The annual tax filing deadline is still several weeks away for both individual and business taxpayers. That may seem like a long way off, but a lot needs to happen fairly quickly if you are going to be ready to file on time. Here are our favorite tips for ensuring that you have a smooth tax season with minimal surprises.
Don’t assume it’s not deductible. If you have a sliver of doubt as to whether an expense might be deductible, ask your tax professional. Expenses connected to business often get overlooked, as do certain qualifying improvements to real property and some health-related allocations. Bring your receipts to your tax professionals, explain what the expense was for and rely on them to determine if you can reasonably claim the expense as a deduction.
Tell your tax professional about the big changes in your life. All kinds of activities and events can impact your tax liability. Marriage and divorce, a new child, a child in college, purchase or sale of a primary home or investment property, an inheritance, a significant change in your work compensation and many other things can make a difference in how much you pay. And because tax planning is most effectively done over a period of years, it’s a good idea to let your tax professional know what’s on the horizon, too.
Organize your papers before handing them over to your tax professional. Nobody likes paying taxes and few of us like the kind of detail work that goes into organizing income statements and receipts by category. But taking the time to sort things out before you give them to your tax preparer can benefit you in a couple of ways. First, you will likely save money on the fee for preparing your return. Most tax preparers charge for any time spent organizing documents. Second, you’ll be reminded of things you wanted to discuss with your tax preparer.
Start using the organizer your tax preparer provides. Most CPAs and professional tax preparers use an organizer document intended to help you get ready for tax season. The organizer is useful for categorizing income and expenses, identifying major life events, etc. While it can be daunting to fill it out at the last minute, it can make things a lot easier for both you and your tax professional if you take the time to complete it for the next tax year.
Give your tax professional time to work. Your CPA may be a wizard at pulling rabbits out of hats and getting your return completed and filed even when you submit your documents at the last possible minute. But just because he can do this doesn’t mean it really benefits either of you. Rushing a return out the door may increase the chances of an error, with the possibility of added expenses associated with filing an amended return – or even of having to respond to an audit notice. Beyond that, it doesn’t allow much time for strategic consideration of approaches that might legally reduce your tax bill.
Let your tax preparer know if you are going to be late with providing documents. Sometimes you cannot help it. Certain documents – such as K1s – frequently arrive later than they are supposed to. And sometimes, it’s difficult to assemble all of receipts, statements, etc., in a timely manner. Contact your tax professional and explain what’s going on so the two of you can work out an appropriate strategy.
File an extension if you need to. If you are having difficulty assembling all your documentation, it may make sense to put your return on extension. Contrary to popular belief, there is virtually no downside to filing an extension. Your tax bill will be exactly the same as if you filed on time, although you may be assessed modest interest and penalties if you haven’t already paid what you owe. The likelihood that your return will be selected for random audit may actually decrease; anecdotal evidence suggests that two thirds of returns selected for random audit are chosen before the October 15 submission deadline for returns on extension. Finally, if your documents are coming in slowly, chances are good that it’s because your financial picture is somewhat complicated, with multiple income streams, requirements to file in more than one state or significant itemized expenses.
The Bottom Line. Tax season is a stressful time for everyone, but you can make it less stressful by following these tips. By helping your tax professional do a better job for you, you may be able to lower your tax liability and reduce the chances that your return will need to be amended due to errors. Your AKM CPA stands ready to help you get through tax seasons for years to come in whatever ways we can.