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22 Tax Season Tips

Matt C. White

WILL YOU BE WORKING with a CPA to file your tax return? For eight years, I was one of the folks on the other side of this annual ordeal. Want to make life easier both for yourself and for us green-shade types? Here are 22 insights:

1. Time is money. CPAs sell expertise by the hour. They track everything they do, all day long, in six-minute increments—or perhaps 15. For the business to survive, it must convert time into revenue. It helps to look at the next 21 insights through that lens.

2. Buying insurance. CPAs envy investment advisors, who get paid by drawing a fee right out of your investment account, with no action required on your part. It hurts more to open a bill and write a check. Working with a CPA is like carrying insurance. Most of the time, it won’t feel like it’s worth it—until it does, and then it’ll feel like a steal.

3. Go team. At least two people will likely work on your account—a signer with more experience and a preparer with less. It’s necessary for the propagation of the profession. Embrace the team approach and consider yourself a part of it.

4. Help wanted. Don’t forget there’s another member of the team—the IRS. A lack of funds and staff, antiquated technology and too many responsibilities have left the IRS heading into the 2022 tax season with a backlog of 24 million returns. You will feel this, and your CPA will, too.

5. Working the papers. Your CPA wants to use your tax documents to create workpapers. A complete set should coherently tell the tax return’s story to someone with no prior knowledge—like an IRS auditor, for instance. Provide clear documentation, and you can help your team reach the workpaper promised land sooner.

6. Email etiquette. When your CPA emails a list of questions, remember that he or she is just trying to speed the progress to the promised land. If you can reply with complete answers, you help create the workpapers—saving your CPA time and saving you money. Hint: It takes more time to transcribe phone messages.

7. Call when it’s complicated. It’s better to discuss complex matters on the phone. Your CPA’s tax season challenge is balancing communication time with enough quiet, focused time to get the job done by the deadline. Scheduled phone calls are more efficient than impromptu calls.

8. It’s a marathon—and a sprint. We’re talking 60-hour weeks, tracked in six-minute increments, that last for three consecutive months. Humans can’t do that with a uniform level of focus and production. You may notice fluctuations.

9. Get organized. Group and order your tax documents when submitting them to your CPA. For example, try something like this: W-2s, brokerage account 1099s, retirement account withdrawal 1099-Rs, summary of rental income and expenses, mortgage interest 1098, charitable donation letters.

10. Provide a summary. Create a simple lead sheet that summarizes all documents. Keep the same format each year and highlight any new or unusual items. For accountants, it’s incredibly helpful to see the big picture at a glance, so they can compare it to the prior year and check the tax return for completeness.

11. Send everything. Include every page of the tax documents you receive—even the pages that might seem unnecessary. If you leave one out, your CPA will have to ask you for it.

12. Answer the questions. Complete your CPA’s pesky questionnaire the best you can. Even though you’re already sending all the tax documents you know about, this list is designed to catch those easily overlooked details that are pertinent for tax compliance. Besides, the firm’s professional liability carrier makes the firm do it.

13. One and done. Don’t send in your tax documents until you have everything—or, at least, almost everything. Multiple piecemeal submissions take up extra time and increase the chances of leaving something off the return by mistake.

14. No oversharing. Yes, supply complete tax information, but use discretion and don’t overshare. Do you really want to pay your CPA to do the sorting and summations that you can do on your own? Use the deduction categories from Schedule C or E to create summaries of business or rental income and expenses.

15. Favor simplicity. If you have brokerage accounts with multiple investment custodians, consider consolidating everything at one firm. It’ll reduce the volume of 1099s, making tax compliance more efficient and, as an added bonus, simplifying your portfolio management.

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16. Extending the agony. You can request a six-month tax-filing extension, but that doesn’t change the payment deadline. That means your CPA must do enough work before the April deadline to calculate an accurate tax liability.

