As tax season kicks into full gear, you are likely to hear many people advertising themselves as “tax preparers,” but what does that truly mean? It’s important you know the answer to that question. While many taxpayers dread tax time, having your return prepared accurately by a knowledgeable tax expert can save you time and money and also help prevent possible IRS penalties or audits in the future.
Your choice of preparers can range from self-prepared via Turbo Tax software, a national tax preparation chain or your local CPA. While the price of the service is an important factor, the complexity of your return should determine the level of service and knowledge needed in your adviser. CPAs comply with extensive education and experience requirements and must pass a rigorous examination in order to qualify for their licenses. In addition to this almost 15-hour exam, CPAs also must meet continuing education requirements to keep them abreast of new developments and laws. Simply being a CPA does not mean they have the tax knowledge to meet your goals, but it is a good starting point in your search.
If you are meeting with your preparer about your personal income tax return, the American Institute of CPAs recommends taking the following, if applicable:
W-2s from any employers for yourself and your spouse
• 1099s you may have received for self-employment, interest, investment or other income
• 1099-SSA for Social Security income received
• Documentation of any other income you received during the year, such as self-employment income, alimony, rental or other payments
• Paperwork showing tax-deductible expenses, including mortgage interest, state taxes, local property taxes, childcare or medical costs and moving expenses
• Documentation of contributions you have made to traditional or SEP IRAs
• Information on charitable contributions you have made
• Details of any estimated tax payments you made
While this not an exhaustive list, your preparer’s office may be able to provide you with a more specific idea of the best paperwork to bring. In addition, if you are a new client to this professional, don’t forget a copy of last year’s return so that your adviser can develop a better understanding of your financial situation.
Regardless of the type of professional chosen, there are many things you should do during the time prior to meeting with your tax preparer.
One of the easiest steps to take is to look at last year’s tax return and familiarize yourself with the numbers. In doing so, you can better establish the data needed for your current year’s return.
Another simple approach is to gather the envelopes marked “tax related” that come to you in January and February. These should be opened and examined to make sure they truly are income tax related; keep in mind spam mail often comes in official looking envelopes marked “tax related” and you do not want to pay your preparer to open your mail. If you are in doubt about its relevance to your actual return, at least open the envelope and provide it to your preparer.
Additionally, organize your data and even provide totals for the receipts vs. a messy box of paper that may or may not relate to the tax return. After all, your preparer likely charges by the hour, and the more messy and unorganized you are, the higher your bill or the more likely there will be an error.
Lastly, complete any data forms your preparer may send to you prior to the meeting. Doing this will make a much easier return for your preparer and a lower bill for you. While taxes may not be your favorite activity, taking simple steps can make them much easier and cheaper for you as well.
Life is a journey, plan for it.
Neil A. Brown is a CPA and CFP with Burkett Financial Services in West Columbia. Find him at www.uscneil.com or (803) 200-2272.