Prepare for your tax preparer

The system is easy, so simple you can do it while watching television or listening to music. But it achieves several of your goals without your breaking a sweat.

Never give your tax preparer a shopping bag of unclassified receipts. It's a waste of his time and your money. Except for those of us who do this for a living and actually enjoy it, tax preparation isn't a whole lot of fun. It's certainly not fun for you as the taxpayer. Either you're going to give up some more dollars to the IRS, or you'll be getting a refund of money you've lent to the agency -- interest-free. In either case, you want to minimize the pain.

My envelope system does that. Your preparer now has final numbers for each category. The preparer will tell you what's not allowable and more quickly and accurately complete your return.

What you really want from your preparer is analysis and questions. Any monkey can put numbers in boxes. You're paying for the knowledge and insight as to where to put those numbers and what expenses are allowable. The more your preparer knows about you, what you do and where you want to go, the better the service you're going to get.

Other ways to prepare

How else can you prepare for your accountant? If you've had sales of stock or mutual funds, make sure you've got the cost basis of those shares available for your preparer. Don't forget to include in that cost basis any reinvested dividends and capital gains. You don't want to pay tax on them twice.

That means, call your broker as soon after Jan. 1 as possible to get that information. The last thing she's going to want is a call the second week of April requesting copies of information that was already sent to you. She generates income by making sales, not by being responsible for your bookkeeping. She's got enough problems with everyone else calling her for the same detail.

Along the same line, call your tax preparer now. You're not his only client, and the later you wait the busier he's going to be. I tell my clients that anyone I see after April 1 is probably going to file an extension. Remember, taking into consideration the stress, workload and hours slept during tax season, most preparers will probably be able to serve you better this month than in mid-April.

Finally, recognize what you want out of your preparer. You should be looking for more than simple numbers in boxes. You need a preparer who asks questions. Lots of questions.

You also want your questions answered. It's all right if your preparer doesn't know the answer immediately, as long as he gets back to you after researching the issue. And it's important that he does get back to you.

You want to walk out with direction and suggestions for minimizing your taxes for this year. If your preparer asks you to complete an intake form and does your taxes just from that, you might as well get a tax preparation computer program and do it yourself. After all, you're prepared.

No more fear

My envelope system, done correctly, also gives you complete audit protection. More people fear a tax audit than death itself. But not you, not any longer.

A tax audit is nothing more than the IRS requesting substantiation for the numbers on your return. But you've already done that. The numbers on your return come right off your envelopes for each category.

So, for example, if you're audited on your charitable contributions, the IRS wants you to prove that number. No problem for you. Just give your representative the "donations" envelope. It will have all the receipts and checks to substantiate the number on your return.

The same goes for any other category on your return. Remember, the numbers on your return came from the receipts and checks in each envelope. You've already pre-audited yourself and should have no more fear of the IRS. Honest.

Updated Jan. 21, 2009

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