You’ve all heard the story of taxpayers who submit a shoebox full of receipts and a stack of paper 10 inches thick to their CPA at tax time. What you may not know is how the CPA reacts when they get this treasure trove of information. The CPAs heart rate goes up. Their eyes get very big and googly. And they may yell “why in the world is this happening to me?”
In all seriousness, CPAs appreciate clients who are organized and submit their documents in a timely manner. However, getting the data together for a tax return can be a daunting task, so here are a few tips to make the process easier.
1). Use a cloud storage solution to store your tax documents
You should keep your own records of tax documents organized and in the cloud. Why? Because if you ever get audited by the IRS, they will request data going back 3 years or longer. If you didn’t know this already, the IRS can go back and audit you after 3 years after you filed your return, or after 6 years, or even longer depending on the circumstances. Also, if you are applying for a lease or a loan, it would be useful to have this data handy at a moments notice.
To get cloud storage, you can use Google Drive if you have a Gmail account or use Microsoft OneDrive if you have Microsoft Office, and there shouldn’t be any additional costs. Picture a filing cabinet for all of your paper files, but instead located inside a computer in some other location, that’s what cloud storage is. You can then create a separate folder for each tax year to house tax documents and tax returns.
Whenever a tax document is available online (for example a 1099-B from a brokerage account) or you receive a tax document in the mail, you should save it in cloud storage. Do this all year round so that you don’t have a monumental task of saving all your files at one time right before your tax return is prepared.
2). Organize your tax documents as you receive them
If you get an email with a tax document attached, save the document to the cloud. If there is tax information in the email, then print the email to PDF and save the PDF in the cloud.
If you get tax documents in the mail, you can either scan them to PDF with a scanner or you can download Scanner App (or another similar app) on your iPhone or Android devoice. This allows you to take a picture of your paper tax document and scan it to PDF seamlessly. Then you can save the PDF file to your cloud.
If you have a rental property or own a small business, but are not using bookkeeping software or hiring a bookkeeper to handle your books, then we recommend you categorize transactions in Excel. At Black Sheep, we provide our clients Excel templates to enter in this data, and they provide us that data prior to preparing their tax return.
3). The right way to send your tax documents to your tax preparer
First, I’m going to say that you should NEVER EVER EVER email documents to your tax preparer. There are a lot of vulnerabilities with email, and unless you want your identity stolen, your tax preparer should be using a secure site for you to upload your tax files to.
Once you have the bulk of your tax documents together, you should upload them to your CPAs secure portal. At Black Sheep, we use Citrix ShareFile, which is very secure. All files should either be in Excel or PDF format. Upload all of the files at once after logging into your secure portal. If you have other straggler tax documents that are going to come in later, make sure your CPA knows about them and upload them immediately after receiving them.
What is the benefit to you of doing all of this?
If you ever get audited, or if you need to apply for a lease or loan, or for many other reasons, your tax documents will be sitting in your own cloud folder ready for an easy upload to the organization that’s requesting them.
Also, if you start saving these documents as they come in, it will reduce that monumental task of saving and organizing your documents at tax time, which may cause you to procrastinate sending this information to your CPA, which could in turn delay your refund or return from being filed on time. You will also have less stress because you have everything together, on time!
Finally, it will make your CPA happy. I think this is the most important reason, right?