#65: Tax Prep Readiness

In this episode of the Teaching Tax Flow podcast, hosts Chris Picciurro and John Tripolsky discuss tax prep readiness. They emphasize the importance of tax planning throughout the year, rather than just during tax season. They also highlight the need for organization and proper documentation to ensure the best possible outcome on your tax return. Chris and John provide practical tips for collecting and organizing tax documents, as well as choosing the right tax professional. 

They stress the importance of giving all income items to your tax professional and not being afraid to file a tax extension if needed.

Key Takeaways:

  • Tax planning should be a year-round process, not just during tax season.
  • Organize your tax documents in a separate folder in your email and a physical folder.
  • Have a copy of your prior-year tax return handy for reference.
  • Give all income items, even if they don’t seem important, to your tax professional.
  • Don’t be afraid to file a tax extension if you need more time to gather information.

Quotes:

  • “Your tax return is a verb, not a noun.” – Chris Picciurro
  • “The best result possible comes from being organized and giving all income items to your tax professional.” – Chris Picciurro


Resources:

Episode Sponsor:
REPStracker

http://www.repstracker.com/affiliate/teachingtaxflow (CODE: IFG)

0:00:04 Intro: Welcome to the Teaching Tax Flow podcast, where the goal is to empower and educate you to legally and ethically minimize taxes paid over your lifetime.

0:00:11 John Tripolsky: Welcome back to the Teaching Tax Flow podcast, everybody. Episode 65 today we are going to jump headfirst into tax prep readiness. So before we get into what that is, what it isn’t, what you should and what you shouldn’t do, let’s take a brief moment, as always, and thank our sponsor for this episode.

0:00:37 Ad Read: This podcast is sponsored by Reps Tracker. Are you a real estate investor who is bogged down with a huge tax burden? Real estate investing can open the door to powerful tax benefits. Reps tracker can streamline the process of accelerating these tax benefits. To take advantage of a special TTF community discount, go to wwwrepstracker.com/affiliate/Teachingtaxflow and use the code IFG. You can look in our show notes or email us at hello@teachingtaxflow.com

0:01:09 John Tripolsky: Hey everyone. Welcome back to the Teaching Tax Flow podcast here on Spotify, Apple Podcasts, Google podcasts, Stitcher. So many of them I can’t even think of. Welcome back to the show. Chris Pacuro. What’s happening, man? You ready to talk about this?

0:01:23 Chris Picciurro: Oh, I am very ready to talk about this, Johnny T. Happy new year.

0:01:29 John Tripolsky: Yeah, you as well. You as well. And for all the people that skip ahead, you’re probably the person in high school or in school that just didn’t show up for class and showed up to take the finals and wonder what happened. We mentioned in the intro to this show what we’re going to be talking about today, and that is tax prep readiness. So if you don’t know what tax prep readiness is, it’s not tax season readiness.

0:01:51 John Tripolsky: Write that down, rip it up, throw it, light it on fire, get rid of it. In the real world of taxes, we don’t refer to it as tax season. And I know somebody that can explain the reasoning behind that better than I can. And that’s why the big ball, beautiful guy Chris is on with us as always. So tell us why in the world we don’t refer to it as tax season, like hunting whitetail deer in Michigan?

0:02:16 Chris Picciurro: Well, as you know, John, one of the three laws of teaching tax flow is that your tax return is a verb and not a noun. It’s not something that should just be done once a year. It’s something that should be thought about all year round through the tax planning and strategy process. That’s why I don’t like the term done.

0:02:40 John Tripolsky: And basically you mean that there’s something called planning. Like, people are supposed to hold, pump the brakes. People are supposed to plan for their taxes. Is that what we’re hearing here?

0:02:52 Chris Picciurro: Well, if your New Year’s resolution was to find the best tax planning and strategy podcast in 2024, congratulations, you found us in. Now, you just pulled up. I just gave you that monopoly card that says, go back three places and go back to our podcast episode. I’m sure Johnny T. Will put in the show notes. Tax planning versus tax. You know, if you’re new to tax planning and strategy, which the vast majority of people are, unfortunately, take a listen to that, because we do believe, again, your tax return is a verb, not a noun. That being said, we know that there is seasonality to the tax calendar and the tax compliance time of year. The heavy compliance time, which includes a lot of the tax preparation, is starting here in a couple of weeks and will extend heavily into the middle of April.

0:03:50 Chris Picciurro: What we want to do is we want taxpayers to legally and ethically get the best result possible on your tax return. So we’re going to talk today about how to accomplish that goal.

