Small Business Taxes & Management

Special Report

Getting Ready for Your Tax Preparer


Small Business Taxes & ManagementTM--Copyright 2015, A/N Group, Inc.


Using a professional tax preparer? Whether you use one of the franchise services or a professional such as a CPA or enrolled agent, there are some ways you can keep the fee to a minimum. Here are some tips.

How preparers bill. More than a few preparers use a schedule based on the forms prepared. For example, $225 for a Form 1040 with Schedule A (itemized deductions) and a state return. Got a Schedule C (sole proprietorship)? That could be another $150. Schedule E (rental properties) might be priced at $40 per property. There are a number of factors that can affect pricing. For example, you may get a break if the preparer also handles your business accounting and taxes.

Some preparers bill strictly by the hour. And a number use a fixed price per form and add for extra work such as a large number of dividend and interest items. But no matter how your preparer bills, you can be sure if your records are sloppy you'll incur additional charges.

Open the envelopes. You may not have a clue what taxes are about, but everyone knows how to open an envelope. Don't laugh. Every year preparers have to open brokerage statements, envelopes containing W-2s, etc. Even if the preparer's secretary is doing the work, you'll get billed. Probably at a minimum of $40 an hour.

It gets worse. Preparers open envelopes that contain no tax info, just a January bank or brokerage statement, promotional material, checks, etc.

Organize the material. Put all W-2s together; put all 1099-DIVs together; put all 1099-INTs together, etc. When the preparer enters the material he'll generally do it by items--all pension income, interest items, all dividend items, etc. Sometimes that's not possible--your brokerage statement will have interest, dividend, foreign tax credit, etc. information all on one statement. If you have more than one, put those brokerage statements together.

Chances are you received statements in your (and/or your spouse's) name, statements in your childrens' names, and your IRA statements. You may even have received 1099s, K-1s, etc. for your business or a trust. Separate them so your preparer doesn't have to pick up a 1099 and put it in a separate pile for when he does your childrens' return (if necessary) or your business return.

The income in your IRA isn't reported on your tax return, but you should let your preparer have access to the K-1s or other statements for any IRAs, SEPs, etc.

Complete the organizer. Chances are your preparer sends you an "organizer" and/or a list of questions and material you should bring to the meeting. This issue can be complicated. Chances are the preparer will enter dividend, interest, etc. information directly from the 1099, K-1, etc. But the organizer will have last year's information. In this case completing the organizer is helpful, particularly to make sure a 1099 or K-1 isn't missed. You should also check 2013 entries and make a note if the account was closed in 2013 (and thus no income for 2014).

Some entries in the organizer are essential. There are usually a number of questions--for example, "did you refinance a mortgage during 2014". You may be able to deduct unamortized points on the prior mortgage, some of the interest may not be deductible (if you refinanced for more than the original mortgage and the home equity exemption doesn't apply), etc.

From a completed organizer the preparer can quickly determine if he needs additional information or should ask additional questions. That can save time and help insure he's reporting all your income and taking all the deductions you're entitled to. If you deal with your preparer regularly (e.g., see him or her at church, he or she prepares the monthly payroll for your business), he may know you had a casualty loss. Or that you now have unreimbursed business expenses because your job or employer changed. But chances are that's not the case and unless you go through the organizer items like those may be missed.

Entering data in the other income, adjustments, and itemized deductions section will make it easier for the preparer. If you're not sure of what should be included (e.g., for medical expenses) do your best and talk to the preparer about the items you're not sure of. Alternatively, make a list of the individual items.

Basis. Basis is a tax term for what an item cost--price per share of stock, cost of a business asset, etc. Adjusted basis is the original cost adjusted for items such as nontaxable dividends or distributions, casualty losses, depreciation, etc. The preparer will need to know your adjusted basis in any asset sold in order to determine your gain or loss. If he did your return in prior years, assets subject to depreciation (e.g., rental property, business equipment) are on file. For stocks, brokers are required to report your basis on stock sold and acquired after January 1, 2011 (some exceptions apply). But what about stock acquired prior to that date? The best way to determine the basis is with the original buy ticket or broker's statement. Your preparer may have to make adjustments, but with the original ticket, that's usually relatively easy. If you have a number of transactions, match the buy with the sell ticket or put it in some sort of order. Without the ticket or a statement from you, computing basis can be very difficult.

You should also advise your preparer of how the asset was acquired. Your basis for a gift is different from an inherited asset. Casualty losses and like-kind exchanges also require special handling.

New client? The first year is usually more involved. The prior year's return is very important, in some cases critical, to the preparer. Better if you can provide the last two years. And don't forget the state return.

Don't delay. Most preparers have a range of clients. From those with a simple 1040 and Schedule A, through those multiple rental properties and K-1s from partnerships, and a number of special issues. The clients with more complex returns usually don't have all their information until well into the tax season. The preparer may be able to enter much of the data, but may decide not to do so. But if you've got a simple return, don't wait. Even if you know you'll owe money with the return, you can have the return prepared and filed electronically and have the money pulled from your bank account on April 15.

We know preparers who call clients during the first week of April and hear "I'm putting my stuff together" and all they have is a W-2, two 1099s and a mortgage interest statement. If you're due a refund, delaying filing doesn't make sense at all. And, unlike wine or bourbon, the stuff doesn't change or get better with age.

Think. As you're going through your material, think about what happened in 2014. Death in the family? You may be due a K-1 for income earned by the estate. But you may not get that K-1 until after April 15th. Same for a new interest in a partnership, LLC, or S corporation.

Buy a vacation home? The interest may be deductible. Take in your sister's son and provide his support for the year? You may be entitled to an additional exemption. Married? Divorced? Legally separated?

Again, make a list and mention the items to your preparer. Chances are he can decide in seconds whether an item requires further discussion.

Health Care. If you had minimum essential coverage for the full year for you and your family, through your employer, Medicare or Medicaid, the Health Insurance Marketplace, or coverage you purchased on your own that qualifies, tell your preparer (or check the appropriate box on your organizer). Not covered for all or part of the year? You'll have to provide your preparer with information about which months you weren't covered. If you got coverage through the Health Insurance Marketplace, you should have received a Form 1095-A. Your preparer will need that form to determine the amount of Premium Tax Credit you're entitled to. Finally, you may be exempt for one or all months of 2014 from the requirement to purchase insurance.


Copyright 2015 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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--Last Update 02/02/15