This is long. No way around it. Grab some coffee, put the phone in a different room, turn off notifications, and please give us 15 minutes of your time.
This checklist is geared toward Partnership (Form 1065) and Corporate (Form 1120 or Form 1120S) tax returns. Individual tax returns (Form 1040) have a separate tax return review checklist.
Reviewing and understanding your tax returns are important things. And with our virtual tax preparation world, sitting down with your CPA or tax accountant to review your tax return is a challenge. Today we rely on emails, telephone calls and Skype. And, people are busy with life on life’s terms. So, we developed this flowchart to help you review and understand your tax returns, and know the process of approving and filing your tax returns.
Rest assured that if you are concerned or have questions, you can always communicate with us and we will stop, find some time and review these items with you. That is our promise! We don’t want to lose high touch in a high tech world.
The Final Steps
Here are the final steps necessary for the filing of your tax returns-
- Review your federal and state tax returns as necessary. Ensure the information being presented looks and feels right, and all material tax related matters are addressed.
- Call our office at 719-387-9800 to schedule your 30-40 minute review with your tax manager.
- Provide eFile authorization via our website or tax forms.
- Make payment for the tax preparation services with credit card or bank draft.
- Receive an email and text message stating that your tax returns are filed.
- Receive an email about 2-3 days later from each taxing agency (IRS, state, etc.) that your tax returns have been accepted.
- Look to next year (probably the least favorite part).
We will now discuss these items in more detail.
Tax Return File Delivery
It is a challenge to know if our clients are done sending tax documents to us. So, if you are still waiting on more tax forms from various sources please let us know. We will suspend your tax returns and complete it when we have all the necessary forms.
Every document and correspondence that was received has been entered into your tax returns- however, fax machines and internet uploads can still fail everyone. Please follow the steps below to review your tax returns ensuring there are no omissions or misstatements.
We have sent you your tax returns in two different ways-
Tax returns are emailed as PDF attachments, and are password protected with the entity’s EIN without dashes. So, 9 digits, all in a row. EINs are unlike SSNs and are typically not memorized. Call us if you need help or use the tax return PDF in your client portal.
Same tax return PDF as the emailed version, but since the client portal is SSL encrypted and secure, the PDF is NOT password protected and has the full EIN as well.
We have also sent you TWO tax return PDFs-
One PDF is the full-blown tax return with all the bells and whistles you would expect, plus a lot of stuff you wouldn’t expect. We always give you the complete tax return which goes way beyond the filing copy by providing supporting statements, depreciation schedules, etc.
The other PDF is labeled “ActionRequired” and basically only lists the essential items for filing your tax returns. It includes eFile authorizations, payment vouchers (if necessary) and filing instructions. This file is only about 8-10 pages long, and should be printed and reviewed in its entirety. Very important. You might be getting a tax refund from the IRS but owe taxes to the state.
Remember, your tax return PDFs are also available in your Client Portal. You can use the blue button in the upper right hand corner or using the link below-
Tax Return Assembly
Your tax return PDF is assembled in this order-
1. Transmittal Letter / Cover Letter (usually one page, directing you to this webpage)
2. Invoice and Payment Information
We cannot file your tax returns unless payment has been made for our preparation fees. There are instructions contained within your invoice, but you can also click on the button below-
3. Filing Instructions
Following the transmittal letter and invoice are detailed filing instructions. Since these are automatically created by our tax software and we prepare tax returns in all states, there are some blanket comments pertaining to these generated filing instructions. Please read all these pages in the entirety as they discuss signing and dating tax returns, mailing tax returns, payment vouchers and estimated tax payments.
Please do NOT mail any tax returns. If this becomes necessary, we will advise you directly. And we always provide you a tax return package complete with tax forms, envelopes, labels and postage. If the ActionRequired PDF is stating conflicting information, please contact us.
4. Form 8879 eFile Signature Authorization, State eFile Authorizations
Please print the ActionRequired PDF, sign the eFile Authorizations, and either upload to your client portal, fax to 855-345-9700, drop off with donuts or mail to 9475 Briar Village Point Suite 325, Colorado Springs CO 80920.
