Tuesday, January 23, 2007


I certainly don’t think you should wait till the last minute to prepare your tax return. Unless, of course, it is some kind of a tradition. We used to have two clients, a Jersey City cop and a Port Authority cop, who would always come on literally the last day, usually April 15th. The city cop would consistently be the last client on the last day, and when we saw Wally coming in the door we knew it was finally over.

I also don’t think you should rush to be among the first taxpayers of the year to have your taxes done.

For me the “tax filing season” officially begins on February 1st. I tell my clients not to come to me until then, and rarely prepare a tax return before the 1st of February unless both the client and I are sure that he/she has received everything necessary to properly prepare the return.

The reason I chose February 1st is because, under federal law, all W-2s, 1099s and 1098s are required to be furnished to taxpayers by January 31st (unless the 31st falls on a week-end). The instructions for these forms state that the “furnish” requirement will be met if the form is properly addressed and mailed on January 31st.

While I spend Christmas Eve and New Years’ Eve typing the W-2s for my business clients, most businesses wait until the end of January to get their W-2s in the mail. Actually, even though all my W-2s are available on January 1st, my biggest client does not hand them out until the last week of January. We have found from past experience that when the W-2s were handed out too early several employees had lost them by the time they were ready to have their tax returns prepared, and I had to waste precious time during the “season” to type duplicate copies.

Plus, most banks, brokerages, mortgage companies, colleges and the like are not able to send out 1099s and 1098s until the end of the month because of the volume involved.

One season, when I still had an office open to the public, a long-time client came in on the morning of February 1st to have his return prepared. He had received all the 1099s for interest and dividends for all accounts and investments as well as the 1099s for Social Security and pensions. Upon reviewing the “stuff” he presented to me I found that he had a form for every source of income he had reported on the previous year’s return. He told me he had not sold any stock during the year, and that there had been no spin-offs, mergers or “cash in lieu” for fractional shares. So I prepared the federal and state returns.

He left the office with the completed returns happy in the thought that he was finished with his “uncles” for the year and pleased with himself for being so early. He returned home, signed the returns with his wife, and went directly to the Post Office with stamped envelopes addressed to the Internal Revenue Service and the New Jersey Division of Taxation.

The next afternoon I got a call from the client. He had gotten another 1099-R in the mail that morning! His wife received a pension from Lucent Technologies and, while the amount of the annual pension generally remained constant, early in the year Lucent had made a special one-time distribution to its retirees from a fund other than the regular pension fund, and issued a separate 1099-R for this distribution.

The client returned to my office that afternoon and I prepared amended returns, for an additional fee, to claim the income and withholding from the new 1099-R. I instructed him to wait to mail the amended returns until he received the refund checks from the original returns, so as not to confuse the IRS and NJ by having two returns in the system at the same time.

Needless to say when the next Lucent retiree (and I had quite a few) came in to the office I made sure that they had 2 Form 1099-Rs from Lucent.

Just last year another long-time client – a single mother with a daughter in college – gave me what she thought was all her and her daughter’s “stuff” on January 27th. I cautioned her that she should wait for a few more days to make sure she had received everything – but she assured me she had. She was, of course, in a hurry to get the refunds, which she always had directly deposited into her bank account. Luckily I did not rush to do the return. The next day she called to say that something else had arrived in the mail – a W-2 for her daughter’s work-study, which she dropped off for me. Again I did not rush to put pen to paper. The next day she called again to say that still another tax form had arrived – a Form 1098-T for college tuition. It was a good thing I had waited. I don’t expect to hear from her until February 1st this year.

If you have a brokerage account there is an excellent chance that you will receive at least one, if not two, corrected “Consolidated 1099 Statements” to report taxable dividends, interest and gross proceeds after the initial statement arrives in late January. This is because of the rules concerning the taxation of “qualified” dividends, which became effective with tax year 2004. The final corrected 1099 may not arrive until mid-March.

And don’t get me started on K-1s. These forms from partnerships, LLCs and sub-chapter S corporations are not required to be distributed by January 31st, and many do not arrive until the end of March or beginning of April!

My instructions to clients clearly state:

“Do not give or send me your ‘stuff’ until you have received all the forms and information needed to complete the returns! That means every W-2, every 1099, and every K-1. I do not want to receive your 'stuff' in installments. If you are waiting for an information return such as a Form K-1, for details from your broker on the cost of stock sold during the year, or for anything else, please do not give or send me anything until you have everything in hand!”

So, I have blogged about getting ready to prepare your return and about what to give your tax preparer. My final word to you is don’t give your “stuff” to your tax preparer until you have received everything you need to properly prepare the return.

Any questions?

By the way, I have lost track of Wally, the last client on the last day. He had retired and the last time he was in the office it appeared his mind was beginning to go. Someone had told me a while back that he had gone into a nursing home. And the Port Authority cop who always came on the last day – he was one of the Port Authority emergency rescue team workers that were killed on 9/11. As a result I no longer work on 1040s on April 15th, or whenever the deadline falls (this year is will be April 16th).


No comments: