What Preparations Must You do Before the Next Tax Season Starts?

Businesses around the world follow a very hectic work schedule and have a plethora of management tasks to handle throughout the year. However, it is payroll processing & tax preparations, which makes the business owners really engaged and stressful.

The reason being filing error-free tax returns at the end of the fiscal year is an overwhelming task for them. As per a test report prepared by the National Consumer Law Center, only two of the 29 reports prepared by different tax preparers were free of any errors.

This is the reason last year witnessed 79 million e-filed tax returns prepared by professionals in the USA. The IRS clearly states that if mistakes appear in the tax returns, the penalties and liabilities will be borne by the business owners and not by the tax preparers. So, let’s get started to figure out the right approach towards an error-free tax return filing.

Evaluate your tax situation

• Zero complications: If you have a single income source from your client or employer, and you are aware of the respective deductions, you will easily submit your Form 1040, without even feeling the need of tax software.

• Some complications: There are business owners who have to fill supplemental forms apart from Form 1040. In such a case, the best way to deal with this workload is by using tax preparations software.

• Many complications: The medium to large-sized businesses who have multiple income sources and expenditures are the ones who face a lot of complications while filing tax returns. Using efficient accounting software may help, but hiring a certified public accountant or CPA is recommended greatly.

Find the right tax professional

Finding the right providers for business tax preparation services is not something which can be considered as an effortless task as it is pretty much an overwhelming task since choosing a professional or an accounting firm which best meets your tax season requirements is challenging.

Tax preparers vs. CPAs

It is a fact that not every tax preparer can be a CPA, and not every CPA can be a tax return preparation expert. It all depends on the financial needs of your business like selecting the software for accounting, installing it and gaining training, records reviewing for tax evaluation, data entry tasks, and more. So, let us discuss in detail what all qualities and ways you need to look for while hiring a CPA.

Also read: Pros and Cons of using Tax Preparation Software like TurboTax vs. a CPA

• Licensing requirements: From education to licensing requirements for CPAs, it varies from state to state. So, it is important to know the appropriate requirements for the same as per your state and hire a CPA which best meets these requirements.

California licensing submissions to the state board:-

a) 1 year work experience
b) 2” x 2” photo
c) Fingerprints
d) Criminal conviction disclosure
e) Official application for CPA license
f) Application fees

New York licensing submissions to the state board:-

a) Passing certificate of all 4 CPA exam sections with 75 marks or more
b) 1 year work experience
c) Official application for CPA license
d) Application fees

• The overall connect: It is recommended to hire a CPA who offers specialized services to you. He/she should have experience in your field, along with the willingness to adjust as per your business hours. Also, attitude and personality matter a lot while hiring.

For instance, Smile Builders, a renowned dental firm, faced complexities while filing the taxes at the time when their business started growing by leaps and bounds. They were finding it hard to manage data entry, cash flows, and bookkeeping tasks. Also, they were confused for the impact of their business taxes on their personal taxes, structure the different incentive models, classify the workers against employment taxes, and more.

Their CPA had the right knowledge and expertise to address each of these issues to perfection, and this is the quality you should look forward to while hiring a CPA.

• Recommendations: Talk to your friends, family members, and other business owners as to which CPA they have hired and how did they find him/her in the first place. Recommendations often help in getting trusted and qualified CPAs and one should definitely ask for them. For instance, people hire independent CPAs as per their requirement on the leading online job portals like Upwork, Feverr, Freelancer, etc.

• State Board of Accountants: If you have shortlisted a CPA, it is important to check whether or not the CPA is licensed and holds a good record with the State Board of Accountants or your area’s licensing authority.

• The price: Price is obviously an important element in the hiring process. Try to hire a CPA which best meets your requirements, and also falls within your budget at the same time.

• Reference checks: Before you finalize your CPA, ask him/her for the references of past clients. This will let you know about his/her work behavior and caliber as an accountant, eventually helping you take the final decision.

Start gathering the required information

By the end of the fiscal year, you need to gather the required information for filing the tax returns as per the IRS list, which is explained below highlighting some of the major requirements:-
– Form W-2 for employees
– Different 1098s for mortgage interest (1098)
– Different 1099s for reporting incomes such as dividends (1099-D), cancellation of debt (1099-C), nonemployee compensation paid to independent contractors (1099-MISC), and interest (1099-INT)
– Form W-2Gs for any winnings related to gambling

How to deal with tax return Preparation mistakes?

It doesn’t matter whether you are preparing the tax returns on your own or through a CPA, mistakes are bound to happen as ‘to err is human’. The following approaches will either help you in avoiding or dealing with tax filing mistakes:-

• Provide complete details to tax preparer: Make sure you provide all the details of your income and expenses to the tax preparer as any mistake after this will be counted on behalf of the tax preparer and not you.

• Tax return reviewing before signing: The tax return constitutes a statement that states that everything mentioned here is true to your knowledge as an owner. Signing without reviewing the tax return may put you in trouble not only in front of the IRS but the court of law too.

• Contact the tax preparer in person: It is imperative to contact the tax preparer in person if you have found any mistakes on your tax return upon reviewing as he/she can help you in avoiding the IRS penalties.

Related: What Does it Cost to Outsource Your Tax Preparation Tasks?

• Know your rights as a client: When you hire a tax preparer, you sign a contract with him/her, which clearly states your rights as a client. These rights mostly include the exemption of penalties and other taxes on your part due to any mistake committed by the tax preparer.

• Register a complaint/Alert the IRS: You always have the option of notifying the IRS of your tax preparations mistake in order to skip the penalty. Apart from this, you should also notify the IRS about your tax preparer for the following actions:-

– Unethical Behavior
– Contract Violation
– Purposeful Avoidance
– Reimbursement Refusal
– And more….

Conclusion

Keeping your business priorities and financial demands in mind, you should hire the most suitable CPA. It is imperative to assess your present tax season situation and also reconcile bank statement.

However, CPAs can also commit mistakes while filing the tax returns, and it is recommended to review your return before submitting it to the IRS as the precautionary measures assist in avoiding any tax preparation mistake.

If the mistakes do occur during tax preparation, you should do the needful as discussed to avoid any penalties by the IRS.

To avoid any errors in the tax preparation and attain a hassle-free process, you can outsource tax preparation to a reliable company. If you are looking for the same, Cogneesol can be your best find! Contact now, at +1 646-688-2821 or email us at [email protected].