However, the IRS has now loosened its rulings and allows for an electronic submission of your eFile Authorization. You can click on the button below to submit your authorization electronically (very simple)-
We cannot file your tax returns without the eFile authorization forms. Sorry, the IRS can be demanding that way.
5. Federal Return Summary, Two-Year Comparison
This is a summary of your Federal tax return. Please ensure the amounts “feel right”. Also, use this comparison to help understand differences in tax due or tax refunds from previous years. Two-year comparisons are only available if you are a returning tax client or if you provided last year’s tax return (since we input this information into your tax returns for history).
See below for more information on reviewing your tax returns.
6. Form 1120, Form 1120S or Form 1065
This is beginning of your Federal tax return. We will happily walk through each line and figure of these forms. Happy might be a stretch, but we want you to be 100% comfortable with your tax returns. Please see FAQs below for some common questions and concerns.
7. State Tax Return(s)
If your PDF reader has bookmarks in a pane, you can quickly jump to your state tax returns(s). Adobe should handle this correctly otherwise you’ll need to scroll (sorry).
Tax Return Review
There are several things we want to bring to your attention.
Two Year Comparison
As mentioned, this compares your current tax return data to your previous tax return data. And in the accounting and engineering world, we are looking for deltas (differences) or changes. And Yes, as a part of our review process your tax professionals and managers are reviewing this as well.
The Two Year Comparison follows your Tax Return Summary, and is right before the start of Form 1120, 1120S or 1065 (your tax return). In true comparison fashion, these pages have three columns- where you were, where you are, and the difference. Review these pages- your tax manager will go through these line by line with you to ensure your understanding and the tax return’s accuracy.
Form 1120, 1120S and 1065
This is the heart of your tax return. This is where all your schedules and other related items are tabulated, and presented to the IRS and local agencies. Please review these pages for accuracy in simple things like spelling and addresses as well as an overall sanity check on the numbers.
Your individual tax return is summarized on two pages (Form 1040), but partnerships and corporations have a single page and provides an overall summary of income and expenses. Here are some common things to review.
If your corporation or partnership is filing a final tax return, the appropriate box should be checked. If you address has changed, we can use your tax return filing to alert the IRS (states will need additional correspondence). Review your accounting method to ensure accuracy (cash versus accrual).
Line 1 of the tax returns is the gross amount of income reported on your tax returns. Does this appear correct? During the tax return review with you we will confirm this amount matches your 1099s, point of sale (POS) system, and other income sources.
401k or Profit Sharing
Oftentimes a corporation or partnership will make a 401k employer contribution or some other contribution to a profit sharing or defined benefits plan. The problem becomes when the entity writes a check after the tax year is closed. This is not a big deal, but we want to account for the contribution with the associated tax year. Review line 23 (C Corp), line 17 (S Corp) or line 18 (Partnerships) for accuracy.
If you need help setting up a 401k or some other plan, please contact us. SEP IRAs are old school and don’t allow for higher limits or Roth contributions.
Partnerships and the occasional S corporation might own a rental property. If so, this information is detailed on Form 8825. Generally speaking S Corps should not own rental properties since this income is considered passive, and could artificially inflate reasonable salaries causing an increased tax burden. C corporations do not have a separate form for rentals.
Schedule L (either page 4 or 5 depending on the entity) will report balance sheet items. Please review this page for asset totals and loan balances. Schedule Ls are not required for most small businesses under $10M in assets. However, the Watson CPA Group always prepares this Schedule since small businesses have a funny way of becoming a big business or if you want to sell your headache to a buyer.
For S corporations and partnerships, your K-1s are included and this is how the entity profit will flow through to your personal tax returns. This is why S corporations and partnerships are considered pass-thru entities. If the Watson CPA Group is preparing your personal tax return, we will automatically include your K-1 detail. If your tax returns are prepared in a different office, please provide the K-1 to be included in your Form 1040.
Please review each K1 for correct spelling of shareholders or partners, and the correct ownership percentages. Percentages cannot fluctuate from year to year without perfecting the transfer of ownership interests and possible tax obligations.
An S corporation or partnership passes its income tax obligation onto the shareholders or partners. However, some states such as Washington, California, Texas, Tennessee, Virginia among several others impose a franchise tax or a pleasure to do business in our state tax. Review the ActionRequired PDF for specific information. We will also review this will you.
