no longer clients (Publication 4557). To revoke one, write "REVOKE" across the top with a current signature and date, and send a copy to the IRS (Form 8821 instructions; Form 2848 instructions).

What do I give a provider, and what should I avoid handing over?

Give a provider what the work needs and nothing that lets them move money, receive your refund or act for you without a record. Give each person a login of their own.

How is my financial data protected, and what should I ask?

Ask for the provider's written security plan. The FTC Safeguards Rule requires tax return preparers to create and follow one (Publication 4557). Whether it reaches a given bookkeeper depends on what the provider does, so use Publication 4557 as a yardstick for anyone who holds your bank and tax data, not as a rule that binds every bookkeeper. Ask:

1. Who runs the written security plan?
2. Does everyone who reaches my data sign in with more than a password?
3. Are files and emails encrypted?
4. Who can see my data, and which other companies handle it?
5. What happens to my data when we finish, or if it is lost?

Publication 4557 asks tax professionals for each of these. A plain, specific answer is a better sign than a general promise. For a bookkeeping-and-tax bundle compared with a CPA firm, see online bookkeeping service or CPA firm.

If the provider is late or wrong, am I still responsible to the IRS?

Generally yes. Hiring a provider does not move your duty to file, pay and keep records, and the IRS says reliance on a tax professional generally does not excuse a late filing or payment (IRS reasonable cause). Relief depends on the facts of each case. Inability to get records is among the IRS's examples of a valid reason, but only for someone who used ordinary care and prudence and still could not file or pay on time (same page).

• Accuracy penalties: the IRS looks at whether you gave your advisor all the information needed and whether the advisor was competent and experienced in the situation (same page).
• Payroll: an employer that outsources payroll generally remains responsible for deposits and filings, and the IRS may assess penalties and interest on the employer's account. Publication 15 names one exception, a certified professional employer organization (Publication 15).

Keep control: put filing and payment dates in the scope, ask for proof that each return or payment went out (reasonable-cause page above), and check your IRS accounts yourself: a Business Tax Account (IRS) or your individual online account (IRS) shows balances, transcripts and notices, and who can use a Business Tax Account depends on entity type and role. For payroll, see giving a bookkeeper access to your accounts. If a penalty has already arrived, see bookkeeper mistakes and who pays the penalties.

What should the written scope say before I pay?

The scope should let a stranger tell whether the job is done. Write down these points before any deposit:

1. Period and accounts. The first and last month, and every account by name and last four digits: bank, card, loan, payment processor, marketplace and payroll.
2. Deliverables. For each month, reconciled statements for every account, plus a profit and loss and a balance sheet.
3. Agreement with filed returns. Opening balances (what each account held on the first day in scope) come from the last filed balance sheet or, if the return has none, the year-end statements. Each filed year agrees with its return or the differences are listed, and income is compared with Forms 1099 and platform payout reports.
4. Payroll and sales tax. The books are compared with returns filed and payments made, and the scope says whether late filings are included.
5. Returns. For each return that depends on the books: who prepares it, who signs and files it, who holds a Form 2848 if representation is included, and what is excluded, such as notices, audits or amended returns.
6. Order and dates. Which period is finished first (the one a return or lender needs), a finish date for each batch, and what would move it. Treat the first batch as a test: check it against the statements before the next batch starts or the next payment is due.
7. Open questions. The provider keeps a dated list of what it cannot classify and what would settle each item. You answer by an agreed date, and items still open at the end are listed, not guessed.
8. Ownership and access. The file is in your name, you are administrator, the provider is a named user, and the scope lists what is returned at the end.
9. Price basis. Fixed, hourly or monthly, and what triggers more: extra accounts, missing statements or changes after sign-off. The drivers are in catch-up bookkeeping cost.

For contract terms, see bookkeeping engagement letter; for what to ask before hiring and how to check the first batch, see questions to ask before hiring a bookkeeper and checking your bookkeeper's work; for what a service should deliver once the books are current, see what a monthly bookkeeping service includes.

When is a catch-up service the wrong first step?

When a deadline or enforcement step, not the books, sets the order of work. In each case below, deal with that step first, with someone who can represent you if it calls for one, and let the books follow.

A lender or sale date does not make catch-up the wrong step. It sets the order: ask what periods the lender or buyer will want, and put those first. Loans can be delayed when returns are missing (IRS). If you have only bank statements and no books, see rebuilding books from bank statements.

What do I gather so the quote and the timeline are real?

Gather statements for every account for every month, filed returns, payroll and sales tax reports, and Forms 1099: a provider can only quote what they can see, and each missing item adds time. The IRS lists account statements, invoices, receipts and canceled checks among the supporting documents behind your books (Publication 583). Bring:

Add a short note of which accounts or cards are personal, what you know of money you put in or took out, and anything you know is missing. Keep every original.

Example

These examples are illustrative and use US dollars.

Restaurant, 18 months behind

A restaurant owner with US$600,000 of revenue is 18 months behind across four accounts: an operating account, a payroll account and two cards. Before agreeing to a price, the owner asks for a monthly bank and card reconciliation for each account, a reconciliation of sales tax from the register reports to the return (see restaurant sales tax and POS reconciliation), and a close date for each batch, with the months a lender will ask for first. The owner stays administrator of the accounting file throughout.

S corporation, two returns also unfiled

An S corporation owner is two years behind on the books, and the Form 1120-S for both years was never filed. Assume the S election is in effect. A scope for bookkeeping alone covers neither the returns nor a letter if one arrives, and each late return can carry a monthly penalty for every shareholder whether or not tax is due. So the scope names who prepares and files each return, who signs, and which CPA, enrolled agent or attorney holds the Form 2848.

• Year 1: reconcile every account, set opening balances from the last filed balance sheet or the year-end statements, and finish Year 1 first, because its return needs it.
• Year 2: continue from Year 1's closing balances, then prepare the Year 2 return.

Online seller, payouts that do not match the Form 1099-K

An online seller made US$80,000 of sales through two marketplaces. Assume each marketplace passed the Form 1099-K reporting threshold and no shipping or sales tax is in the forms. The two Forms 1099-K add up to US$80,000, the gross amount. The deposits total US$73,000. Sales less US$7,200 of fees and US$1,800 of refunds explain US$71,000 of them, and US$2,000 matches no sale. Before agreeing to a price, the seller asks what the provider does with a deposit that matches no sale. The scope then says each payout is tied from gross sales through fees and refunds to the deposit, and unmatched deposits go on the open-items list instead of into sales. See reconciling sales and payouts.

Different for you?

• Your books are months or years behind, a return or lender date is near, and a do-it-yourself try or an earlier bookkeeper stalled: the open points are which months and accounts the work covers, who prepares the returns that depend on the books, and the order of work. These are the points to settle before you sign a scope; see bookkeeping help.
• Returns for earlier years were never filed: see catching up on unfiled business returns. For the books those returns need, see bookkeeping help; for the returns themselves, see corporate tax help or, for a sole proprietor, individual tax help.
• An IRS notice or an audit letter has arrived: see IRS notice to your business. A CPA, enrolled agent or attorney can represent you on a notice or in an audit, so changes to the files are a question to put to one first.
• A provider's mistake has already led to penalties, or payroll tax was withheld but not paid: see bookkeeper mistakes and who pays the penalties.
• You are still deciding whether to hire, clean up the old file or start fresh, or what a quote should cover: see doing your own books or hiring a bookkeeper, cleaning up or starting fresh and catch-up bookkeeping cost.
• Your S corporation paid personal costs or large owner payments, you file a Schedule C, or you own rentals: see S corporation catch-up books, Schedule C expenses for unfiled years and catching up on rental property books.
• You or your company are in two countries, or you want a provider who works in Chinese: see books for a US LLC owned by a Canadian, bookkeeping for a foreign-owned US company and Chinese-speaking bookkeeper and accountant.
• Your books and filings are Canadian: see catching up on overdue books in Canada and choosing an accountant in Canada.