17. Schedule K-1. If you own an interest in a partnership, limited liability company or S corporation, you can’t file your tax return until you have the K-1 that reports your share of the flow-through income, deductions and other tax info. If the entity extends, then you must, too—and, in the meantime, use the best available estimates to calculate your tax liability. When the K-1 eventually arrives, your CPA will have to revisit the work that resulted in the initial tax estimate and integrate the new details.

18. Private pain. Over the past decade, private equity firms have made a push downstream from institutional investors to individuals. If there weren’t enough reasons to be wary already, don’t invest unless you’re willing to accept the extra complication and cost of tax compliance for these limited partnership interests.

Compared to the straightforward 1099 reporting of a mutual fund or exchange-traded fund, your CPA must parse far greater detail to properly report the multiple types of income, deductions, gains, losses, and supplemental information included in these private equity K-1s. Extra compliance tasks include applying passive loss limitations, preparing tax basis schedules, calculating the qualified business income deduction, evaluating potential state filing requirements, and working through onerous foreign informational reporting mandates which ramp up to a new level of scrutiny in 2022 with the introduction of the Schedule K-3.

19. Master limited partnerships. Energy infrastructure MLPs are often touted as a great source of yield. Just know they’re also a great source of tax headaches. Yes, they’re traded on an exchange, but they are classified as publicly traded partnerships. That means they report on a K-1, triggering most of the same issues as private equity, but with even more restrictive passive loss limitations.

20. In them you trust. Do your homework to choose a CPA you can trust—and then trust him or her. Questions asked in a spirit of collaboration will enhance the relationship. But if you constantly press your CPA to defend his or her decisions, your accountant won’t enjoy working with you.

21. Matters of judgment. Your CPA signs his or her name to your tax return—putting professional credibility on the line. The tax code is complicated and sometimes gray. Expect your CPA to exercise professional judgment and take this responsibility seriously.

22. Be kind. Enjoy getting to know your CPA. Ask about family and interests. He or she will want to know about yours. Any self-respecting CPA won’t charge you for this chat time. And you’ll get better service. We all want to look after our friends.

Matt Christopher White is a CPA and CFP® who writes about money and apprenticeship to Jesus. You can get his book “How to Love Money: Four Paradoxes that Breathe Life Into Your Finances” at MattChristopherWhite.com. Follow Matt on Twitter @WriteMattWhite and check out his earlier articles.

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Matt Christopher White
Matt Christopher White
9 months ago

Thank you for reading and for the kind comments! Great discussion here. I’ll add a few thoughts to the hire-a-pro vs. do-it-yourself debate. Every taxpayer could benefit from working with a CPA or Enrolled Agent, but professional expertise does cost something, so a cost-benefit analysis is helpful. What are the chances a tax professional will provide a valuable benefit to you?

First, there’s a complexity spectrum. The low end offers less opportunity for the tax pro to shine. Think of an employee with regular wages on a W-2 and maybe a 1099-INT or 1099-DIV. But the tax code is so complex that you don’t have to move very far towards the other end of the spectrum before you start feeling the need for professional expertise. There is a practically endless variety of tax code complexities because there is a practically endless variety of ways people derive income.

Second, the amount of your income and assets amplify the value a tax pro can provide. Tax compliance and planning opportunities are typically found as a percentage of the dollars involved. If you have more dollars in the picture, then tax opportunities—or mistakes—also involve more dollars.

It’s important to realize that every CPA or EA has different amounts of ability, experience, communication skills, and a unique personality. So if you have had a bad experience, keep trying, but if you find a tax pro—or even a firm—that you like, recognize what you have and value the continuity of that relationship.

Last edited 9 months ago by Matt Christopher White
SanLouisKid
SanLouisKid
9 months ago

“Second, the amount of your income and assets amplify the value a tax pro can provide.” Your comment reminded of a conversation I had with the vice president of an insurance company. He said when he and his wife were just starting out they had a table, chairs, couch and bed. They bought the cheapest insurance they could find. As time went on and their financial situation improved, they needed someone who could really identify their exposures and provide the coverage they needed. Things change over time.