Common Deductions Clients Forget
Many clients forget to tell us about the following deductions or situations-
- Home Office
- Auto Expense and Mileage
- Accountable Plan Expenses (shared use expenses)
- 401k / SEP Contributions
- Health Insurance, HSA / FSA / HRA Payments
- New Ownership Structure, S Corp Election
If you are concerned about any of these deductions or situations, please review our small business checklist.
Tax Return Review with a CPA
Every client is different. Having said that, we welcome an opportunity to review your tax returns with you, answer any questions you might have, and ensure a comprehensive and accurate tax return is being submitted to the IRS. We never want to stray away from this level of access and customer service. We live in a virtual world, and we use technology as a tool in the tool box. But we never want to lose focus on our clients’ traditional needs. High tech versus high touch.
Here is a rough framework that we will review with you-
- Gross Income (matches financials, 1099s, POS data)
- Account Plan Expenses (home office, automobile, cell phone)
- Health Insurance, HSA, FSA, HRA, LTC Payments
- 401k, SEP IRA and Profit Sharing
- Operating Expenses and Cost of Goods Sold
- Asset Listings
- Balance Sheet Items and Shareholder Distributions
- Ownership Percentages and K-1 Data
- Two Year Comparison to the Previous Year
- Journal Entries
- Tax Planning for Next Year
Reviewing your tax returns with us is not required. It is only offered as a benefit to you if you have concerns or questions. Please call our office at 719-387-9800 to schedule this review. We typically reserve about 30-40 minutes for corporations and partnerships. Additional time is always available, but might incur consultation fees.
If changes are required to your tax returns, we might have to charge additional fees for time spent. Please understand if the changes are simple such as more charitable donations, or auto registrations, or some other quick change, your fee will usually remain the same.
However, extra tax forms or reworked worksheets such as small businesses or rental properties will typically incur an additional fee. We are not here to penalize you for ensuring accuracy of your tax returns- but at the same time, additional preparation time beyond what would be normal or typical incurs additional costs.
Financial Advisor and Estate Planning
The Watson CPA Group is expanding its depth and quality of services to our clients. We were concerned about our clients only having access to individual silos of quality advice from tax modeling to small business consultation to retirement planning to estate strategies. Picture a drive through Wisconsin farmlands. Each silo individually doing the right thing, but collectively missing the mark.
Therefore, we have connected with professionals who are independent of the Watson CPA Group, yet work collaboratively to form a financial team under one roof, quite literally. Tax and Small Business Consultants. Financial Advisors. Biz Law Attorney. Estate Planning Attorney. Mortgage Broker.
One Call • One Team • Working in Concert
With the One Call Team, you have quality advice from-
- Certified Public Accountants
- Small Business Consultants
- Estate Planning Attorneys
- Financial Advisors
- Insurance Specialists
Paper copies of your tax returns are not automatically sent to you. If you would like a hardcopy, we must charge additional fees for printing, binding and mailing.
One suggestion is to download your tax returns to a thumb or flash drive, or use a backup or cloud service such as Carbonite or Google. If you really feel old school, burn a CD.
Also, your tax returns are always available 24 hours a day, 7 days a week via your Client Portal. Clicking on the blue button in the upper right hand corner will bring up your client portal login. Everything in the Client Portal is backed up three times daily.
If a third party, such as a lender, needs copies of your tax returns, we can securely send this information and your source documentation. And we prefer to provide the filing copy versus the ‘full’ version. Just let us know!
If your tax returns are examined, requests may be made for supporting documentation. Audit rates are about 1% to 4% depending on your income, and over 75% of all audits are performed by mail. Therefore, we recommend that you retain all pertinent records for at least seven years. You can review our tax article on recordkeeping at-
In order to properly and accurately advise you of tax considerations, please keep us informed of any significant changes in your financial affairs or correspondence received from taxing authorities.
Your tax team at the Watson CPA Group appreciates your business and continued trust. If you like how we treated you please submit a review-
And if you think we could use some improvement, please let us know. We are continuously trying to improve our service, and we appreciate your comments.