A Few Guidelines About Tax Preparation
Provided below are some guidelines and policies that I follow as they relate to preparing your tax returns:
- All information that you provide should, to the best of your knowledge and belief, be accurate and complete. Please review the completed returns to ensure that I included all the information that you provided, and that there are no omissions or misstatements of material facts. I cannot be responsible for any tax deficiencies, interest, or penalties assessed by any tax authorities for any returns resulting from filing positions if: (1) I am not involved in the preparation of the returns reflecting those positions; or (2) my preparation was based on misleading, incomplete or erroneous data that you provided to me or were provided to you by third parties, such as banks and investment managers, and forwarded to me.
- Please keep all documents, records, and other evidence to substantiate all of the entries on your returns. I recommend that you keep these records for six years. Also keep records pertaining to items such as home purchases/sales, refinancing, home improvements, and gifts to family members or third parties indefinitely. Retaining such information will better protect you in the event of any inquiry by the IRS or state tax department.
- In some cases, professional and ethical considerations may require that I restrict my association with a return or excuse myself from the engagement altogether. Should such a situation arise, I will work closely with you to ensure that your interests and my professional responsibilities are best served. Situations also may arise where I am asked to evaluate the propriety of current and past information used for tax returns. Again, professional and ethical considerations may require that I restrict my association with a tax return or excuse myself from the engagement. Again, I will work closely with you to ensure your interests are served while at the same time fulfilling my professional responsibilities.
To prepare your return, please provide the following information and materials:
- Prior Year’s Returns: A copy of your federal and state income tax returns from last year, including any amended returns, together with a copy of any correspondence you have received in relation to them from the IRS or a state taxing authority. If you were audited by the IRS or a state or local tax agency during the past year, please provide documents showing the results of the audit.
- Estimated Tax Payments: The amount of any estimated tax payments (federal and state) made for 2011 and any amounts for prior years’ state taxes paid in 2012.
- Dependents: The name of any dependents you intend to claim on your return, and their relationship to you. A family member or a resident of your household, including a foster child, is considered your dependent if you paid for more than half of their support during the year. An individual only may be claimed as a dependent on one person’s return (or on the return of married persons filing jointly). Thus, if you claim an individual as a dependent, that person must not be claimed on his or her own tax return for the year or on the return of any other taxpayer. I also will need a social security number for every dependent claimed.
- Wages, Interest, Dividends and Other Miscellaneous Income: Any W-2s or Forms 1099, together with records of any other compensation received during the year. Note that Forms 1099, in addition to reflecting any income you earned as an independent contractor, also are supplied by payers of interest and dividend income, by governmental units that provide refunds of state and local taxes, and by various other entities. If you received any interest, dividend or other similar income not shown on a Form 1099, please provide records of that income, including the payer’s name and the account numbers to which such payments were credited.
Please provide records of any of the following categories of income and expense incurred by you and/or your spouse during the year:
- K-1 Forms: Any Schedule K-1s you received from partnerships, S corporations, LLCs, LLPs estates or trusts of which you are an investor or beneficiary.
- Business Income and Expenses: Business income and expenses from any unincorporated business you operated during the year (sole proprietorship). This may include businesses for which you received a Form 1099 or a Schedule K-1.
- Investment Income and Expenses: Details as to any investment property, including stocks, bonds and real estate, you sold during the year. In addition to the type of property sold, please provide the purchase date, number of units purchased, purchase price, sale date, number of units sold, and sales price. If the property consists of securities, you also should provide the identification numbers of the relevant certificates. If you exchanged one piece of investment property for another (for example, exchanging one parcel of real property for another) during the year, please supply the dates and details of these transactions, plus details as to any other property you received in the transaction (including cash). Please also provide details of any interest you paid during the year on investment property as well as any other expenses relating to its acquisition, maintenance, or disposition (such as safe deposit box fees, account service charges, brokerage commissions, investment advisor fees, etc.).
- Other Income Items: Details as to any other sources of income, such as income from rents, royalties, trusts and estates, farming, unemployment compensation, social security benefits, and any other income received during the year. Please also provide information concerning the amount and timing of any penalties you paid on early withdrawal of savings. If you have questions about any item of income, please mention it at our meeting, and we will discuss whether it is taxable.
