Take the headaches out of tax season

By Connor Day and C. Kenneth Woodford, Baird Private Wealth Management – Wealth Solutions Group

Nobody likes tax season – OK, let’s just go ahead and say that everyone dreads tax season. Our team at Baird does not provide tax advice and we are not accountants, but there are simple steps that we come across that help reduce the headaches for you and your business, and to make things easier on your CPA. As we approach April 15, here are a few ways to make this tax season go more smoothly:

Be early

Assemble your documents and deliver them to your CPA/Tax Preparer as early as you can. The 2024 filing season started on January 29th. This lets them work without the deadline pressure of Tax Day, meaning less chance for errors and more time to identify ways to minimize your tax bill. And if there’s an issue you need to correct before you file your return, you’ll have plenty of time to do so and avoid an extension.

Tax form requirements vary, based on your business entity type, industry, employees, and more. For your business or personal investment accounts that are managed by a financial institution, you should receive a schedule of when you can expect to receive your tax documents. This would include documents such as form 1099 and 5498. Depending on the complexity of the products that you hold in an investment account, your tax documents may not be delivered until the middle of March.

Use your CPA’s questionnaire

There’s a reason they want you to fill out their specific form, tedious though it may be. The questionnaires are designed to ensure you don’t forget anything important, and to prevent scrambling on your part as you reach the end of the process. Be sure to review all the questions they ask; we all know things change from year-to-year personally and within your business, and those answers can help avoid any misunderstandings or missed filing opportunities.

Be as complete as possible

Try to send all your data to your CPA at once, rather than in pieces every week or two, and include every page of your tax documents as those extra pages often contain important details. When sending your information, avoid unsure email correspondence. Many CPAs now use tools that allow you to upload your documents to a secure documents exchange. Lastly, remember to save your records that may not be standard tax documents, such as confirmation letters for charitable donations, or eligible deductions and credits. Having additional documentation on hand will only make filing season easier.

Keep your old files on hand

We all know adding more paper to your filing cabinets at your home or office isn’t what you want to hear. With that said, you generally want to keep tax documents for three years, since that’s the limit for filing an amended return. For example, the deadline to amend your 2019 return is April 15, 2023, or later if you extended that return. If you’re reporting unique transactions such as a like-kind exchange or bad debt deduction, keeping seven years of records is recommended. This does not apply to other business records such as payables and receivables, banking information, or other supporting documents. The seven-year guideline would be recommended. A general rule of thumb is to keep your old tax returns for as long as you can.

Shorter-term investment account documents can be kept for less time. Keep your monthly statements until you get the annual summary statement, for instance, and your annual statements until you sell the positions or close the account. If you would like to clean up your paperwork or receive less mail on your doorstep, be sure to look into your electronic delivery preferences with your financial institution. Most firms allow you to receive all statements by email and save your records on an online platform. The online apps also allow you to send and receive documents securely from your financial advisor, review account performance, or share access with other users.

Avoid making your own summary schedules

Let your accountant add up all the figures and complete your IRS schedules for things like adjustments to income and deductions. If you complete these yourself and they don’t match the original documentation, your CPA will need to take time to reconcile the differences, ultimately slowing the process and increasing your filing fee.

Don’t be afraid to extend

If you are delayed in providing your information for 2023, be prepared to file an extension. The extra time will help your tax preparer do the best job he or she can, rather than rushing and possibly missing something for you or your business. And no, an extension will not increase your risk of an audit.

Take steps to avoid identity theft

We often think of theft as only happening at jobsites or your shop, but tax season is also a prime time for identity thieves to try to access your personal financial information. Ignore texts, emails, social media messages or even phone calls claiming to be from the IRS. If there are issues with your return, the IRS will send you a letter. In general, all your personal or business information shared with your CPA or financial advisor should be secure and if you are moving funds or sending payments, verbally confirm with those individuals before making any changes.

If you are concerned about identity theft, select financial institutions have partnered with identify theft protection firms in recent years for monitoring for high-risk transactions, IP addresses, data breaches, digital footprint, and more.

You may be wondering how your financial advisor fits into this conversation? Being proactive and comprehensive can help you eliminate your headaches and minimize your taxes, but will also help you plan for the years to come. Once you are finished with your return, it makes sense to provide your advisor with a copy of your return in preparation for next year. Your financial advisor should work with your CPA to help develop tax strategies that will influence the decisions made around your investment portfolio, charitable giving, estate planning, and more. Tax efficient investments and planning are a must and are accessible to almost everyone, but it takes time and the right partners to reap the potential benefits.

Connor Day is a Financial Advisor with ABC member Baird and can be reached at 262-240-3543. C. Kenneth Woodford, CFP® QPFC is Senior Vice President and Senior Investment Consultant with Baird and can be reached at 608-830-3500.