10 steps to take before going to your Income Tax Preparer

The federal government estimates that 60% of individuals use paid preparers to complete and submit their tax returns. If you are one of these people, it’s important to get started right away so you can have a successful tax return experience. Your preparer may take information directly from you or ask you to complete a questionnaire. Either way, you’ll need time to gather and organize the information. Here are 10 steps to take before going to your preparer.

1. Choose a preparer

If you don’t yet have a tax preparer, now’s the time to find one. A great way to find a preparer is to ask friends and advisors (e.g., an attorney you know) to make a referral.  Be sure that the person you choose has a Preparer Tax Identification Number (PTIN) showing that he or she is authorized to prepare federal income tax returns. Also inquire about the fees, which likely will depend on the complexity of your return; steer clear of anyone taking a percentage of your refund. 

2. Schedule an appointment

The sooner you meet with your preparer, the sooner you can begin the process (even if you get an extension, as discussed later). It is especially important to act promptly if you anticipate a refund so you can receive your money promptly. If you wait too long to schedule an appointment, you may not get to see your preparer before April 15, which could mean you won’t be advised of actions that can still lower your 2014 tax bill, such as your eligibility for making deductible contributions to IRAs and health savings accounts for 2014.

3. Gather your information returns

By the end of January (technically February 2, 2015, because January 31, 2015, was a Saturday), you should have received various types of information returns that you need. For each form, verify that the information matches your own records.

Here are some of the most common forms: (Note: This is not a complete list; the IRS has information on the many other types of information returns you may need.

• Form W-2 if you have a job
• Form SSA-1099 if you received Social Security benefits
• Various 1099s to report income such as cancellation of debt (1099-C), dividends (1099-D), interest (1099-INT), and nonemployee compensation paid to independent contractors (1099-MISC). Note: Form 1099-B, which reports gains and losses on securities transactions, is not due to you until February 16, 2015.
• New Form 1095-A to report information from the government Marketplace from which you purchased health coverage
• Various 1098s reporting mortgage interest (1098), student loan interest (1098-E) and tuition payments (1098-T)
• Form W-2Gs for certain gambling winnings
• Schedule K-1s from entities in which you have an ownership interest (e.g., S corporations, partnerships, limited liability companies, trusts or estates). Note: You may not have received them yet; it could be as late as September 15, 2015, so check with the entity. 

4. Get your receipts together 

Which ones you need depends on whether you choose to itemize your personal deductions instead of claiming the standard deduction. You can choose to itemize if this produces the greater write-off. Unfortunately, the only way to know for sure is to determine the amount of your itemized deductions and compare them with your standard deduction amount.

For itemizing, get receipts together now by whatever system (or lack of system) used throughout the year to retain receipts for various deductible expenses. Look for receipts for medical costs not covered by insurance or reimbursed by any other health plan (e.g., a flexible spending account or health savings account), property taxes, and job-related and investment-related expenses.

If you have business income and expenses to report on Schedule C, you’ll need to share your books and records (e.g., QuickBooks or other accounting system; receipts for expenses; bank and credit card statements). The more organized you can be, the less time it will take your preparer, which translates into lower fees for his/her service.

5. Gather records for charitable contributions

If you made donations to charity and itemize your deductions, you need specific records to claim any write-off. For example, for contributions of $250 or more, you need a written acknowledgment from the charity stating the amount of your gift and that you did not receive anything (other than perhaps a token item) in return. If you’re lacking an acknowledgment, contact the charity and ask for it. You need it in hand by the time you file your return. Find details about the type of records needed for charitable deductions in IRS Publication 1771.

6. Brace yourself for tax law changes

You don’t have to become a tax expert but it helps to know about new tax rules so you won’t be caught off guard. This year, the individual healthcare mandate brings a slew of changes, including new forms for claiming the premium tax credit for eligible individuals who purchased coverage through a government Marketplace (exchange) and for figuring the shared responsibility payment for those who failed to carry coverage and do not qualify for an exemption. 

7. Make a list of personal information

You probably know your Social Security number, but do you know the number for each dependent you claim? Jot down this and other information (e.g., addresses of vacation homes and rental property; dates you moved; information about property you bought and sold, including dates, what you originally paid, what you received on the sale and expenses you had) needed to complete your return.

8. Decide whether to ask for a filing extension

If you need more time to complete all of these tasks, you can request a filing extension to October 15, 2015. This will avoid any late-filing penalty, but be sure to pay what you think you’ll owe to minimize or avoid any late-payment penalty. There’s no extension beyond April 15 for paying the tax that is due.

9. Decide what to do about a refund

If you expect a refund, you have several options on what you want the government to do:

• Apply some or all of the refund toward your tax bill on the next return. The fund will be used for estimated taxes, reducing or eliminating the first installment of estimated taxes (due April 15).
• Send you a check or deposit the refund directly into your checking or savings account.
• Directly contribute some or all of your refund to certain types of accounts (IRAs, health savings accounts, education savings accounts) or to buy U.S. Savings bonds through Treasury Direct.

You can split your refund among the direct deposit choices by completing Form 8888. You’ll want to tell your tax return preparer what you want to do. And if you want the refunds used for 2014 purposes (e.g., you want to use the refund to make a deductible IRA contribution for 2014), you’ll need to inform the institution about the right year to which it should apply your payment.

10. Find a copy of last year’s return

If you use the same preparer that you used last year, likely the old return is already on hand. If you go to a new preparer, last year’s return serves as a reminder to the preparer – and you – of some items you don’t want to overlook. Examples:

• Payors of interest and dividends. If you received this income last year, look for 1099s for this year (unless you’ve sold stocks, closed bank accounts or made other investment changes that account for not getting a 1099 this year).
• Charities. If you made small gifts, you may not have received any acknowledgment from the organization, but you can still deduct your gift as long as you have a canceled check or other proof. See last year’s list of organizations you donated to and see whether you made similar gifts this year.

The Bottom Line

Start early doing prep work for your income tax so you’ll have a successful tax return experience. Ideally, you will have been gathering and organizing your receipts all year. (Apps like Expensify and Shoeboxed on a smartphone make it easier, now that the IRS accepts electronic receipts.) Whether you’re doing your own return, or having a preparer do it, thorough documentation and organized records will reduce the time (and therefore the expense if you’re using a paid preparer). Most of all, these 10 preparation steps will ensure that you’re not missing out on any tax benefits.