Artwork of Accounting: Self-checking tax preparation worksheets

I imagine I’m one of many prime specialists on tax season administration. I’ve been presenting stay applications all through america and webinars to attendees from over 30 counties for over 40 years. I’ve written a e-book on “Managing Tax Season” for the AICPA that had three editions and one on “Reviewing Tax Returns” for CPA Trendlines that’s in its second version, plus too many articles to rely. I additionally know of many corporations that efficiently comply with my strategies. 

Just a few weeks in the past I posted my three-step evaluation course of and I obtained requests for explanations concerning the tax comparability worksheets I like to recommend for extra difficult returns. I additionally imagine that the right use of those worksheets is the only greatest means of enhancing the standard of tax returns in each respect.  Listed below are some particulars:

My self-checking and evaluation course of entails evaluating the present return with the earlier yr’s return on a line-by-line foundation. Any unexplained, uncommon or surprising variations or outcomes are reviewed and both cleared up or famous in a memo for the reviewer and the supervisor, proprietor or accomplice signing the return. If the distinction is the results of a preparer error, this evaluation gives a self-checking mechanism for the preparer to repair it earlier than sending the return to the reviewer. Whether it is one thing new, then the transient rationalization will save the time of the reviewer or accomplice from asking about it. It is also a straightforward means for the proprietor or accomplice to change into conscious of an uncommon exercise for that consumer, and for the preparer to be taught extra about that consumer.

As I defined in my earlier column, tax preparation software program is satisfactory for about 80% of the returns. My worksheets are really useful for the remaining 20%. Many individuals requested for clarification of how I outlined this remaining 20%. These are returns which are a bit extra difficult the place the tax prep software program’s comparability wouldn’t clearly determine the objects on the tax return. Examples are shoppers with multiple Schedule C or multiple merchandise on a Schedule E resembling a number of rental properties or Ok-1s. When multiple, these could be mixed and the reviewer or accomplice wouldn’t know what the outcomes are for every exercise with out wanting on the tax return or underlying information. Evaluating these outcomes to the prior yr would require a evaluation of the prior yr’s return; nonetheless, a comparability of the online outcomes for every exercise or Ok-1 will be simply accomplished a worksheet with separate strains for every exercise, thus the necessity for “my” comparability worksheet, which I now name the SmartProof worksheet.

The SmartProof worksheet is ready on Excel or every other spreadsheet software program. It has a line for each merchandise on the tax return for the present and prior yr. I personally prefer to see no less than the 2 prior years. As soon as it’s ready, which may take about 20 minutes, the annual updating is kind of simple, taking no more than about 5 minutes. I do know that many readers will balk on the added time, so let’s examine what you might be “shopping for” with that added time: 

1. The preparer will likely be checking the return for their very own errors and never go away it for the reviewer to search out and, ugh, repair.
2. The preparer could have a greater understanding of the consumer’s scenario. 
3. The preparer will understand the efforts they made to create the tax return and higher respect the output and end result.
4. The reviewer will spend much less time reviewing the return’s preparation.
5. The reviewer could have explanations of lots of the irregular points they’d have needed to discover out for themselves.
6. The reviewer could have a radical two-page abstract in entrance of them that can be utilized for planning and likewise for reviewing the tax funds and credit.
7. The accomplice could have the SmartProof worksheet that they’ll evaluation in only a minute or two and collect a whole understanding of the consumer’s earnings and expense scenario for the earlier yr, in addition to vital variations from prior years or new points that developed that yr. The accomplice may use their mind to consider how the agency might add extra worth to that consumer.

Word that the added time for the preparer will likely be recouped by much less time for the reviewer and accomplice, and a greater understanding of the consumer’s scenario by the reviewer and accomplice, and extra planning and worth added to the consumer. Additional, preparers are normally a lot decrease paid than the reviewer and accomplice and are extra simply employed and educated, so including time for them whereas getting an offset from much less time by the supervisor and accomplice seems to be a superb enterprise transfer.  Additionally, a extra educated workers individual is an funding in agency high quality and gives development alternatives for everybody — together with the companions.  
I used to offer spreadsheet templates, however not do this for the reason that adjustments are too frequent and cumbersome for a lot of consumer’s conditions. My suggestion is to begin from scratch for every consumer. If you’d like just a few samples of the SmartProof worksheets, ship a request to GoodiesFromEd@withum.com and simply put SmartProof as the topic. No messages essential. 

These worksheets work. I’ve been utilizing them for far more than 40 years (lengthy earlier than there was spreadsheet software program) and have repeatedly made adjustments to make them extra related, informative and helpful whereas at all times seeking to scale back the time of the reviewer, myself and companions. I’ve at all times been very egocentric about how I spend my time and by no means wish to do one thing that might have been accomplished by another person. I’ve gotten this all the way down to my spending minimal time reviewing a return and consumer’s scenario whereas garnering the utmost data potential. 

One closing remark is that the SmartProof worksheets are an efficient, user-friendly deliverable to shoppers. It condenses a 100- to 1,000-page tax return into an easy-to-review-and-understand two-page worksheet that I can go over with a consumer on the phone or digital assembly in a couple of minutes, and definitely a lot much less time than it takes simply to search out the pages on the return that I’d wish to focus on with the consumer. 

This technique works.  

Don’t hesitate to contact me at emendlowitz@withum.com along with your observe administration questions or about engagements you may not be capable to carry out.