October 17th marked the official end of the 2015 filing season. As a CPA, it is now time to reflect on the past 10 months and review what went well, what the challenges were, and prepare for the 2016 filing season that is just a couple months away. My desire is to help my clients reduce the stress of tax season.
We all file taxes. My question is which type of filer are you? Which scenario describes you? Which type of filer would you like to be?
Taxpayer A: This taxpayer goes through the year, but does not really start thinking about taxes until 1099s or W-2s are received in January or February. Maybe in March they start to gather their information together to either prepare their own taxes or give to their CPA/tax preparer. The closer to April 15th, the less time there is to make sure all possible deductions have been accounted for. If not ready by April 15th, an extension would be filed. To avoid penalties and file an accurate extension, good tax information needs to available to get accurate estimates. The urgency of April 15th passes, and the filing of taxes becomes less urgent. Come August or September, there is renewed urgency to get everything to the CPA. Almost a year after many expenses have been incurred, it can be difficult to recreate information for itemized deductions or tax credits. In a last minute rush, this taxpayer joins the others who have also waited and has to wait longer for returns and likely pays more to the CPA due to the last-minute time crunch.
Taxpayer B: This taxpayer is continually working on their tax information throughout the year. This taxpayer has a folder they maintain for important tax documents that come in throughout the year, such as purchase documents for a home or car, medical expenses, payments that qualify for tax credits, education expenses, etc. In addition, they have opted to move their personal and/or business accounting to the cloud using Xero. They are able to reconcile their bank and credit card transactions daily or weekly while those transactions are still fresh in their mind. After December 31st, they are able to run tax reports from Xero. Examples would include: education payments for themselves or children in college, expenses that qualify as itemized deductions, childcare payments. If the taxpayer owns a business, in a matter of minutes, the information needed for business returns is available for them to print or give Xero access to their accountant. There is no need to share digital files back and forth, as Xero is in the cloud. By the beginning or middle of February (or sooner), this taxpayer is ready to hand over their information to their CPA and be one of the first to file their tax returns instead of the last.
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