- Retirement Plan Contributions and Distributions: The date and amount of contributions made to an Individual Retirement Account (IRA), Roth IRA, Simplified Employee Pension (SEP) or Keogh, the name of the institution maintaining the accounts of such plan, and your account number. Please also supply dates and amounts of any distributions you received from retirement-type plans during the year. I also must know whether such distributions represented a total withdrawal of your benefits in each plan or part of a series of periodic payments. Please provide details as to any after-tax employee contributions you made to such plans.
- Alimony and Child Support: This includes details as to the amount of alimony you either paid or received during the year, as well as any child support and medical expenses not reimbursed through insurance or otherwise.
- Medical Expenses: If you had significant medical, dental or medication expenses not reimbursed by your health insurance, please provide information about such expenses.
- Taxes: In addition to taxes withheld at the source and already reflected on your W-2s and Forms 1099, please provide information as to any other taxes you paid during the year, including federal and state income tax, self-employment tax, real property tax, and personal property tax (such as on a boat or car).
- Personal Residence and Other Home(s): Please provide the amount of interest you paid during the year on any mortgage or home equity loan as well as the statement (Form 1098) furnished by your mortgage interest lender(s). If you purchased a residence or refinanced a mortgage during the year, provide the settlement sheet (HUD-1), which will reflect any interest charges paid at settlement, including “points.” If you sold a personal residence during the year, I will need the closing statement from the sale, and similar information about any replacement residence that you purchased.
- Contributions: The amount of any gifts to religious organizations or other charities, in cash or property, the names of such charitable organizations, and any receipts for your contributions. Also, if you used your personal vehicle in performing services for charitable organizations, please provide records of your mileage.
- Certain Losses: Information regarding any losses due to casualty or theft, together with any insurance reimbursements received.
- Employee Business Expenses: Information concerning any employee business expenses incurred during the year that were not reimbursed by your employer, such as work-related entertainment, travel or educational expenses. For example, if you used a personal vehicle in performing your job (other than for commuting), and were not reimbursed by your employer, please provide records of your mileage used in business travel and records of your automobile expenses.
- Other Deductible Expenses: Please provide records relating to any other deductible expenses, such as moving expenses, professional dues, student loan interest payments, tax return fees, investment fees, and gambling losses. If you have questions about any expense, please contact me and I will determine whether it is deductible.
- Tax Credits: Information and documentation that may allow you to claim certain refundable and non-refundable tax credits such as the child tax credit, education credits, the earned income tax credit, and certain energy-efficiency related credits, just to name a few. If you have questions about any tax credits for which you may qualify, please contact me.
I look forward to working with you to prepare your 2012 return. In the meantime, if you have any questions, please contact me at your earliest convenience.
This firm must inform you of our policies regarding privacy of client information. This firm always protects your right to privacy.
We collect non-public personal information about you that is either provided to us by you or obtained by us with your authorization.
We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law.
We restrict access to nonpublic personal information about you to [provide an appropriate description, such as “those employees who need to know that information to provide products or services to you”]. We maintain physical, electronic, and procedural safeguards that comply with federal regulations to guard your nonpublic personal information.
I always put forth my best effort to prepare your returns in a manner that minimizes your tax liability to the fullest extent permitted under the tax laws. On occasion, however, you may seek to take a position on a return that may not be adequately addressed by the tax laws. The IRS may impose certain accuracy-related penalties where understatements result from such positions. The tax law provides for a penalty to be imposed when a taxpayer makes a “substantial understatement” of tax liability. For individuals, a substantial understatement exist when the understatement for the year exceeds the greater of 10% of the tax required to be shown on the return, or $5,000. The penalty is 20% of the tax underpayment.
A taxpayer may seek to avoid the penalty by showing that: (1) he/she acted in good faith and “reasonable cause” existed for the understatement; (2) the understatement was based on “substantial authority”; or (3) the relevant facts affecting the item’s tax treatment were adequately disclosed on Form 8275 (or Form 8275-R) attached to the return and there was a “reasonable basis” for the position.
It is important that you inform me of all relevant facts and data associated with any proposed return position before I advise you as to the best course of action. Although such situations are infrequent, additional research and charges may be needed to determine the existence of substantial authority, or to properly advise you regarding the disclosures necessary to avoid any penalties.
I look very forward to assisting you in getting this burden lifted! Please feel free to ask questions at any time.