Michael
Michael
9 months ago

Item #2 is far and away the primary driver for hiring a CPA in my case. US expats face absolutely draconian penalties for even minor reporting issues with the IRS so the ‘insurance premiums,’ while potentially steep, provide valuable peace of mind.

I keep those premiums reasonable however by having done a very deep dive into the international tax reg’s – and armed with an organized set of tables that I take the time to prepare for the CPA to check, rather than make.

Having said all of this, I am a do-it-yourselfer for a second set of tax returns – those required in my host country. So I guess you could say that I am one for two.

Last edited 9 months ago by Michael
SanLouisKid
SanLouisKid
9 months ago

I think I could do my taxes (not as well as Mr. Quinn…kidding) but I use a CPA for several reasons. The most important one is my wife. She really has no interest in doing taxes and when I drop dead before her someday (which is actuarially what will happen) she has someone we have a relationship with that she can go to with full confidence that everything will be handled properly.

Harold Tynes
Harold Tynes
9 months ago

I started using a CPA when my investments and compensation arrangements became too complicated not to review with a professional. Things such as paying estimated taxes, self employment, SEP plans, K-1’s, nuances of state taxes, IRA conversions, etc. The planning of current and future years taxes is where I see the biggest value. TurboTax was poor on tax planning. Taxes are my largest expense and deserve the attention I can give them include hiring competent accounts. Thanks for the article.

Ormode
Ormode
9 months ago

I have always done my own tax return, and since I don’t own a business, I don’t find it particularly difficult. I currently do a 1040, Schedule B and D, a couple of 8949s, an 1116, and an 8995 to get the 199a for my REIT income. My only K-1 is from my investment club, and I just put the numbers in the right box.
In the past, I have done the AMT and NIIT forms.
I have a spreadsheet that mirrors the tax code and calculates everything. I check every year to see if the laws have changed, then put in my numbers and use those on my form.

Steve Spinella
Steve Spinella
9 months ago

It’s been a long time since I worked for a CPA, but the points you make were just as true then.
Why use a CPA? Any of these: 1) You make more per hour. 2) It will take you 2-4x as many hours. 3) You hate researching and understanding tax law. 4) Even if you use a tax prep program, you still have to review all the tax decisions yourself. 5) You’ve been audited more than once.

Jerry Pinkard
Jerry Pinkard
9 months ago

Good article Matt! Thanks.
I have always been a DIYer for taxes and understand the tax regs well enough to deal with most issues. However, when I had to do a return for my mother’s estate, I realized estate taxes were a different animal and using a pro would be money well spent.
In my conversation with the CPA, she explained that returns done by a CPA would be far less likely to be questioned by the IRS given their expertise and credibility. That made sense to me and probably is very true, especially with an IRS that is so short staffed.

William Perry
William Perry
9 months ago

Thanks Matt!
As a fellow CPA who practices in the tax area this is a great list to help clients and colleagues.
I would add a few of my own observations and comments to yours.

  1. When clients provide documents I would rather get copies that I do not need to return than originals. A CPA that still has paper files can make these part of his work papers. For those of us with electronic portals and electronic work papers delivering your documents to us via the portal is the most efficient. Ask your CPA what delivery method they prefer.
  2. CPA firms work hard to protect your personal tax information. Sensitive information should be sent to us in an encrypted electronic manner or delivered on paper. No one wins if you make it easy for your information to be stolen by sending us a unprotected email with sensitive information.
  3. When your CPA sends you the form(s) 8879 to authorize electronic transmittal please review your completed return and immediately return the 8879 to your CPA. We cannot transmit your return to the government until we get the signed and dated 8879 authorization back. Electronic tax software has continual updates and the completed return can become stale. Save yourself money by saving your CPA time.
  4. If you will get K-1’s and you know your 1040 will need to be extended both client and CPA benefit from getting that done early in tax season.
  5. One of the tax documents we get is form 5498 which advises the fair market value of deferred retirement accounts such as a IRA or 401(k) account. Many 5498’s also list who are the primary and/or contingent beneficiaries. A CPA who mentions the lack of a named beneficiary or a listed beneficiary who appears to be inappropiate is trying to help you keep your estate from having a tax disaster. Please review your beneficiary designations annually and be sure they reflect your intent.
Chazooo
Chazooo
9 months ago

