6 Tips to Ensure Your Tax Accountant Has Everything They Need
Table of Contents
Key Takeaways
6 Tips for Working with Your Tax Accountant
1. Gather Personal Information
2. Compile Income Documentation
3. Organize Expense Records
4. Document Major Financial Events
5. Review and Prepare Prior-Year Tax Returns
6. Communicate Clearly and Promptly
Frequently Asked Questions
Simplify Your Tax Preparation with Fincadia Tax Services in New York City!
Key Takeaways✔ Ensure all personal and organizational information is accurate and up-to-date to prevent filing errors or delays. ✔ Provide comprehensive income documentation from all sources to ensure accurate reporting and compliance. ✔ Organize and categorize expense records to maximize eligible deductions and maintain clear financial tracking. ✔ Document significant financial events to help the tax accountant identify impacts on your tax situation. ✔ Review prior-year tax returns to ensure continuity and address any changes or discrepancies. ✔ Maintain clear and timely communication with your tax accountant to streamline the filing process and avoid delays. |
Tax season presents significant challenges for small businesses and gig workers. New research indicates that 37% of those surveyed face anxiety and confusion about filing taxes. Ensuring a tax accountant has all the necessary information can help alleviate these challenges, streamline the filing process, and improve the accuracy and efficiency of tax returns.
Here are six practical tips to help businesses prepare effectively.
6 Tips for Working with Your Tax Accountant
1. Gather Personal Information
When preparing for tax season, businesses must ensure their tax accountant has access to accurate and up-to-date personal and organizational information. This foundational step minimizes errors, ensures compliance, and expedites filing.
Update Business and Personal Details
Review and share any recent updates to business or personal details to maintain accurate filings and avoid discrepancies with tax authorities.
Business Name Changes: Provide official documentation for any changes in the business name or structure, such as Articles of Amendment or updated licenses. Tax filings must reflect these updates to align with federal and state records.
Address Updates: Supply the latest business address and contact information to ensure correspondence from tax authorities or financial institutions reaches the appropriate destination.
Provide Dependent or Employee Information
Accurate employee and dependent records allow the tax accountant to properly claim eligible deductions or credits that benefit the business.
Employee Identification Numbers (EINs): Verify that all employees have the correct EINs on file, as these are essential for accurate payroll tax calculations and filings. With 25% of small businesses fined for payroll tax mistakes, ensuring EIN accuracy can help avoid costly penalties and compliance issues.
Dependent Information for Tax Credits: For businesses with dependent claims, ensure detailed information is available, such as Taxpayer Identification Numbers (TINs) or Social Security Numbers (SSNs), to access credits like childcare or dependent care expenses.
Review Organizational and Ownership Information
Providing a clear picture of the business's structure and ownership helps the tax accountant determine the appropriate filing strategy.
Entity Type: Confirm and document whether the business is a sole proprietorship, partnership, corporation, or LLC, as this affects how income and deductions are reported.
Ownership Records: List all partners or shareholders along with their respective ownership percentages and identification numbers to avoid discrepancies in reporting distributions or profits.
Ensure Accurate Records for Filing Status
The filing status of the business significantly impacts tax calculations, so providing clear and accurate details is essential.
Marital Status of Owners: If the business operates as a sole proprietorship or single-member LLC, clarify the marital status of the owner(s), as this can affect deductions and filing options.
Head of Household Claims: For qualifying businesses operated by single owners supporting dependents, ensure the tax accountant has the necessary proof of eligibility for any applicable tax benefits.
2. Compile Income Documentation
Preparing income documentation is one of the most crucial steps when working with a tax accountant. Comprehensive records of income streams ensure accurate tax filing and reduce the likelihood of delays or errors.
Include Essential Tax Forms
Certain tax forms are required to report various types of income. Ensuring these are complete and available is essential:
W-2 Forms: Evidence of salaried income: These forms, provided by employers, detail annual wages and tax withholdings. Every employer should issue a W-2 by the end of January for employees.
1099 Forms: Income from non-salary sources: These include freelance or contractor earnings, rental income, interest payments, and dividends. Be sure to gather all relevant 1099s based on secondary income streams.
