Getting Information Ready for Tax Accountants Part II: Individuals

It happens every year around this time – “important tax documents” arrive in your mailbox or inbox, and you know it’s time to start thinking about your tax return. Whether you plan to file before April 15th or to extend your return, you’ll need to send information to your tax preparer sometime in February or March.

What does that actually mean? What does your tax preparer really need, and what is the best way to provide it? Here are some suggestions to make this less painful for you, and possibly less costly, too!

The short version

Throw all your tax-related documents in a folder, fill out the organizer questions on the first few pages only, sign your engagement letter, and mail it all to us. We’ll be in touch if we have questions or need anything else. That’s it! Want more detailed suggestions? Keep reading!

Don’t do anything til you have most forms

  1. 1) As information arrives, don’t spend time with it yet –just collect it in one place. A folder, a box, or a big envelope – it doesn’t matter, as long as you know where it is. Put all those “important tax documents” and charitable donation acknowledgement letters in it as they arrive.  Watch for the organizer from your accountant, and put it in the folder, too. Please don’t staple pages together – we’ll be able to tell what goes with what.
  1. 2) Find items that may have come your way during the year that might affect your taxes, such as: the closing (or “settlement”) statement for a home purchase, sale or loan refinance; your real property tax bill for your residence, rental or vacation home; any tax credit certifications you’ve received for energy-efficient appliances or similar items. Can’t think of any things like this? Don’t worry – when you go through the organizer, you will be reminded about them and can pull the information for us then.

  2. 3) The last significant item you are waiting for could be your brokerage account statements, or “Consolidated 1099.” This year, most brokerage and mutual fund companies (Schwab, Fidelity, TD Ameritrade, Vanguard, etc.) have until mid or even late February to mail their forms to you or make them available on their websites. (If that seems weeks later than you think it should be, you’re right – these forms used to be due by January 31st, but the IRS has provided later deadlines in recent years.) Wait for your brokerage statement(s) before sending in information – there’s a lot of important information there, and your tax return can’t be prepared without it.

  3. 4) What about Schedules K-1? These probably won’t show up til March or later. Typically, we’d prefer that you send all of your information except the K-1s once you have it – we can do a lot of work while we’re waiting for a K-1 to show up, and most K-1s are relatively easy to add in at the end.

Once most of the “important tax documents” have arrived, you’re ready for the next steps.

Let the tax organizer help you, but don’t let it bully you.

Now that you have most of your documents, it’s time to use the “tax organizer” to provide other information, and to help you remember what to send in.

What is the tax organizer? This is a booklet that has (a) key questions and (b) indicators of the items that were reported on your return last year.  The organizer might make it look as though it wants you to write in a lot of information – but, actually, you can make good use of it without fully completing it. Here’s what we recommend:

  1. 5) Start at the beginning.  Answer the four pages of questions at the front, plus any extra question pages that help with logistics – when you’ll be out of town, how you’d like us to send the returns to you, etc. Those four pages of questions mostly won’t be about you or your situation, but every now and then they’ll jog your memory about something. Let them – then find the details and add them to your folder when that happens. If you aren’t sure whether a particular question applies to you, write a brief question nearby, and we’ll be in touch to talk it over with you later.

  2. 6) If you have any new dependents, please fill in the social security number and date of birth for them – these are key pieces of information we need in order to claim them on your return.

  3. 7) Then, flip through the pages. The earlier ones list sources of income and later ones list sources of deductions. Do you need to fill out information that’s also reported on an “important tax document,” like your W-2, or a 1099, or your brokerage statement?Definitely not! We can get the information we need from the source document. This is where the organizer can be a bit of a bully. Don’t let it! Instead, flip through the pages and look at the items that are listed for you, and consider these actions:

  4. a. Note the items that are typed in, such as your employer’s name, or the name of your bank or brokerage house. Make sure you have a form for each of those listed items. But please keep the forms separate from the organizer if you can! Stapling or clipping your documents to the organizer will add time to your tax preparation fee.