Discovered several years ago that I am not as smart as I had assumed. It cost me over $25,000 in back taxes, penalties, and interest as my slap on the wrist, which prompted me to hire a CPA.
It was a good decision because they are more familiar with IRS “methodology” than the average bear.

R Quinn
R Quinn
9 months ago

No doubt excellent advice here.

But I wonder. How complicated do your taxes need to be to justify a CPA or other tax preparer? I have 1099s of various kinds, 1099DIV and capital gains, but not much else. No unusual deductions.

My income is into six figures, but I have used TurboTax for years. The questions seem very thorough.

Am I missing something?

Mark Eckman
Mark Eckman
9 months ago
Reply to  R Quinn

Full disclosure, I’m a CPA and use Tax Act for my returns. Here’s my rationale for why to use a CPA or an enrolled agent is all based on understanding the “next” in tax issues:

  1. Yes, the tax programs are very thorough, they have to be. But they are also designed to take you through a specific algorithm of binary questions. Most tax issues are subtle, nuanced and not binary. Did you understand what changed in your return when you said “yes” or “no” to one of those binary questions?
  2. When an issue arises AFTER filing, the issue is better handled by the person that prepared the return than anyone else. They understand why a particular issue was treated in a specific way. Why would you ever want to represent yourself in something that is not a core competency?
  3. Planning is best when viewing the past and the path you intend to take going forward. Tax planning for next year and beyond is best when done right after your current return is completed. Do you know what is coming for the current year, what tax issues expire soon, and how those impact your return?

To answer the question, visit a CPA, not during tax season, with your last return and ask some questions, and go beyond did you miss anything. Think of that as cheap insurance.

wtfwjtd
wtfwjtd
9 months ago
Reply to  R Quinn

Are you missing something? You’ll never *really* know unless you ask someone who does taxes for a living in a professional setting. If your tax documents are the basic fare, such as 1099R’s, SSA1099’s, maybe W-2’s and the like, and you are reasonably familiar with the tax code as it applies to your situation, you’re probably fine doing your own. But when you start adding in a business, some capital gains, maybe doing a multi-state return, or in some cases even just claiming dependents, things can get complicated really fast and hiring a pro can be money well-spent.
I recall one HD writer who discussed doing his own taxes every year. He was bragging about the fact that he (thought) he was saving himself a bundle, and then mentioned that the IRS had “corrected” his return and “sent him a check for the difference.” This is actually a huge red flag, and could be a sign that the money you are “saving” by stiffing a competent tax preparer is dwarfed by the money you are throwing away paying unnecessary tax.
Sometimes, hiring a pro really is less expensive than the alternative.

Last edited 9 months ago by wtfwjtd
R Quinn
R Quinn
9 months ago
Reply to  wtfwjtd

As I said my taxes are pretty basic, but i have found that TurboTax is quite thorough with all the steps it goes through. Once I got stock called them and they were very helpful. Years ago I used to use a CPA and twice i found mistakes.

Nothing against CPAs if my taxes were complicated as you mention i would seek help too.

parkslope
parkslope
9 months ago
Reply to  R Quinn

I agree with you up to a point. I now do taxes for my mother and sister after seeing that they charged them $400+ for simple returns.

