- Organize your information. Paying your accountant to sift through receipts and papers is time-consuming and expensive, as most preparers charge on an hourly basis. Create clarity. Group like items together: income and deductible expenses, such as W-2’s, 1099’s, K-1’s, medical items, interest payments, tax payments, donations, etc. If you submit an organizer, provide the information in the same order.
- Avoid Duplication. When possible, do not provide documentation (such as receipts) and list these same items. Such duplication can create confusion and/or additional prep time when the CPA attempts to compare the two. A case in point is charitable contributions; if you provide both receipts AND lists, the accountant will spend time reviewing both sets of information and resolving (likely) differences. For contributions, the preparer will typically accept acknowledgement that you have receipts, rather than needing to see them.
- Don’t waste your time with items that won’t benefit you. In order to be deductible, medical expenses must exceed 10% of your adjusted gross income (7.5% if over age 65). If you’re nowhere near that amount, save yourself the time. It’s not worth compiling unless you have some other reason to do so.
- Review last year’s return. Inform your accountant of items which no longer exist from previous years, and be sure to provide information on the ones that still do apply and all new ones. Changes in your family status, residence, financial matters which require reporting – all are important considerations for your tax return.
- Acknowledge and follow up on outstanding items. If you have missing information, let your accountant know about these items and the timeframe for when you can obtain them. This will minimize back and forth with requests for missing information. Keep that list as a reminder for yourself. Managing your accountant’s time is a valuable skill for minimizing the cost of tax return preparation.
- Reporting 1099-B information on your organizer. In my opinion, it is unlikely your accountant will benefit by you completing your organizer with dividend, interest, and capital gain items, provided from the Forms 1099-B. It is best, in most cases, to simply provide the complete information provided to you. Check with your accountant.
- Extended due date for 1099-B distribution. This year's due date for composite 1099 information is February 16, (not January 31) due to the increased reporting requirements of financial institutions.
- Costs basis reporting. One relatively new requirement is the reporting of cost basis information for securities sold and provided on Form 1099-B. Since the effective date of 2012, in addition to reporting the proceeds from the sale of securities (stocks, bonds, ETFs, mutual funds), cost basis information is now required. Providing your accountant with the 1099-Bs should be sufficient (rather than filling in the Organizer as mentioned above). The 1099-B may provide three categories of transactions for sold securities: 1) Cost basis reported to the IRS (for securities acquired after an effective date); 2) Cost basis available, but not reported to the IRS (for investments acquired before the effective dates); and 3) Cost basis not available (which may require research). The year-end financial packages (statements) you receive from your financial institutions may provide gain and loss information which is not in the format of the 1099-B as an adjunct to the tax information. Only provide the preparer with the official 1099-B.
- Cost efficiency of reporting. The gain and loss information as reported on the 1099-B is detailed on IRS Form 8949, and then summarized to the more familiar IRS Schedule D. In most cases, preparation will be most time- and cost-efficient if your preparer simply attaches 1099-Bs to Form 8949 rather than transcribing the same information onto Form 8949. IMPORTANT: Be sure to white out your account numbers before providing this information to your accountant.