0:04:05 John Tripolsky: And not to skip ahead to the end, but I almost guarantee, Chris, that you’re going to tell us it’s a lot of people will fall into this, but trying to avoid that 2 hours of trying to find your tax documents that were mailed to you earlier in the year and punching in numbers online, praying to the higher powers that be that you have a good Internet connection and it doesn’t go out halfway through filling this out yourself and really telling us the importance of planning and what goes into that. So I think that’s a great segue, as we mentioned earlier on, the difference between a tax season and really just tax prep readiness.

0:04:47 John Tripolsky: And I know we talk about this a lot with other tax pros, right. And some people thrive in the seasonality, we could say, of it, and nothing against them, if that’s their comfort level. Right. But I think, Chris, as you always mentioned, everybody in the conversations that we have, there’s effort that goes into planning, but also to support what you were saying there about the best outcome possible.

0:05:08 John Tripolsky: It’s kind of a no brainer, right? If you put in a little bit, you get out a lot more, or I should say you get to keep a lot more come tax time, correct?

0:05:18 Chris Picciurro: That is correct. So how do you get the best result possible, legally and ethically? And that result means the least amount of tax paid to your involuntary business partner, which is going to be the IRS or could be a state or if you’re lucky enough to live in a city that slaps you with a city tax, you get to pay that too. So how do we make sure we get the best result possible? That’s the most important part of the best result possible is also making sure that you are organized enough to prevent you can’t 100% eliminate, but prevent an IRS tax notice or audit.

0:06:04 Chris Picciurro: So we do have some other podcast episodes that talk about what do you do if you get a letter from Darth Vader? What can you do to we have also some tips on avoiding an IRS audit on our YouTube channel. The thing is, you typically avoid an IRS audit, which we call correspondence audit, meaning a letter or an in person audit, by being organized and making sure we report all of our income and deductions properly, but also legally and ethically reducing the taxpayer in your lifetime. I want you to think about if you like thrill rides.

0:06:43 Chris Picciurro: I love roller coasters. Or parasailing is another great one. I love parasailing. Or ziplining. Let’s go with ziplining. We want to have fun ziplining. If I zip line from 12ft down to 6ft, most people would just jump, but that’s not very fun. But what’s important with a zip line? To have a guide, which is probably your tax professional that you’re working with and have the right safety equipment on so that you could wave your hands around, yell and scream without worrying about falling out of the harness.

0:07:14 Chris Picciurro: So think about that. We want the best experience possible. Also with a zip line, you need decent weather and you need the ropes up in the course. That’s the tax planning part. But let’s talk about what you can do right now to make sure you get that best result possible. A lot of it comes down to organization. Before we talk about that, we’re going to talk about actually having the return completed.

0:07:40 Chris Picciurro: For some people, that means using some software, and there’s a really good software out there. If you’re a diy, you can do it. You do it yourself person. You can do that. For most people listening to this podcast, I would assume that you’re not a DIY tax preparer. There’s some hybrid models. There are some hybrid models that intuit offers where there’s some other software companies that there’s an assist where you’re preparing the return and tax professional is reviewing it.

0:08:11 Chris Picciurro: So there’s that hybrid model. And then probably most common for the people in the teaching tax law community is that you’re working with a tax professional, a licensed tax professional, typically an enrolled agent or CPA that can help guide you through that process. They’re the guide when you’re down the zip line. Right. And that’s important. It’s important to be working with the right tax professional.

0:08:37 Chris Picciurro: A lot of it has to do with what your needs are, what your budget is, what their expertise is not to keep talking about taking three know, getting them monopoly cards and go back three and praying if you’re on the chance or by Illinois in Indiana, you’re going to go to New York, the orange property, and hopefully there’s not a hotel. I know. Memorize a monopoly board. That’s a sick admission on this podcast, but it’s true.

0:09:03 Chris Picciurro: But the thing is, go back and listen to that podcast about choosing the right tax professional. That’s very important. So you’re going to need the guide. But let’s talk now. So the guide is very important. Let’s talk now about information. What information? How can you prepare so that when you either sit down with a coffee or water, maybe a stiff drink, if you’re trying to do things on your own or virtually sit down or upload documents to a preparer. So obviously being organized is super important.

0:09:35 Chris Picciurro: I think the first thing I would do is now we live in a world, John, I’m sure you can attest this, that some of your tax documents, especially like mortgage statements, bank statements, are simply emailed to you. We don’t even get paper, get a paper copy. So I would create a separate folder in your email box for tax documents and just move those over as you get them. I would also grab a Manila folder.

