Hiring
a professional tax adviser is no guarantee of accuracy, but good communication
and organization are key to making the relationship work in your best interest.
Anyone can enter numbers in a box but most likely that is not why you're paying
to have your income tax return prepared. Taxpayers pay tax professionals for expertise,
advice and direction.
The best tax consultant
is one who asks lots of detailed questions. The more questions, the better the
understanding your adviser has about your specific situation. In most cases, the
Internal Revenue Service already knows about your income. Wages, interest income,
dividends, etc., all are reported to the government. That's not your problem.
The crucial questions will involve your spending and investments. The more the
consultant knows about these aspects of your financial life, the more deductions,
credits, exemptions and other tax-saving opportunities are likely to turn up.
It is equally important for you, the
taxpayer, to ask questions. You do not need to be an expert on the details of
the tax return, but you should understand what is being reported to the Internal
Revenue Service. Have your consultant take you through the return, page by page.
Make sure that what you communicated to your tax professional is what is disclosed
to the government.
If your tax adviser
sends you a form to complete and prepares your return simply on the basis of that
form without any additional interaction, it's time to find someone new. As a tax
consultant, I see too many returns that appear to be generated electronically
by a data entry assistant inputting numbers from a standard form that a tax professional
never sees.
As you review the return,
ask questions about anything you think might be a potential deduction. Do not
be embarrassed. That is why you're paying someone else to help you. All too often,
tax professionals think their clients are as well versed in tax law as they are.
Both of you should assume nothing. For both the consultant and the taxpayer, the
only stupid question is the one not asked.
If
your consultant is asking all the right questions, you'll be expected to come
up with a lot of answers. Ultimately, it's your responsibility to get the correct
numbers on your tax return. I recommend the "envelope system" to most
of my clients. Once I have educated them about the basic categories of things
that may be deductible (medical expenses, interest paid, taxes paid, charitable
contributions, business expenses, etc.), I ask them to get receipts for everything
they buy that potentially may be deductible and file their documentation in the
appropriate envelope. This system dramatically simplifies the year-end information
gathering process. If they do not know if an item is deductible or in what envelope
it belongs, they put it in a "miscellaneous" envelope for me to review.
Do
not be too conservative in your assessment of what is and is not deductible. Part
of the tax professional's job is to be creative enough to structure a situation
to take advantage of as many deductions as possible.
At
the end of the year, the receipts and checks are matched up and totaled, the miscellaneous
expenses are added and that's the number that is entered on the tax return. This
method is easier for your consultant, takes you almost no time to do and eliminates
the specter of an IRS audit from your nightmares.
If
you are audited, smile and relax. You are already set up to win. An audit is merely
a process in which the IRS asks you to substantiate the numbers on your return,
and you've already done that. For every number, you have an envelope with receipts
and checks that perfectly match that number. It's an easy victory.
For
further information about tax planning opportunities, contact the Tax & Accounting
Division of The Henssler Financial Group at 770-428-4025.
