“Work with” is the operative phrase; do not assume your accountant knows everything he or she needs to know in order to prepare your taxes.
Make an appointment with your accountant after the peak tax preparation season. Ask him for a list of items he needs from you in order to make the proper deductions.
The six most dangerous words to your financial wealth regarding your income tax preparation, “My accountant handles all of that.”
Remember, it is your income which is affected by your tax preparation not your accountant, so take an active role in your tax preparation.
Also, if there have been changes in your financial responsibilities let him know. For instance if you are responsible now for the care of your or your spouse’s aging parents, let your accountant know, there may be tax deductions you can take.
You may know about the attorney-client privilege. Whatever you say to your attorney is privileged information. Under law your attorney cannot be compelled to reveal your conversation with her.
However, there is no such privilege between accountant and client. Your accountant can be compelled in a legal proceeding to reveal his conversation with you.
Further, understand your accountant’s liability to the IRS regarding his preparation of your business income tax return.
According to the Small Business and Work Opportunity Tax Act of 2007:
An income tax preparer who prepares a return with respect to which there is an understatement of tax that is due to an undisclosed position for which there was not a realistic possibility of being sustained on its merits, or a frivolous position, is liable for a first tier penalty of $250, provided the preparer reasonably knew or should have known of the position…An income tax preparer who prepares a return and engages in specified willful or reckless conduct in respect to preparing an income tax return is liable for a second tier penalty of $1000.
One of the ramifications of this tax act is that your accountant cannot be expected to rely on your word, but instead needs now more than ever, documentation for all the deductions you claim. So do your accountant a favor and have excellent record keeping systems in place.
George Angelo©2009