HOW TO KEEP YOUR TAX PREPARATION COSTS DOWN
No one likes to pay taxes, and no wants to pay too much to get their taxes prepared, which might feel like adding insults to injury.
Why is it that one business tax return with a gross income of five million dollars may cost only $500 to prepare, while another tax return with gross income of only $100,000 might cost $2,500 (five times more!) to prepare? The answer is simple – since I bill mainly for my time, the quality and completeness of the numbers that are given to me largely determines the price. The better the bookkeeping, the less time spent. The more incomplete or confusing the bookkeeping, the more time spent.
So, what are some common bookkeeping problems?
1) Incomplete information. What a joy it is to do a tax return in “one fell swoop”! (you didn’t know accountants could feel joy, did you?) In this type of ideal scenario, all the information might come in only say 2 or 3 pages, or just a really nice and clean Quickbooks P&L and balance sheet. This takes little time and keeps the fee low.
The opposite of this is the client who gives me their information piecemeal, over say weeks of time. I send out an e mail asking for answers to some questions. A few days later I get an e mail back answering maybe half those questions. I restudy the file and repeat the remaining questions. You get the idea. This tax return is getting expensive as my time is mounting up.
2) Too much information. (“TMI”) Some clients feel compelled to tell you everything about their financial life during the year. I get details of how much they spent on personal items, groceries, cosmetics, and other unnecessary and inapplicable information. But since I have this information, I now have to read it to make sure it is really not applicable. And that takes time. Another variation of “TMI” is giving me receipts for every deduction. I usually don’t need to see those. Save them for the IRS if there is ever an audit, but please don’t give them to me. Another type of “TMI” is the taxpayer who needs to tell me everything that happened to them all year. Although I am a friendly and caring person, I am an accountant, not a therapist.
3) Unspecific information ( “Generalities”). This is really a variation of #1 above, “Incomplete Information.” For example, I might get an item from a client that just says “business expenses, $28,656.00.” OK, that’s nice but what are they? Break it down! Or “utilities” $6,053.00″. What are they? Business? Personal? What kind? Or for which property? Break that down too.
4) Giving me the same information in different places. (a variation of “TMI” above). Again, I have to read every piece of paper a client gives me. I often joke when a client gives me a five pound folder that I “charge by the pound.” Some clients must think that if they give me the same information several times on different pieces of paper that this somehow helps me or ensures that I will really “get it.” No, what it really does is this: I now have to make sure I am not counting the information twice, and I have to also be sure that the random pieces agree with each other. And if they do not seem to agree, now I have to ask more questions. This takes time. Tell me only once! I will get it the first time!
5) “Materiality”. This is a really hard one to teach to some people, because it can also be a mental state. The word “materiality” basically means “how big is it” in relation to the whole tax return. “Immaterial” means that something is “too small” to bother with. When I get a client who is obsessively stuck in being exact to the penny, and I can’t talk him out of it, I know I am in for a long, hard time. This kind of client may wring his hands for several minutes over whether he spent $110 or $120 in office supplies. The IRS doesn’t care if the return is perfectly exact, so why should you? Take the $120 figure, since that will lower your tax a bit more. They will not “come and get you”, I promise.
6) The client who makes a half million dollars a year but won’t hire a real bookkeeper. What I sometimes say to these guys is would you rather pay me $250/hour to go through your mess or pay a good bookkeeper who really knows, say Quickbooks, $75 an hour to clean it up? Don’t be “Penny – wise but pound foolish” as Charles Dickens or some Englishman once said. Bookkeepers can be very useful. And they can avoid many of the 5 problems listed above and maybe save you money in the long run.
Obviously, if you knew exactly how to present your information to me, you might not even need me. But the above points are guidelines to make both our jobs easier. I hope this information helps.
Happy Tax Season!