3 Steps to Prep for Tax Preparation; Money and More© January 2020

Having prepared taxes for almost a decade, I have learned what our best clients do to get ready for tax preparation.  US Income Tax law is quite complicated and can be intimidating if not overwhelming.  Before entering the financial planning profession,  I used outside preparers for my increasingly complex personal return.  At that time, I did not have a clue how to expeditiously collect and organize the multitude of information I had.  I was totally stressed just getting the paperwork ready for my tax preparer.

Later, doing tax preparation work, I saw the many different ways that clients would turn in their tax information to us.  I began to appreciate a well organized set of documents not in a shoe box.  Still later as my Dad got older, I began to take over helping him get ready for his tax preparer in another state.  My observations as a preparer help make my Dad a better client for his tax preparer.   Perhaps most important, I got to re-experience first hand what folks experience getting ready for tax season and learn still more.

Whether you use a paid preparer or are a “Do It Yourself-er,”  the lessons I learned can help you get ready for tax season.

Here the three steps I learned to help make the process go smoother each year.

Step 1: Collect and Gather

Once January 15th rolls around I know it is time for employers,  financial institutions, and charitable organizations to start sending their annual reports and tax forms.

These forms include:

  • W2s from employmentTax Preparation
  • Series 1099 forms for income like self employment, rents, dividends, bank interest, brokerage sales and retirement/pension distributions
  • Series 1098 for money’s paid such mortgage interest and college tuition.
  • K-1s from investments, businesses, or estates
  • Closing statements for real estate purchases and sales

Over time I have found that an expanding pocket file works well to collect, store, and start the organizing process by category.

Step 2: Organize

I use the organizer the tax firm supplies to make sure I have the all the forms for this year I had last year.   Part of the review is note what has changed for the year.   Putting the forms in the order of the organizer is useful as it generally follows the order of software entry.  This speeds up the entry process.  Also, the preparers I know prefer the actual forms or photocopies rather than hand written entries in the organizer.  Sometimes there are codes or footnotes on the form needed for tax preparation.  Totaling up numbers on the organizer such as cash given to charities or for medical expenses  is a great help.  Preparers generally don’t need a receipt unless you are unclear if it useful or not.

Lastly, and equally if not more important, the organizers frequently have a lot of questions that often are yes or no answers.  These answers help the preparer know about the taxpayer’s particular circumstances.  For some aspects of the return, the IRS requires paid tax preparers to confirm/verify information.  Most of this is for credits like the American Opportunity Credit (for college tuition) or Dependent Credits.  Verifying this information is usually done with specific papers verifying, for example, that a child lives at a particular address.  Having this documentation ready is really helpful.

Step 3: Transfer to Preparer for Tax Preparation

I send this information to my Dad’s tax preparer.  I include a short explanation of the tax related changes for the tax year.  Preparers are not required to audit the supplied information though verification might be needed.  As preparers, we might ask additional questions to get the most accurate return for the client.   Please be patient as we ask questions that either seem obvious to you or of no relevance.   There is a reason based upon tax code that we ask.  It is equally important is to ask us questions.  We might give you feedback that can help you further streamline  process.  In the end, a completed organizer and organized set of forms makes it easier and quicker to finalize a return.

Over the years my personal process of organizing records for tax season has matured.  Today, it is much less overwhelming and stressful when I follow the 3 Steps I learned through my personal and professional experience.


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