Pawel is my stubborn Polish brother from another mother. We have seen each other through many adventures, agreed, disagreed, laughed, drank lots of Belvedere Vodka, consumed copious amounts of food and developed a very genuine, unique friendship. In many ways we are like yin and yang. His intro says it all!!!
Since it’s tax season, and he is a CPA, I asked him to write a post about what people need to know when it comes to taxes – something that seems like common sense but often is not. Enjoy!
When Brielle asked me to write a guest blog for her on the topic of taxes, my first reaction was: “absolutely not.” I mean I am not accepting new clients this year and the last thing I want to do is to spend what little time I have off during “tax season” to write about, of all things, taxes. However, this is Brielle Caruso asking me. If I compare myself to Ron Swanson, then she is definitely Leslie Knope. She is the super thoughtful and energetic person who always thinks about others and, what’s infinitely worse, she always wants to do “stuff.” (If you are not familiar with Ron’s interactions with Leslie, here is a little highlight reel: https://www.youtube.com/watch?v=OrQ-aO2QAnE).
If I tried to break even with Brielle in terms of favors, then she could easily ask me to rewrite the whole tax code and I would still be indebted to her. Basically I have no choice but to get on with it.
The US tax code is vast and extremely complex. It would take weeks to narrow it down to the pertinent items and even that could prove futile because everyone’s tax situation is unique. With that in mind, I want to focus on some big picture practical items:
- Be guarded. By far the biggest issue currently confronting the IRS and taxpayers is privacy and identity protection. The IRS has dealt with multiple cyber attacks on its databases over the past few years. In addition there has been a multitude of email and phone phishing and extortion scams targeted at unsuspecting taxpayers. My advice is to guard your personal information closely. Keep in mind that the IRS will never contact you via phone or email to request information.
- Be organized. Dealing with taxes is tedious and time consuming. In my experience, the best approach to minimizing the painfulness of the process is staying organized. Get a folder and put all of your tax information in it as it comes in. If you retain all of your information electronically, then designate a location to store everything on your computer. Organize documents by year and be sure to have a reliable back-up system. Many tax preparers will provide you with a tax organizer containing information from the previous year. Scan through it to see if you have all of the current year information for all items reported on the previous year’s tax return. This will help you determine if you are missing something.
- Be consistent. Being a tax preparer, I obviously feel that using a specialist to prepare your tax returns is a smart move. However, there are many preparers who are just not qualified. It is extremely important to develop a long-term personal relationship with a skillful professional. It is unlikely that a tax preparer will save you money every single year but over time, a person who is intimately familiar with your financial situation will be able to offer planning tips and strategies that will generate significant tax savings. If you keep jumping from preparer to preparer year in and year out, odds are increased that you will not get the quality of service you deserve and lose money in the process.
- Be proactive. Many people only think of their taxes when it is time to file their tax return. Unfortunately, filing season occurs after the end of the year and there are very limited options for improving your tax situation then. Major financial events like job changes or real estate purchases occur throughout the year so it is usually a good idea to consult with your accountant before making any decisions that may impact your tax situation. The additional fee will be well worth avoiding any unpleasant surprises at filing time.
- Be cool. With increased complexity and third party filing requirements, it is becoming more and more common to receive tax related notices. Dealing with the IRS can be intimidating and unpleasant. I do not know of a single person who enjoys receiving correspondence from taxing authorities. For the most part though, there are fair processes and procedures in place for dealing with any notices or tax adjustments. It is extremely important to stay composed. Do not hit the panic button and do not contact the IRS immediately. Instead, reach out to your tax preparer and discuss the situation with them. They will usually ask you for a copy of the notice and provide you with a power of attorney form that will authorize them to deal with the IRS on your behalf. If you have a competent accountant, then there is nothing to be concerned about.
Thank you for taking the time to read this post. I hope that it will be beneficial to you in the future.
Pawel J. Sipika, CPA