Report Additional Income Sources
A tax accountant needs a comprehensive overview of all income, including less obvious sources. Even small or irregular income can affect tax liability:
Investment Income: Stocks, bonds, or mutual funds: Include dividends, capital gains, and interest earned from savings accounts or other investments.
Rental Property Earnings: Net income after deductions: Provide records of rent received and deductions for expenses such as maintenance or property management fees.
Side Hustles or Gig Work: Untaxed supplemental earnings: Include online sales, ridesharing, or freelance work. Bank statements or digital receipts can help if formal documents are unavailable.
Organize All Income Documentation Clearly
Presenting income documents in an organized manner simplifies the process for a tax accountant:
Use Digital Tools for Better Management: Scanning documents and storing them in folders by income type can streamline access.
Double-check for Missing Forms or Documents: Contact employers, financial institutions, or clients to ensure all forms are received.
3. Organize Expense Records
Ensuring accurate and organized expense records is essential for businesses working with their tax accountant. Proper documentation of deductible expenses not only streamlines the filing process but also maximizes potential savings. Businesses must approach this task systematically to avoid missing key deductions or triggering an audit.
Categorize and Provide Receipts for Deductible Expenses
Businesses should organize all receipts and relevant documentation for expenses that may qualify as deductions. Providing these in a clear and categorized manner will enable the tax accountant to assess eligibility and ensure compliance with tax regulations.
Medical Expenses: Document costs for employee health plans, medical reimbursements, or wellness programs. Ensure invoices, payment receipts, and detailed breakdowns of expenses are included.
Education and Training Costs: Compile receipts for professional development courses, certifications, or employee training programs. Include tuition fees, material costs, and travel expenses associated with these activities.
Childcare or Dependent Care: For businesses offering childcare benefits, record all associated costs, including contracts, invoices, and payment confirmations for daycare services or related employee assistance programs.
Separate Business and Personal Expenses
Clear separation of business and personal expenses is critical to maintaining transparency and ensuring a smooth tax filing process. This is particularly important for small business owners or self-employed professionals, where overlap can occur.
Dedicated Business Accounts: Use separate bank accounts and credit cards for business transactions to prevent mingling with personal finances. Providing these statements to the tax accountant will simplify the reconciliation process.
Expense Categories: Clearly label and categorize expenses (e.g., travel, marketing, office supplies). This not only helps the tax accountant but also assists in identifying trends for future budgeting.
Mileage Tracking: Maintain a log for vehicle use, distinguishing between personal and business travel. Include dates, destinations, purposes, and mileage records to claim accurate deductions.
Leverage Technology for Efficient Record-Keeping
Digital tools and systems can significantly enhance expense management, making it easier for the tax accountant to work with accurate and organized data.
Expense Tracking Software: Utilize platforms like QuickBooks or Expensify to automatically track and categorize expenses, reducing manual effort.
Scanned Documentation: Scan and upload all receipts to cloud storage for easy sharing with the tax accountant. Ensure files are labeled with dates and descriptions for clarity.
Audit Trails: Maintain a digital log of all changes or updates to expense records to provide a transparent history if needed.
4. Document Major Financial Events
Accurate and complete documentation of significant financial events is essential to help a tax accountant accurately prepare a business's tax return. These events often have a substantial impact on taxable income and deductions, making it critical to provide the right details and paperwork.
Identify Significant Financial Events
Significant financial changes or transactions during the tax year can affect the tax liability of a business. Informing the tax accountant about these events ensures proper reporting and compliance.
Purchasing or Selling Property: Property transactions, such as office spaces, warehouses, or investment properties, must be reported with supporting documents like purchase agreements, settlement statements, and closing disclosures. These help determine capital gains, depreciation schedules, or deductions.
Large Gifts or Donations: If the business made or received large financial gifts or charitable contributions, the tax accountant will need donation receipts, appraisals (if applicable), and any acknowledgment letters from recipients.
Inheritance Received by the Business: For businesses that receive inherited assets, provide the accountant with valuation documents and any legal paperwork outlining terms or conditions.