0:10:03 Chris Picciurro: I would probably go to, I know there are some office supply stores still open. Maybe you can go to a local convenience store, get a folder that’s a different color than the normal light brown manila folder. And as you get those documents in the mail, slap them in that folder. That way they’re all together. And when it comes time to upload those for tax preparation, or if you have a more traditional face to face meeting, you can bring those in to give to your tax professional.

0:10:36 John Tripolsky: And Chris, you mentioned a couple of good points with that one, too. And then I do want to skip back a little bit and talk about, really, the avenue. Obviously, we’ve done so many podcasts on so many great topics already, we’re starting to almost get to the point where we’re like the old guys sitting on the rocking chair saying, back in the day, we’re referring all these podcasts. We’ve done more focused on specific topics. But before I jump back to basically choosing a tax pro or that definition, you bring up some great points on just the organization side. So regardless if you’re DIY or you’re working with a tax pro, right.

0:11:10 John Tripolsky: The more organized you are with the stuff, the better. Because speaking for myself, right. I forget about stuff all the time, even in my mind if I’m thinking, wow, I just got this, this is extremely important. I need to remember this. Six months down the road, chances of remembering that has now diminished down to 1% from it being an absolute necessary. So, yeah, saving things in the cloud is great. I do it all the time.

0:11:38 John Tripolsky: Print them off may save your butt. I’ve heard cases, actually, where people have gotten documents sent to a work email and then they leave that employer. You no longer can access that email. Now you’re really in trouble, especially if you departed from them on not good terms. Trying to call them and say you’d like to access your email is probably not going to go over very well.

0:11:59 Chris Picciurro: Well, that’s a great point. I mean, personally speaking, this is somewhat embarrassing. I worked with someone and we flipped a house, actually, in Detroit. We actually closed January 3 of 2023. I couldn’t remember if we closed in 22 or 23, personally. Thank goodness. I have a folder in my email that I put all of our closing documents in and, oh, yeah, forgot about that. You know what I mean? Sometimes things can happen right at the beginning of the year.

0:12:30 John Tripolsky: And to skip back to a little bit earlier, too, before I forget about this, speaking of forgetting things, we mentioned different avenues. I agree with you 100%, Chris. I think the majority of our audience, our listeners on this podcast, at least from what we see and from what we hear from others, do work with a tax pro. And I see this. I’ve been a client of yours. My parents have been a client, my grandparents. I’ve sit on meetings with other clients that you guys have.

0:12:56 John Tripolsky: And I would say the one thing that maybe people don’t consider is finding really a tax pro to work with that they just get along with and they understand them. Right. Because even in our conversations, talking about things, whether it’s real estate based or just business general, it’s interesting having a casual conversation around the topic, other things that come up, because I’ll speak for myself, right. I might say things to you, and, I mean, you’re one of my best friends, and I still have to sometimes think, like, oh, maybe he doesn’t actually know that, that this was in kind of the family plan or this is happening.

0:13:34 John Tripolsky: Even though you might really trust your tax bro, they don’t know everything about you unless you tell them. So defining that person you can have those conversations with.

0:13:44 Chris Picciurro: Yeah, that’s a great point. So if you’re listening to this and you’re not sure who you’re going to work with, ask for a referral. Go into your network of people. Hey, ask the teaching tax law community. Jump into defeating taxes. Our private Facebook group, shameless plug. We’re going to help you out. We’re going to help you out. So let’s segue. Know if you are using. No matter what. The first step you should do is have a copy of your prior year tax return handy. That’s a great guide as to what to start putting together for this year.

0:14:19 Chris Picciurro: Now, obviously things change, but that’s something. And that’s the first thing a tax professional will ask a new client for is your prior year tax return. Even if you’re DIY and you’re using tax preparation software x and you’re going to change to this one, not all your information comes over. There could be deductions and credits and several items that carry forward to your benefit that if you change or prepare or change software, you’re going to miss. So step one, collect all your data in an organized fashion. Step actually, step one is figure out who you’re going to work with.

0:14:56 Chris Picciurro: Step two, or if you’re DIY, the software. Step two, organize all your data. Step three, make sure you have your tax return from the previous year handy. And then step four would be is if you’re working with a tax professional, typically they’re going to have a checklist or an organizer or survey to glean information from you to determine is there additional information we need that was not on last year’s tax return?

0:15:24 Chris Picciurro: Is there information from last year’s return that doesn’t apply to this year? So in example, let’s say you had a child that graduated from college and they’re not a dependent anymore. Let’s say you had a children in daycare. Now they’re not in daycare anymore because they’re full time in school or they’re at an age where they don’t need daycare. Let’s say you had. It’s crazy, but there’s many times where people forget they had a baby.

