Take The Panic Out of Preparing for Tax Season

Does thinking of April 15th put you or your clients in a state of panic?  In January of every year many accountants send out Tax Organizer booklets, but not all clients use them.  Some people have alternate systems in place which help them get the needed information to accountants in an organized manner.  Unfortunately, many people still send off lots of loose documents and receipts in no particular order.  Accountants can work more efficiently if they have been given the tools to do the job:  Accurate statements about income, expenses and deductions. 

No matter what the previous habits were and whether an accountant sends a Tax Organizer package or not, there is value in streamlining the materials sent to the accountant.  By preparing an organized package and sending it in a timely manner, you or your clients are assured that the accountant has all the relevant information and will have time to address the bigger tax issues.  Accountants generally need to sort through huge piles of disorganized papers for many clients, all with the same April 15th tax return deadline.  With such a contracted period of time to accomplish this, it is no wonder that so many clients need to have extensions filed.

Take the Panic Out of Preparing for Tax Season - A Client's Story

After taking over the finances for her family, Carolyn was talking with her accountant, telling him about having hired a financial organizer.  He was not sure what this kind of service had to offer, but his comments did not faze Carolyn since she already appreciated the support Eddy & Schein was providing her.  Carolyn and Rebecca entered a year’s worth of checking information on Quicken.  Then tax season rolled around and Carolyn pulled out two huge Redweld file folders filled with receipts that she and her husband had been collecting.  These were similar to what her husband had given their accountant each year in the past.  When Carolyn opened the envelope containing the Tax Organizer booklet, she was overwhelmed by what she saw as a daunting task; she did not know where to start. With Rebecca’s help, she worked her way through the file folders and Tax Organizer. 

Together they sorted tax deductible receipts and threw out irrelevant papers.  By comparing supporting documents, they checked the accuracy of the Quicken report they had printed for the previous year.  They then used the relevant 1099s to fill out the Tax Organizer.  In the end, Carolyn delivered to the accountant a four-page Quicken report, the completed Tax Organizer and a folder of 1099s.  She was prepared to hand it over before the end of February.   The accountant was elated and commended Carolyn on her judgment to acquire professional assistance.

Take the Panic Out of Preparing for Tax Season - A Simple Approach

  • Plan Ahead
    • Know what tax related income and expenditures you have
    • Keep records of tax-related expenditures by hand, or on your computer, categorizing them as you go along - charitable contributions, medical expenses, business-related expenses, etc.
    • If you have any income that is not managed by a company that prepares year-end tax documents (W-2, K-1, 1099, etc.) then keep a record ofincome for yourself, such as rent from a rental property or tax refunds
    • Create folders: "Personal Tax Prep", "Business Tax Prep" (if you have a business), and "Property Tax Prep" (if you have property).
    • Into each folder put ONLY the documents you will need in order to fill out the Tax Organizer or to back up tax returns should you get audited 
    • During the year, the Personal Tax Prep folder would collect
      • Thank you letters for charitable contributions
      • If you can deduct medical expenses
        • Medical, dental, prescription, and eyeglasses receipts
        • Receipts for trips to doctors/dentists
        • Medical insurance premiums paid, long term care insurance paid
        • Medical reimbursements received from insurance companies
      • Tax refunds
    • In the beginning of the New Year, add tax reports showing income and expenses
      • 1099s as they come in from banks, Social Security, and pensions, brokerage firms, mortgage companies, etc.
      • W-2s from place of employment
      • K-1s from trusts, partnerships, etc.
  • Prepare Your Tax Organizer Booklet
    • Review your records and find the sum amount for each category.  A computer program like Quicken can make year end organizing much easier.
    • Look at your Tax Organizer - last year’s numbers are in one column as a guide.

Now, page by page, begin to collect the documents you will need to fill in the amounts in the column for the current year.  If you have a stock portfolio with a bank or brokerage firm, stock sales do not have to be copied into the Tax Organizer – you can reference the year end information from the bank’s 1099.  Just make sure that the document shows the cost of stocks when purchased and the price received when sold, so your accountant can calculate the capital gains.  

  • If Your Accountant Doesn’t Use A Tax Organizer Booklet

Following a system similar to that described above will make it easier for you to prepare your tax records and will allow your accountant to complete your return in a more timely manner.  

In summary, tax returns range in complexity from the very simple to the extremely complicated, but the basic concept of preparing your tax materials is the same.  If you or someone you know still feels too overwhelmed, a financial organizer/daily money manager can help.  Consider hiring one this month so you can get a running start.  Search for a professional near you on www.AADMM.com or www.NAPO.net, or call us for help in hiring a daily money manager/financial organizer.

December 2008 - FEATURE
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