Every year, when the time for tax preparation rolls around, being in a situation where a document or an important step is missing is something tax preparers are all too familiar with. Then it becomes a game of chasing cats and mice, where they are chasing W-2 and 1040 forms, on endless calls with their clients. Bottlenecks such as these, though common, are not ones that can be resolved with sheer brute force and last-minute scrambling which many tax preparers commonly try, especially during peak season.
Instead of calling in for missing documents, which is a more curing approach, it’s much more productive for tax professionals to incorporate a more preventative approach. This means that rather than frantically reacting to missing information, you establish clear communication early on. Hence, you equip your clients and yourself with a comprehensive, easy-to-use tax preparer checklist well before peak season begins.
This blog provides checklists for both positions, from the perspective of tax preparers and their respective clients, to streamline the process for both of them. These checklists are adaptable and can be tailored to suit the specific dynamic needs that arise during tax season.
Tax Preparation Checklist for Before Filing
From the perspective of tax preparers, the IRS’s requirements for documentation tend to go beyond what their client’s requirements are. Because while they file taxes on their client’s behalf, there is an additional set of requirements that goes alongside their client’s tax preparation requirements. These additional sets of requirements, unlike those of their clients, lean more towards compliance checks and IRS tax preparer security requirements. They also encompass other due diligence tasks that are expected from all tax professionals by the IRS.
These additional items can vary depending on state requirements, as they can add significant complexity to a preparer’s workload. The following section provides a checklist for tax preparation that professionals can use to fulfill their required due diligence from their perspective:
1. Have I secured an engagement letter from the client that outlines the scope of the work and what I’m charging for the service?
An engagement letter is something that provides protection for both parties. It will outline what work will be done, what liabilities will be incurred, and how payment will be made. This is the best way to protect oneself from scope creep and confusion regarding payment.
2. Do I have the updated information of my client?
With updated information, it becomes easier to communicate with the client for approval of the documents, dealing with audit notices, and filing the returns.
3. Have I positively identified the client and their spouse with an unexpired government-issued photo identification?
Identity verification is vital since it plays a role in protecting me from tax refund fraud. The review and retention of the valid ID are essential.
4. Am I providing the right Social Security number or Individual Taxpayer Identification Number (ITIN), date of birth, and information about each of my dependents?
Proper information about dependents is essential for claiming tax credits based on dependents. Incorrect information could lead to the rejection of credit claims by the IRS and potential penalties for submitting false information.
5. Have I filled Form 8867 with respect to refundable credits as required by the IRS?
Form 8867 should be completed as required by the IRS, demonstrating proper attention to refundable credits. Failure to fill out the form may result in penalties.
6. Did I get all of my client’s W-2s from their employers?
All the W-2s are essential since they show the earned income, withholding, and any state or local taxes. Using year-end pay stubs instead of W-2s will cause computation mistakes and delays in tax processing.
7. Did I get Forms 1099 (NEC, MISC, K-1, etc.) for any freelancing clients and business entities?
This is necessary for all the income earned through freelance work and/or pass-through income. It is necessary to reconcile this information to avoid issuing the IRS a matching notice.
8. Have I got all the documents pertaining to my investments, such as Forms 1099-INT, 1099-DIV, 1099-B, and 1099-DA?
This information is necessary to compute taxable interest income, dividend income, and capital gains or losses. It is crucial to ensure accuracy when filing Schedule D.
9. Have I got Forms 1099-R for pensions/IRA and Form 1099-G for unemployment/state refund?
They document taxable withdrawals from retirement plans and government payments reported. Getting those forms makes sure that the calculation of the Adjusted Gross Income (AGI) of your client is done right, along with the imposition of early withdrawal penalties.
10. Do I have a copy of last year’s filed tax return to look for carry-forward losses, carry-forward credits, and AGI verification?
Having last year’s tax return is very helpful in making sure that the carry-forward losses are considered. It also helps verify the taxpayer’s previous AGI, which might be needed by the IRS for e-filing.
11. Am I organized in collecting the profit and loss statements, mileage records, and their associated business expense documentation?
This step of tracking your business expenses helps to make sure that you are following the IRS substantiation guidelines. This will allow you to take full advantage of all allowable deductions while excluding any non-business expenses.
12. Do I have the Form 1098 for my mortgage interest and other itemized deduction documentation?
For the tax preparer, it is important to know that this form is in safekeeping. This helps determine whether itemizing deductions will reduce the tax bill more than taking the standard deduction. This form confirms the mortgage interest and points paid to the mortgage company during the year.
Tax Preparation Checklist for Clients
Tax preparers understand how important it is for clients to submit the correct information and documentation. They also recognize the need to do so securely and in a timely manner. However, the reality is that many clients don’t understand the entire scope of what they should bring to a tax appointment. Such ignorance is the root cause of the last-minute chaos that most tax preparers frequently deal with.
One of the easiest ways to bypass this root problem and facilitate a back-and-forth between the preparer and the client is to provide them with a comprehensive tax return preparer checklist. This should be given during the initial phase of their consultation. The following is an example of the checklist prepared by the tax preparer to help the client avoid any panic at the last minute:
1. Have I gathered my SSN cards or ITIN letters?
Double-check the exact numbers for every family member. The IRS rigidly matches names and Social Security numbers, and typos here will cause immediate rejections of your return.
2. Did the IRS issue me an IP PIN that I need to include?
If the IRS sent you a 6-digit Identity Protection PIN, your return cannot be processed without it. You can retrieve your IP PIN on your official IRS Identity Protection PIN portal.
3. Do I have my bank account and routing numbers?
These numbers are required to establish a direct deposit for your refund or set up a direct debit for any taxes owed. Always verify your account and routing numbers to ensure safe, timely transfers.
4. Did I gather all W-2s?
Gather the wage statements from each employer that you worked for throughout the year. They contain your total wages earned along with any federal or state taxes deducted from your pay check.
5. Do I have my SSA-1099 form for miscellaneous income?
These are the forms that show your miscellaneous income, which is subject to taxes. Having these exact forms prevents you from underreporting your income and taking advantage of the standard deduction.
6. Did I get Form 1095-A (in case of having health insurance coverage through the Health Insurance Marketplace)?
Form 1095-A is necessary to reconcile your premium tax credit in case you have obtained health insurance through the Health Insurance Marketplace.
7. Did I collect Form 1098 (interest mortgage), property tax receipt, and charity donation record?
Keeping track of how much money, you have paid your creditor, municipal corporation, or charity can help you increase your allowable deductions.
8. Do I know how much I paid in estimated taxes to the government, either at the federal or state level?
A correct ledger of the quarterly payments made ensures that full credit is given for the taxes already paid, thereby avoiding penalties and mistakes due to overpayments.
9. Did I make copies of my tax returns from last year?
It provides good information about last year’s carryovers, AGI, and bank accounts. It helps to get into the process faster.
Conclusion
The main purpose of both of these tax preparation documents checklist is the facilitation of the tax preparation process for both the tax preparer and his or her client. With a well-drafted checklist, it will be much easier for the tax preparer to collect all the needed information and documents in time without any mistakes or omissions. The checklist not only provides a useful guideline for communicating with the client, but it also serves as an important tool for organizing your work. It helps in managing numerous requirements concerning taxes.
As for the client, the checklist will make this process much easier for them. The checklist will give clear instructions on what exactly should be done before meeting the tax preparer. In such a way, it will help the client to become better prepared and organized in terms of tax documents collection and preparation.