  5. b. If you don’t have a form, consider why. Has it not arrived yet? (If not, perhaps you should put this down and wait til it has.) Is it for a source that produces less than $10 of income? If so, you may not receive a form. In that case, just hand write the amount or write “<$10” – we’ll know what to do with that. Or, the reference may be to an account you closed during the previous tax year. If so, just cross out that line or write “account closed last year.”

  6. 8) For some sections, you may need to provide information that isn’t reported to the IRS on a form like a 1099 or W-2. Use the organizer to write in those sorts of things – for instance, your income and expenses related to a rental property, a business that’s reported directly in your tax return on Schedule C, or a farming activity. If you have printouts from a property manager or bookkeeper, or you keep books in accounting software such as Quickbooks, by all means send us those reports (or the whole Quickbooks file), and don’t fill in those organizer pages either. We can work just fine from the reports; you don’t need to translate that information onto the organizer.

Notes on a few commonly troublesome deductions:

  1. a. Medical expenses. For most Oregon taxpayers under age 62 (and for any taxpayer who does not file in Oregon), it’s unlikely that you are going to get any benefit from deducting medical expenses, unless your expenses for the particular year were a very high percentage (more than 10%) of your income. So, you probably don’t need to collect amounts paid or receipts for medical expenses like prescriptions, eyeglasses or co-pays. If you think you might be close to obtaining a benefit, contact us before you do the work and ask – we can very quickly let you know the threshold you need to overcome to make this worth your time.

  2. If you do file an Oregon return and you are over 62, your medical expenses may be deductible for Oregon tax purposes, depending on your income level. We recommend contacting us before you spend time collecting receipts, though, as Oregon recently imposed new income limits on the medical expense deduction.

  3.  b. Medical insurance premiums paid. If you have your own business, we want to know how much you paid for health insurance– but if you are an employee in a business you do not own, your health insurance cost (even if you are responsible for paying some of the cost) isn’t deductible on your individual tax return (and probably isn’t included in your taxable wages in any case). Exception: if you have long-term care insurance that could result in a tax benefit, tell us about those payments.

  4. c. Real property taxes you paid during the year. For this, ideally we’d like two things: 1. Look up how much you actually paid, and write down the amounts and dates paid in the organizer; and 2. Provide the property tax statement you received from the county as well. Discounts are allowed for paying on different schedules – we won’t know how you paid unless you tell us.
  5. d. Cash charitable contributions. There are few itemized deductions as certain to provide a tax benefit as charitable contributions. So, if you are an itemizer, you definitely want to tell us what you donated…but this is a more troublesome area where you’ll need to review your records (check registers, credit card statements and letters from charities) and make us a list so we know how much you donated throughout the year. The organizer is a fine place to make the list; or you can provide a separate list – hand-written, in Excel, or from your personal finance software. Keep in mind, however, that the IRS requires charities to provide you with a letter documenting any cash contribution of $250 or more, and, if your return is audited, the IRS will ask you for those letters. So, you will want to make sure you have those letters as you make your list. If you are gathering the letters anyway, you might want to send them to us, so that they are in your tax file at our office. Having them in your file with us makes responding to a future audit request about charitable contributions very straightforward.

  6. e. Non-cash charitable contributions. For most taxpayers in most years, this consists of donations to organizations like Goodwill Industries or the Salvation Army (for clothes and household goods), Free Geek (for electronics), or the Rebuilding Center (for house parts during a remodel). What sort of information do we need to claim your deduction? At a minimum, we need:
  7. i. The receipt from the charity showing charity name and the date of the donation

  8. ii. A brief description of what was donated

  9. iii. Your estimate of the fair market value of the donated items. (Usually this means its value in a second-hand store.)  Not sure how to establish fair market value for a used suit, TV or pair of shoes? There are a number of good guides online, such as the Salvation Army donation value guide or the Goodwill Industries valuation guide, to help you estimate the fair market value of donated items.

