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As 2022 begins, tax practitioners everywhere are looking to the upcoming tax season with trepidation and dread. Since the beginning of the pandemic, the tax industry has not just been preparing tax returns. Rather they have been administering numerous plans from helping clients obtain PPP to reconciling stimulus payments to dealing with an increase in state audits. On top of that, the IRS doesn’t seem to pick up the phone and hasn’t processed all its mail. It would be comical if it weren’t true.
Yet taxes stop for no one. As we begin to look at the 2022 filing season, tax practitioners have some wise advice for taxpayers looking to take control of their tax lives in the new year. The interesting thing is that many center around three unique tax concepts: timing, security and organization.
That might seem odd to many. Afterall, isn’t tax about numbers? Sure, it is a lot of the time. But at the end of the day, a tax return is reporting your financial life to the government. Making sure process is thought through is really important in order to have a clear picture of your finances.
“Trust us, we’d rather take a little bit more time now to make sure that your return is correct than have to figure out how to communicate with the IRS about it later if it’s wrong,” explains Adam Markowitz, EA and Vice President, Howard L Markowitz PA, CPA of Leesburg, Florida.
Here is some of the best advice out there in managing your tax return for 2022 from tax professionals across the country.
The Timing Basics
When it comes to timing, preparing your tax data is an important part of the process.
“Start on tax preparation early!” says Colin Horsford, CPA and Managing Partner, Horsford Accounting & Advisory in New York, NY. “2021 had so many new tax implications like the Additional Child Tax Credit, stimulus payments, pandemic unemployment assistance and PPP forgiveness. That’s a lot of extra paperwork beyond the typical W-2 and 1099s that most taxpayers receive annually.”
By organizing the materials in a timely fashion, it gives you a chance to discuss how your financial life might have changed.
“If you have any changes in the current year with your income compared to prior years – reach out to your tax preparer and let them know about it,” says Lorilyn Wilson, CPA & CEO of Lookahead LLC and DueNorth PDX in Portland, Oregon. “This proactive step intra-year can prepare you for a big tax bill you weren’t expecting and can sometimes help lessen it with tax planning strategies.”
Security Matters
Security has become a huge issue in the world of tax professionals. Your tax professional often is on the frontline in helping you handle identity theft. Being proactive is important.
“Please don’t share your tax documents through email,” says Brian Streig, CPA and Partner at Calhoun, Thomson, & Matza LLP in Austin, Texas.
Why is this a big no-no? Security risks abound. If someone can get a hold of your Social Security number, W-2 or other key documents, you are at risk for identity theft. And for better or for worst, most tax documents have this important data on them.
“The safest option is to download the forms from your financial institutions and then upload them to your tax professional’s portal,” advises Streig.
And if your tax practitioner doesn’t offer these types of secure services, it might be time to rethink the relationship as tax professionals need to be storing your data in a secure way.
Be Careful What You Toss
One of the most common mistakes taxpayers make is that they don’t set aside key tax materials that arrive in the mail or over email.
“My one piece of advice is to not throw away any “Important Tax Document” or anything that looks important that you receive from the IRS,” says Nicole Davis, CPA and founder of Butler- Davis Tax & Accounting, LLC in Atlanta, Georgia. “Put it in a folder and give it to your tax professional.”
This year there may be new forms that will received.
“Taxpayers should look out for IRS Letter 6419 which will help them reconcile the Child Tax Credits they’ve received and what they’re entitled to,” says Horsford. “Taxpayers will need to compare what they’re received to the amount they’re eligible for when they file their 2021 tax return.”
Ultimately being on the look out can help save money.
“Without the letter, you’ll need to pull transcripts which may cost you money (your tax professional may charge for the extra work) and time (delayed refund if you have a math error),“ says Davis.
Organize Your Numbers
Tax professionals can dread working with the self-employed individual who shows up with a shoe box of receipts. It’s the worst way to prepare a return.
“To prepare an accurate tax return, it depends on your bookkeeping,” says Lily Tran, EA, CTC, NTPI Fellow at TaxUSign® in Kent, WA. “If your bookkeeping is a mess, your tax return will be incorrect.”
Yet many self-employed individuals and small businesses, don’t focus on organizing their numbers. As a result, deductions are missed, and tax planning isn’t possible. The good news is there are a lot of programs out there that can help with bookkeeping. But there are some cautions.
“If you’re doing bookkeeping yourself, make sure to get it reviewed. Make sure your books are in order and reconciled through Dec 31st if you are using an accounting system to track your income and expenses,“ says Tran.
Process Is Important
The best way to set yourself up for success in 2022 in managing your tax return is to focus on timing, security and organization. By being engaged with the process, you enable your tax preparer to provide you with an accurate return and the best tax planning advice for your situation.