Explain the Purpose of Each Transaction
Clarifying the intent behind major financial transactions helps the tax accountant identify potential deductions or liabilities. Businesses should categorize transactions for better understanding:
Capital Investments: Highlight purchases intended to enhance long-term operations, such as equipment upgrades or office expansions, to ensure they are depreciated correctly.
One-Time Gains: Sales of significant assets should be detailed with timelines and initial costs for accurate capital gains calculations.
Operational Donations: Charitable activities tied to the business’s social responsibility initiatives may qualify for deductions when properly documented.
Review Financial Changes from Previous Years
Significant events can sometimes span multiple tax years, particularly if they involve installment sales, ongoing inheritance distributions, or phased investments. The tax accountant should be made aware of past financial events to provide continuity in reporting.
Continuing Installments: Provide updated records for ongoing payments related to major sales or purchases.
Ongoing Impact: Explain the long-term implications of past events, such as recurring income from inherited assets or depreciating acquired property.
5. Review and Prepare Prior-Year Tax Returns
Preparing prior-year tax returns is an essential step in ensuring a smooth tax filing process, especially when working with a new tax accountant. Prior-year returns serve as a foundation for identifying past deductions, credits, and any potential carryover amounts that could impact the current year’s taxes.
Supply Copies of Previous Tax Returns
Providing prior-year tax returns is a critical starting point for a tax accountant. These documents give a detailed picture of the business's financial history and can help uncover key trends or overlooked opportunities.
Historical Overview: Prior-year returns help the tax accountant understand the business’s filing patterns, including consistent deductions, credits, and any compliance issues.
Audit Protection: In the event of an audit, prior returns serve as a vital reference for maintaining consistency in reporting.
Carryover Opportunities: Returns from previous years can reveal unused credits, net operating losses, or depreciation schedules that may be carried over to the current tax year, reducing tax liabilities.
Highlight Changes from the Previous Year
It is essential to inform the tax accountant of any significant financial or structural changes in the business since the prior year. These updates can affect tax strategy and ensure accurate filings.
Structural Changes: Changes in business ownership, entity type (e.g., LLC to S-corporation), or mergers should be highlighted for proper tax treatment.
Revenue Fluctuations: Significant increases or decreases in income require tailored tax planning to adjust estimated payments or leverage applicable deductions.
New Investments or Divestments: The sale or purchase of assets, property, or equipment needs to be documented for depreciation or capital gains calculations.
Policy Compliance: Tax law changes or industry-specific regulations might necessitate adjustments in reporting.
Organize Supplementary Documents
In addition to prior tax returns, businesses should provide supporting documentation that contextualizes changes or discrepancies in financial performance.
Year-End Financial Statements: Balance sheets, profit-and-loss statements, and cash flow reports for the previous year help cross-check information on the tax return.
IRS Notices or Correspondence: If the business received letters or adjustments from the IRS in prior years, these should be included for review by the tax accountant.
Loan and Grant Records: For businesses that received loans or grants, such as during the pandemic, documentation may be required to address any taxable implications.
Benefits of Reviewing Past Tax Returns with a Tax Accountant
Collaborating with a tax accountant to review prior-year tax returns ensures the business maximizes its tax benefits while minimizing potential risks. This proactive approach streamlines the preparation process and sets a strong foundation for compliance and strategic planning.
Identify Missed Opportunities: The tax accountant may spot deductions or credits missed in previous filings, which could be amended or adjusted.
Strengthen Accuracy: Consistency with prior filings reduces the likelihood of errors, penalties, or audits.
Plan for Future Tax Strategies: By understanding past patterns, the accountant can recommend strategies to optimize tax outcomes moving forward.
6. Communicate Clearly and Promptly
Businesses working with a tax accountant must prioritize clear and prompt communication to ensure a smooth tax filing process. Effective communication minimizes errors, prevents delays, and allows the accountant to work efficiently with all necessary details at hand.
Ask for a Checklist to Avoid Missing Key Items
A proactive approach can simplify the preparation process. Requesting a checklist from the tax accountant ensures that the business has all required documents and details prepared ahead of time. This not only saves time but also prevents last-minute scrambling.