0:15:49 Chris Picciurro: I’m not getting like, maybe the baby was born January 5 and you’re like, wow, they were probably on the prior year return. That’s a significant credit. So making sure that you look at the prior year return to figure out what changes you had the other thing to consider would be, is remember that not all of your source documents, what we call source doc, that would be something like a WT or 1099, a document that you get that is needed to have a proper tax return prepared. Not all of that’s going to be available in January.

0:16:21 Chris Picciurro: Many of these documents are going to be available in February, March, April. We have clients that get source documents in July. You might be saying to yourself, what? How could that be? Well, maybe they invested in a partnership, that partnership issues a k one, that partnership tax return is due March 15, but they could extend that to September 15. So you might not get your k one in July. That’s okay. The more complicated your tax return is, the later in the calendar year you’re most likely going to file, because a lot of times you’re waiting for documents.

0:16:53 Chris Picciurro: And one more thing to consider when you’re talking to other tax professionals is get an expectation of lead time from the time that you either meet with them or provide them all their documents to the time you’re going to have your tax return ready to review and sign. Because what happens a lot of times is tax professionals, they might need information, so they haven’t even put the order in the kitchen yet.

0:17:18 Chris Picciurro: They haven’t even started it. Where you might be thinking, I thought I gave them everything. So the data collection is very important to start that clock ticking. What is the trigger when you’re talking to a tax special to get you into their preparation queue. And that is a lot of data collection.

0:17:36 John Tripolsky: And that is a great thing to highlight. Because thinking of tax season, right. I think we’ll just say the general taxpayer is kind of trained around that tax season is the end all be all right. And being a marketing guy, I see it in the marketing campaigns. It kind of forces people to act on, not fear of loss, but basically fear of, oh, crap, I’m going to be in trouble, which is good. It forces people to get off their rear and get their stuff done. But also procrastinating when it comes to tax prep is a lot worse than, I think, what people realize, and I mean, Chris, we talk about this all the time.

0:18:19 John Tripolsky: I would probably guess that on a dozen of the podcasts so far, we have mentioned something around data collection. And the taxpayer may think it’s a difficult task to collect the info and send it over to their tax pro, who they’re working with. But I’m going to make the assumption again, I’m not the one preparing taxes for somebody, but there is a process that goes on once that information is collected and it’s not automated, it’s not immediate.

0:18:49 John Tripolsky: And like you had mentioned, too, there is a queue. So don’t make the assumption that the minute that you send that email with the information or a file upload with the information that your taxpress asked for, that they’re immediately going to plug it in and you’re going to get your updated return back by the end, right?

0:19:07 Chris Picciurro: And consider, remember, we talk about the best result legally and ethically possible. So let me give you an example. So one of the things you’re going to want to communicate with is that lead time, that lead time is going to change based on when you provide the documents. If you’re providing someone documents three days before April 15 or 16th, depending on the due date, you’re going to get the best result possible and there’s a high chance of human error. So here’s my example.

0:19:33 Chris Picciurro: John, we know you’re a swifty, right? You’ve been outed. No, Nickelback. I’m sorry?

0:19:41 John Tripolsky: If Nickelback and Taylor Swift ever went on tour together. Oh yeah, that would be the concert. I would probably spend a ridiculously large amount of money. I’d do it. I have respect for both of them.

0:19:52 Chris Picciurro: Well, let me use this example. Let’s say you go to see your favorite band in an arena. Let’s say it’s 20,000 people, not even a 60,000 25,000 seat arena. And let’s say you live 12 miles away from that arena, the concert ends. What’s your drive home like? You’re sitting in the parking lot. You’re frustrated. You’re looking for alternative ways, things to do. It’s going to take you a long time to get home. They probably have two exits.

0:20:26 Chris Picciurro: The freeway might be jammed up. It’s late at night. How’s your ride? What’s that experience like, going home? That’s what it’s like when you submit documents to tax preparers with a week, two weeks left before April 15. Just take the extension now it’s the middle of the day. You wait to pick up your tickets for the concert three days in advance. I know everything’s digital now, but my point is, you’re driving home from that concert venue on a normal day with no traffic, takes you 15 minutes. It’s a peaceful drive. It’s an easy drive.

0:20:56 Chris Picciurro: So think about that. The best result possible not only is your data collection, but it’s also the mental health and capacity of your tax professional. And if you’re trying to diy it on the last day two days before the fictitious April 15 deadline. And don’t do an extension, you’re not going to get the best result either. Your best result doesn’t come under stress. Stress is expensive. Stress leads to mistakes.

