By Ed Mendlowitz
Tax Season Opportunity Guide
Client ________________________ Year _____
Prepared By ___________________ Date _____
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Notes: 1) The term “owners” will be used to refer to stockholders, partners or members, as the case may be. 2) Even though “trial balance” is used in this checklist, you can use the company’s financial statements if those were what were used for the preparation of the tax return, or computer-generated statements.
Following is a suggested checklist of things for the reviewer to consider:
- ___ Did audit manager of this client review the input and result? Yes____ No____
- ___ Review client’s name and address, business code, state of incorporation and all EINs and owner’s Social Security number (if this is first year doing this client’s return).
- ___ Passthrough entities: managing owner should have submitted an updated address list.
- ___ Passthrough entities with change in ownership: verify that the dates of change and income allocations were entered and allocated properly.
- ___ For first year, make sure all the proper elections have been made such as accounting basis, inventory method, Section 263A, S elections (including state), mark to market for traders, depreciation and amortization. For later years make sure return is consistent with elections.
- ___ Make sure all questions on return have been answered.
- ___ Determine that accounting basis listed on the tax return is consistent with the income statement and balance sheet presentation on tax return. (For example, if the cash basis is checked, make sure the balance sheet on the tax return is prepared using the cash basis; and that there are no bad debts or inventory for a cash basis company.)
- ___ Tie in retained earnings or capital accounts balances with trial balances and tax return.
- ___ Make sure the time spent by officers is reflected as a percentage and not as “all” or “part.”
- ___ Review book to tax adjustment reconciliation and tie in totals to trial balance.
- ___ If financial statement was prepared, look at note regarding income taxes for inconsistencies.
- ___ Determine that the individual amounts on book to tax reconciliation appear reasonable.
- ___ Check that cash balance on tax return agrees with year-end bank reconciliations.
- ___ Check that totals of fixed assets and accumulated depreciation and amortization on balance sheet of tax return agree with depreciation and amortization schedules.
- ___ Verify that gross payroll on tax return agrees with gross payroll on W-3.
- ___ Tie in total of all 1099s company prepared with amounts on return.
- ___ Reconcile sales on the client’s sales tax returns with the sales on the income tax return.
- ___ If company is on accrual basis, were accruals timely paid after year end?
- ___ Determine if pension accruals were properly calculated and timely and properly paid.
- ___ Was interest properly paid, received or accrued on loans to/from related parties?
- ___ Obtain explanations for large variances, differences, inconsistent amounts and surprise items appearing on tax return as compared to prior year and/or projections if prepared.
- ___ Were estimated tax payments entered properly on Tax Payments Worksheet?
- ___ Were estimated payments calculated properly for the current year? (If a C Corp and earnings over $1,000,000 any one of last three years, different estimated tax payment rules apply.)
- ___ Are there unreasonable compensation or unreasonable accumulation of earnings issues?
- ___ Review K-1 input and tie in to distributions and investments during the year per the books.
- ___ Were carry-forwards entered properly and accounted for?
- ___ Were gross sales from security transactions reconciled with 1099s (we have form for this)?
- ___ Compare federal to state returns to see that add-backs and reductions seem logical.
- ___ Address S Corporations that had distributions in excess of AAA or with negative capital.
- ___ Were there foreign relationships, transactions or ownership that require special forms such as 8804, 5471, 5472 or TDF 90-22.1?
- ___ Were items on flag sheets, notes based on discussions with client during the year, special instructions and knowledge points in tax control considered?
- ___ Look at client’s correspondence and notes that accompanied tax information to see if applicable to the tax return preparation or if it requires separate followup actions.
- ___ Address any notes or comments by a partner.
- ___ Look at tax notices for last year to see if they affect current year’s return.
- ___ Verify there are no diagnostics, open or unresolved items.
- ___ Were all questions on the preparer’s checklist answered (should be no unanswered items)?
- ___ Are filing and estimated tax instructions correct?
- ___ All penalties, interest, underpayment and late filing penalties should be calculated.
- ___ Look at every page of completed return and review for any obvious red flags or audit triggers.
- ___ Was there any followthrough by client on tax or planning recommendations made last year?
Report any comments:
- ___ Were opportunities identified for tax or planning for the client? This should be followed up after tax season. Put on tax calendar with date.