On the other hand, my wife and I have used the same CPA for 30 years and know that his expertise has been invaluable. Most recently, he helped us navigate the sale of our owner-occupied 4 family brownstone and the 1031 exchange we used to defer capital gains and recaptured depreciation taxes.

TurboTax is excellent. However, this year I took the time to compare its recommendations about the depreciation periods on improvements we made to our rentals with those of our accountant and agree with him that his approach is much more likely to keep us in a lower IRMAA bracket.

AnthonyClan
AnthonyClan
9 months ago
Reply to  R Quinn

You might try a CPA every other year, every 3 years, etc. to check your results. If something comes up, I believe you can revisit old returns and file an amended return. Cheap insurance/peace of mind.

Steve Spinella
Steve Spinella
9 months ago
Reply to  R Quinn

Why use a CPA? Any of these: 1) You make more per hour. 2) It will take you 2-4x as many hours. 3) You hate researching and understanding tax law. 4) Even if you use a tax prep program, you still have to review all the tax decisions yourself. 5) You’ve been audited more than once.

Jerry Pinkard
Jerry Pinkard
9 months ago
Reply to  R Quinn

I agree if you are comfortable doing your own taxes. Many people are not.

For those that do their own taxes, the prior year’s tax return is a good template for the next year most of the time. You might consider a pro when you have a major tax item that is different than normal and the tax regs seem complicated or subject to interpretation.

Jo Bo
Jo Bo
9 months ago
Reply to  R Quinn

I wonder, too, Richard. I’m guessing that most people are either too scared, unwilling to spend the time, or not prepared enough to do their own taxes. I have heard of many who drop off an unsorted box of documents annually to their preparers.

Organization is key, and Matt has certainly emphasized that.

I find tax preparation an excellent tool/prompt for annual financial planning, one that I wouldn’t like to hire out. Regardless, our convoluted tax system is an unnecessary waste of everyone’s time. If only a flat tax system were in place!

Chris Sciora
Chris Sciora
9 months ago
Reply to  Jo Bo

Source of income matters far more than size of income when deciding whether to do your own taxes. I don’t believe any W2 employee or self-employed business owner running a service business will benefit from using a CPA or even a tax preparer.

After owning multiple business and working with a number of different CPAs over the years, it always ended up being the particular CPA that determined whether the cost was justified.

I’ve paid $500 / hour for garbage advice followed by being billed to file amended returns after pointing out their mistakes. Decided against paying that invoice. One CPA firm seemed to believe that several weeks to return calls and emails was acceptable. I disagreed.

There were often philosophical differences in how we’d approach filing taxes. The tax code is complex and ambiguous. CPAs often interpreted rules in different ways depending on whether they were conservative or aggressive. That was particularly true for CPAs pushing outside of their comfort zone of expertise or who simply preferred particular viewpoints for whatever reason.

e.g. LLCs are awful!!! vs. Always use an LLC!!!

The least useful advice came from someone who wouldn’t actually make a professional decision or offer any alternatives to things I was already doing. They would outline three different possibilities and say “What would you like to do?” My answer was usually something like “If I knew that, I wouldn’t be paying you hundreds of dollar for advice after talking with me for an hour.” It took five years for me to discover MERP plans only to find out my CPA had one herself for the past decade and never bothered mentioning it.

Probably 1 out of 3 were a good fit for me.

Golda Meir's Liaison w/ Egypt American Optimist
Golda Meir's Liaison w/ Egypt American Optimist
9 months ago

I am a small town attorney who does/did 100s of tax returns. This article is excellent in every way. I tend to “put up with” lesser discipline from my clients, for personal reasons, but if I still needed to make my mortgage I would teach my clients the difference between (for example) a $ 700 return and a $950 return is completely in their hands: get it together! I may like you, but this is still a business and time I spend that I don’t bill I take away from my family. ALSO, don’t forget the K-1s from trusts and estates.

polamalu2009
polamalu2009
9 months ago

Very helpful. Thank you.

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