Hiring a professional tax adviser is no guarantee of accuracy, but good communication and organization are keys to making the relationship work in your best interest. Anyone can enter numbers in a box, but that is not why you are 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 is 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 be available to you.
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 is 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 are paying someone else to help you. All too often, tax professionals think their clients are as well versed in tax law as they are. Each 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 will be expected to provide the answers. Ultimately, it is 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 and totaled, and the miscellaneous expenses are added. That number 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 have already done that. For every number, you have an envelope with receipts and checks that perfectly match that number. It is an easy victory.
For further information about tax planning opportunities, contact Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
