If you do any significant number of tax returns, you will, without a doubt, run into situations where you have little to no idea what you’re doing. Especially when you’re just starting out as a tax preparer, this is a fairly common feeling. In fact it’s one of the main reasons why new tax preparers quit.
Usually this feeling of being completely lost comes about when you see a tax form you’re not familiar with that has a bunch of obscure words, boxes, and other markings that appear similar to heiroglyphics.
In this blog post, we’ll give you a process for dealing with tax forms that you have no idea what the freak is going on with (that’s a technical term)—the good news is that it’s not as hard as it looks.
Establish a Big Picture Understanding of Concept at Hand
The first thing you’ll want to do when dealing with an unknown tax form is understand, in big picture terms, why the IRS has created that form in the first place.
For example, let’s say we’re looking at Form 6198, At Risk Limitations.
We can accomplish a big picture understanding by Google searching:
“what is purpose of Form 6198”
And then read a few of the top search results.
With Form 6198, the IRS seeks to prevent taxpayers from claiming losses where the taxpayer does not actually have a risk of loss of money. So, big picture, Form 6198 provides the IRS with a method of disallowing a deduction.
You can do this for any tax form and in most cases you’ll have a general idea what the freak is going on after about 20 minutes of reading.
Understand Impact on Client Situation
Once you’ve grasped (at least somewhat) the big picture concept, you want to identify how that big picture affects, or does not affect, your client’s situation.
For instance, Form 6198, if your client does not have a loss for this year, the form is not as important or impactful as if the client does have a loss that could be limited by this form.
If the client does have a loss, how big is the loss? How much tax would be reduced the IRS allowed the loss?
If the amount of tax at stake is considerable, you need to spend more time and due diligence figuring out the issue than if the amount of tax at stake is minimal.
You also want to keep an eye out for future implications, because perhaps the client is not affected this year, but will the client be affected in the future? For instance,
Read the Instructions
You ever buy something from Ikea® and then try to put it together without reading the instructions?
Yeah, me too.
Not a pretty sight.
Google search “Instructions for Form XYZ” and follow them as best you can.
Always remember that you’re putting in work “on the front end” to understand the form now, so that you’ll be familiar for next time, this is part of the investment required to do this kind of work.
Tax Software Inputs
Now it’s time to input data into your tax software.
I personally recommend contacting your ta software company and straight up asking them to guide you through entering the data. Some companies will do this and some won’t. To me, it’s always worth a shot.
You can also use the “help” function of the software and/or Google search “enter Form 6198 on [XYZ Tax Software]” and try to pick up a YouTube® tutorial.
You can also posting in a tax preparer forum.
Calling in the Cavalry
If a form is truly over your head, and there’s a large amount of tax at stake or future implications, don’t be afraid to call in the cavalry and find an experienced tax pro to help you. This is why we offer Support Packages to our Pronto Tax Class Graduates. So that you have help when you need it.
If and when you call in the cavalry, prepare the client ahead of time for increased fees, so that you will be able to pay for your cavalry. Expert level people in the tax business do not work for free so don’t expect free lunch. Just tell the client ahead of time, “I’m pulling in an additional resource to make sure this gets done right for you so that you don’t pay more taxes than you have to, it’s going to be an additional two hundred dollars, but it will be worth it because you’ll know it’s done right.”
This is a very easy conversation to have with the client as long as you say it confidently and assume success. It’s well worth the investment to know something is done right when it’s important. You’re doing the client a huge favor by getting someone else involved, and you should allow the client to pay extra for the privilege.
Hopefully this article is helpful to give you a process for working through those tricky tax forms.