Customized Document Needs: The tax accountant can tailor the checklist to the specific needs of the business, covering relevant income, expenses, and deductions.
Improved Organization: A checklist serves as a clear roadmap, helping the business keep track of what has been provided and what remains outstanding.
Avoiding Overlooked Details: It ensures that less obvious but essential items, such as receipts for minor deductions or supporting documents for financial events, are not forgotten.
Respond Quickly to Requests for Additional Information or Clarification
Timely responses to the tax accountant's queries demonstrate professionalism and respect for deadlines. Delayed communication can disrupt the tax preparation process and lead to missed opportunities for deductions or compliance risks.
Ensuring Accuracy: Quick responses allow the tax accountant to verify the correctness of submitted information and address discrepancies promptly.
Maintaining Momentum: Delays in providing information can stall the tax preparation process, especially during the busy tax season.
Strengthening Relationships: Efficient communication builds trust and fosters a positive working relationship with the tax accountant.
Use Technology to Enhance Communication
Adopting tools and systems can streamline communication and improve the overall process. Businesses should use these tools to keep the tax accountant informed.
Document Sharing Platforms: Platforms like Google Drive or Dropbox make it easy to share files securely and efficiently.
Project Management Tools: Simple systems like Trello or Asana can help track what has been submitted and what the tax accountant still needs.
Digital Communication: Regular check-ins via email or video calls keep both parties aligned on timelines and expectations.
Frequently Asked Questions
What should I look for when hiring a tax accountant?
When hiring a tax accountant, prioritize qualifications, experience, and reputation. Look for certifications like CPA or Enrolled Agent, which indicate advanced expertise. Ask for references or reviews to gauge reliability and professionalism. Ensure they have experience with cases similar to yours, such as business taxes or investments. Verify their familiarity with current tax laws and digital filing tools..
How can I avoid a tax audit?
While there’s no guaranteed way to avoid an audit, accurate and transparent filings reduce the risk. Ensure all income is reported, and only claim deductions or credits you are eligible for. Double-check math and documentation to avoid errors. Large or unusual deductions may trigger scrutiny, so be prepared to justify them with supporting evidence. Filing on time and electronically can also minimize issues.
What’s the difference between a CPA and a tax accountant?
A CPA (Certified Public Accountant) is a licensed professional who has passed rigorous exams and met specific educational and experience requirements. While all CPAs can perform tax accounting, not all tax accountants are CPAs. CPAs often provide a broader range of financial services, including auditing, consulting, and forensic accounting. Tax accountants, whether certified or not, specialize in tax preparation and planning. For complex situations like audits or legal disputes, a CPA is often preferred due to their advanced qualifications.
How much does it cost to hire a tax accountant?
The cost of hiring a tax accountant varies based on the complexity of your tax situation. For simple filings, fees might range from $150 to $300, while more complex returns, such as those involving businesses or investments, can cost $500 or more. Some accountants charge hourly rates, typically between $100 and $400 per hour, depending on their expertise. Businesses often pay higher fees due to additional reporting requirements. While the upfront cost may seem high, many clients find that the tax savings or reduced liability outweigh the expense.
How often should I meet with my tax accountant?
For most individuals, an annual meeting during tax season is sufficient, but quarterly or semi-annual meetings are recommended for business owners or those with complex finances. Regular check-ins help track changes in income, expenses, and tax laws. Business owners can use these meetings to review quarterly filings and plan for end-of-year taxes. If you’re undergoing significant financial changes, such as buying property or starting a business, schedule additional consultations. Frequent communication allows for proactive tax planning.
Simplify Your Tax Preparation with Fincadia Tax Services in New York City!
Take the stress out of tax season by partnering with Fincadia Tax Services, the trusted provider for businesses in New York City. Our expert tax accountants ensure every document is in order and every deduction is maximized, so your business can thrive. Whether you're preparing for this year’s filing or planning for the future, Fincadia Tax Services is here to deliver personalized, reliable support tailored to the unique needs of businesses across New York City.
Reach out today to streamline your tax process and focus on growing your business!
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