With tax season upon us, I thought I’d take some time to list some things to make the tax preparation ordeal a little easier for both you and the tax preparer.
First, let me issue a small disclaimer, something you may not know. You, the taxpayer, are responsible for all the numbers on your tax return. When you sign your tax return, or Form 8879 (for e-filing), you are agreeing that all the figures on the tax return are correct to the best of your knowledge. We, as tax preparers, are responsibile for how those numbers are reported and where, but the accuracy of the amounts belong to the taxpayer. That being said, the tax preparer is responsible to perform due diligence, to make sure to the best of his ability that the amounts being reported on the tax return are correct.
Now on to the tips.
Complete the tax organizer (if you were given one). Usually, this organizer contains information carried over from the previous year’s return and can act as a reminder of documentation you need to provide. And this year, it most likely contains questions about your health insurance – which could affect your taxes. If you don’t write anything on the organizer, don’t send it back to the tax preparer!
Organize your tax information. Keep all related information together. Group your W-2s, 1099Bs, 1099Rs, etc. This is not a must, but might reduce the amount of time needed to prepare your return. Plus, it helps you see if you omitted anything. Did you include all the interest from all those savings accounts?
Include a summary of medical expenses (not each receipt). Give totals for prescriptions, doctors, hospitals, insurance premiums, long-term care premiums, etc.
Include a summary of rental property expenses. Give totals for each type of expense – insurance, maintenance, repairs, management fees, etc.
Include a summary of business expenses. Give totals for each type of expense – advertising, auto (include a mileage summary), supplies, labor, etc.
Be sure to include all the pages of the year-end tax information you get. This would include mortgage interest, brokerage accounts, interest income, etc.
Be sure your preparer knows about any changes in your businesses. For example, you bought rental property, sold rental property, bought a new vehicle, started a new business, incorporated an existing business. These are all important and must be taken into account.
Carefully read any requests for additional information. It’s all important, so don’t just read the first line or paragraph.
The tax preparer does not usually need to see all your receipts for things like medical, but be sure you keep a copy of them. Occasionally, the preparer may ask to see some additional documentation, such as medical receipts. For example, if the client has a total income of $25,000 and says he had medical expenses of $50,000, I will probably want to see some proof of that $50,000 (a part of due diligence).
Also, keep any documents that support the figures on the tax return. Use this thought – if I had to prove that (pick a number) on my tax return, could I? If you took a home office deduction, do you have the information to prove your utility deduction? Can you prove your vehicle mileage? Do you have documentation to prove you gave $1500 worth of clothes to Goodwill?
Most tax preparers now scan all the documentation you give them. So don’t staple things together. It takes additional time to remove staples. If something needs to be held together, use paperclips. Also, try to be sure that all the documentation you provide is in fairly good condition – meaning no waded up receipts, or papers that look like they have been used as a paper towel. It is hard to send a wad of paper through a scanner.
Be willing to accept electronic copies (if possible). Tax returns, along with all the appropriate schedules and back-up worksheets, can use a lot of paper when printed. It saves paper if you will be able to receive an electronic file and only print it when you need to, and what is required.
If you are preparing your own return, then you can wait until April 14 to start on it. Don’t expect your tax preparer to be so accommodating when you finally give them your documents two days before the filing deadline. Most preparers that I know have an April 1st deadline. If they don’t have your information by April 1, then don’t expect to have a return ready by April 15.