How to Help Your CPA at Tax Time

 In Accounting, Tax Filing

It’s that time of year again! Time to get your documents to your CPA for tax preparation. Here are a few helpful tips to ensure things go smoothly with your tax preparation engagement this season.

Start as Early in the Season as Possible

There is no better tip than to start early! Starting early in the tax preparation season will enable your CPA to spend more quality time on your return and most likely avoid filing an extension.

Why would you want to avoid filing an extension?

  • Filing an extension allows the IRS six months of additional time onto the statute of limitations to audit your return and assess tax.
  • Filing an extension increases the risk of incurring failure-to-pay penalties and interest on the balance that may be due.
  • Filing an extension oftentimes makes it more difficult for your CPA to estimate taxes for the next filing year as that is typically done in conjunction with the tax return engagement. In turn, this may result in you underpaying estimated taxes for a significant portion of the year.
  • Given that tax planning generally follows tax preparation, the later in the year that you start tax planning, the less options are on the table to achieve planning goals. When it comes to tax planning, timing is everything.
  • Last, but not least, it is better not to procrastinate with something as important as taxes. I will share with you a story.

I had a particular client who typically filed extensions each year as a regular practice for many years, and this practice preceded our client relationship. Try as I might, I could never convince him to file by the original filing deadline. We filed the extension in March as he requested, and though I sent emails throughout the summer reminding him of the need to get started, life continued to get in the way for him and we were not able to progress.

The extended S Corporation filing deadline was September 15. He gets the documents to me around September 10. Guess what happens? Our governor issues an evacuation order for my entire state due to an impending Category 4 hurricane. Guess what happened with his return? It did not get filed on time in the midst of all the chaos and the process of relocating my family to safety. Though the IRS did (eventually) waive the penalties, it took significant time, effort, and substantiation in order to achieve this result. The unfortunate thing about this situation was that it was completely avoidable simply by starting earlier in the year.

Having said that, I do recognize that extensions exist for a reason. I am happy to assist clients with extending returns in situations where important documents are not yet available at the original filing deadline. However, filing extensions as a regular course, just because you can, is not the preferred practice for the reasons I listed above. Generally, over time, I am able to successfully convince most of my clients of this, and my long-term clients generally have their returns filed, or substantially complete, by mid-February for pass-throughs and by mid-March for individuals and C Corporations. That is a month ahead of the deadline, and it enables the client to have one less thing to worry about and gives us an earlier start with planning for the next tax year. With adequate time, great results can be achieved!

Complete Your Tax Organizer

Most tax professionals will provide you a tax organizer to complete each tax year in which you provide information about yourself, your spouse, your dependents, your income, deductions, potential credits, and tax payments. There is also generally a section where you answer yes or no to various questions that can have significant tax implications. Be sure to complete your organizer carefully and ask your preparer about any questions that you do not understand or that you are unsure about. Completing your organizer neatly and thoroughly will enable your preparer to produce a more accurate return and maximize your deductions.

To this end, also be sure to provide documentary support to your preparer for all information reported by third parties to you (and the IRS) such as Forms W-2, 1099 series forms, 1098 series forms, Forms 5498, and all other official tax documents. This enables your preparer to increase the accuracy of your return and may potentially prevent you from receiving an IRS notice down the road.

If you are filing a past tax year or filing after the original deadline of the return, it is also a great idea to pull your Wage & Income Transcript from and provide that to your tax preparer as well. This will enable her to have a record of all information that the IRS is privy to, and she can then ensure that this information is included within the return as necessary. The Wage & Income Transcript for the preparation year is generally released after the original deadline of the return.

Organize Your Information Electronically

The days of handing your tax preparer a box of receipts and walking out of their office are generally over according to most tax preparers that I speak with and most continuing education courses that I attend. This is especially true as we deal with the challenges related to the COVID-19 pandemic. Most preparers these days are operating remotely, and all documents can be provided electronically by utilizing electronic portals, shared folders, zip files, and other modern means of data transmission. I personally operate almost completely paperless, and many CPAs that I know from my generation, and especially those who are younger, operate similarly. As we continually transition to a more technology-driven society, it becomes increasingly important for clients to organize their information in such a way that enables the tax preparer to efficiently complete their returns. The IRS has even made significant strides in transitioning to remote operations during this time of COVID-19. If they can do it, so can you!

I hope you enjoyed these tips! If you have not yet found the tax preparer you are looking for this season, I would enjoy discussing your tax preparation needs with you. Have a happy and safe tax season!

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