  10. Although that’s all we need to prepare your tax return, we recommend the following process for household goods/clothing donations: always get a piece of paper before taking in your donated goods and pause to make a list of the items you are donating that day. Describe the items sufficiently in order to value them. Even if you don’t assign values right away, you can go back before tax time and fill them in to arrive at the total value for the batch of items you donated on each date. This is the level of documentation the IRS would expect if they audited your return.

  11. Finally, keep in mind that any non-cash donation of an item or group of similar items valued at $5,000 or more requires an appraisal and a signature on a tax form from the charity (not just an acknowledgment letter) in order to take a deduction on your return. Donating something of higher value, like antique furniture, or other collectibles? Contact us before you donate it to find out what’s necessary to get the tax deduction! 

  12. 9) Once you’re through the organizer and certain you have all the documents and other information compiled, please sign the engagement letter and put it with the organizer, tax documents, statements, reports and lists into the organizer return envelope, and send it back to us. Please don’t staple documents together! We spend a surprising amount of time removing your staples.  We’ll be in touch with you soon after we receive it to let you know it arrived and to ask for anything else we might need.

Paper or .pdf? Originals or copies?

In the past few years, more and more “important tax information” is being provided electronically rather than being mailed to your house. Do you need to print out .pdfs and send us paper? Would we prefer electronic copies of everything? What if your originals are lost in the mail?

Our tax preparation process involves scanning all of your information once we receive it. Our process works best when we have paper documents from you – not electronic documents. So don’t spend extra time scanning your initial batch of documents for us – we’d rather have the paper copies so we can use our tax-preparation-specific scanning technology.

However, if you received the document electronically to begin with, we are happy to receive it from you as an electronic document. We ask that you try to provide information to us in batches, rather than forwarding emails with documents to us each day as they arrive. Consider any of the following alternate solutions:

  1. a. Create a folder on your computer to store those electronic documents as well as having a place for the paper documents. When it’s time to send everything in, send us all the electronic documents via secure email at one time, and send in your organizer and paper documents separately.
  2. b. Use your client portal to upload documents to us as they come in, but be sure to notify us once you think you’ve sent them all. We’ll let them accumulate on your portal until we hear from you. (Don’t have a client portal yet? Contact us to request one if that sounds like a good solution for you.)
  3. c. Copy the electronic files to a USB drive and put that in the envelope with your paper documents and organizer.

If you are concerned about your original paper documents being lost in the mail, consider:

  1. a. Dropping off the documents in person.
  2. b. Making copies for us rather than sending us originals – but be sure you capture any meaningful information on both sides of double-sided documents.
  3. c. Using a courier service, or a tracked delivery system such as UPS, FedEx or USPS certified mail.

What happens if more forms arrive after you’ve sent everything in?

This is a pretty common occurrence! The most common item we see is a corrected brokerage account 1099 form. If you get a corrected form, or any tax item after you’ve sent us your items, please tell us right away, then forward along the new item. At this stage (once we’ve already received your initial batch of tax data), sending us an electronic version of the document will be the most efficient solution – so scan and email / upload to your portal if you can.

We know facing your tax return is daunting! Having a professional tax preparer should take away most of that stress. Worried about anything we outlined above? Don’t fret! We are always happy to answer your questions, so feel free to contact us at any time.

Author: Susan Sterne, CPA, Shareholder

This blog post is a summary and is not intended as tax or legal advice. You should consult with your tax advisor to obtain specific advice with respect to your fact pattern. Based on the most recent “best practice” standards for tax advisors issued by the Treasury Department, commonly referred to as Circular 230, we wish to advise you that this blog post has not been prepared to be used, and cannot be used, to provide assurance that penalties which may be assessed by the IRS or other taxing authority (including specifically section 6662 understatement penalties) will not be upheld.

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