0:21:21 Chris Picciurro: So why don’t I touch that? And then as we wrap up, I do want to talk about some of the advice beyond just creating folders for data collection.

0:21:32 John Tripolsky: I kind of use the analogy in my mind when we talk about the last couple of days or weeks leading up to a tax deadline where it’s like a drag strip. You’re always in a real race car drag strip. You’re always looking at the finish line. If you’re submitting, they’re trying to meet a deadline. Your biggest goal at that point is just getting it done. And like you mentioned, getting the best result possible.

0:21:56 John Tripolsky: I hate to say it’s a no brainer, but it’s almost ridiculous if people don’t take advantage of that and then complain and bitch and moan for lack of better terms at the end saying, oh, man, this was awful, or what happened. I’m not happy with the outcome. Well, you know, it was a date was coming around. And like you mentioned, too. I mean, Chris, we still have these conversations, even being a client of y’all’s private practice and us just having conversations around mean, if I came to you and said, hey, here’s what I need, how can we do it? And I need it by the end of the day.

0:22:30 John Tripolsky: Sure, get a great answer. You’ve been doing this for 20 plus years. But if I say, hey, you know what, in six months, I’m thinking about doing this, we might come up with four or five different options, which three of them can’t be done immediately regardless. So the planning aspect and the outcome goes into it. It’s like training, basically, right? And I can speak firsthand on the value of that because I have absolutely waited till the last minute and beyond on multiple occasions and realized it is not a happy place, happy land to live in.

0:23:01 Chris Picciurro: So, Chris. Yep.

0:23:01 John Tripolsky: As we wrap this up, let’s talk about, so I know you had a little closing comment. Let’s toss that in there. And then, of course, we have a little nugget that I want toss out there for.

0:23:12 Chris Picciurro: Yeah. So we talk about data collection, talk about looking at the last year return, working with the right software tax professional, be organized with your documents, especially when we’re talking about if you own rental property or you own a small business or you have your deductions at a minimum. Now, John, we always got to talk about one of our parents, your dad, would appreciate this. And John, you graciously gave me a coffee mug that said, this calls for a spreadsheet, but it does call for a spreadsheet if you give a human a stack of charitable donations, receipts, versus a spreadsheet that details them out. What do you think? Do you think anything is going to get missed off of a spreadsheet that’s easy to track or a bunch of receipts? So be organized with your deductions, especially most of the income items we receive, and it’s easy to track. But your deductions, if you don’t have an accounting software, let’s say you’re an individual and you have a mortgage, so your mortgage interest is tracked, but your deductions are not necessarily tracked.

0:24:22 Chris Picciurro: Make sure, again, if it means a spreadsheet or even right amount on paper. Just be organized with your information and try to summarize it as much as possible. I would err on the side of caution when it comes to should I give something to my tax professional, I would say just give that to them. Worst case, they don’t need it. Give them all of the information that says important tax documents, even if you don’t think it’s important.

0:24:46 Chris Picciurro: So, for instance, oh, I sold 50 shares of coke. I got a 1099, but I didn’t make any money on it, so I’m not worried about it. No, you’ve got to give that to the tax professional because the IRS doesn’t know your cost basis necessarily. They’re like, oh, I got a 1099, but I was selling baseball cards and I didn’t make any money. It doesn’t matter if you made a profit. Make sure you give all of your income items. This is my most important tip, other than being organized. And final tip, make sure you give all your income items to your tax professional, or at least if you’re trying to do it on your own. If you got a lot of income items, I wouldn’t recommend it. Make sure you account for all those, because the number one reason for an IRS examination or notice is unreported.

0:25:34 Chris Picciurro: And make sure you’re not afraid of a tax extension. Sometimes getting legally and ethically the best result possible goes beyond the quote, unquote.

0:25:45 John Tripolsky: April 15 deadline, kind of in closing. Everybody knows I’m full of weird comments and analogies, Chris, when you were just saying that, I couldn’t help but think about it, and I have no real basis for this because I don’t think I’ve seen either show, but it’s almost like, was it the Bachelor or Bachelorete? I know there’s like 50 versions of those, right? Like think about that. If you have all these choice when talk about submitting as much information as you have, that guy or Gal have many choices to look at and they pick the ones that they like and they move on. Imagine if you only had one. I mean, then you’re kind of terrible analogy. But I visual maybe a donation receipt is, I don’t know, a guy in the tuxedo. Who knows? But anyways, on that note, as mentioned last episode and a couple before that, we had a little nugget to throw out. I’m not going to tell you exactly what it is at this very moment, but I will say that we are going to be offering something through teaching tax flow.

0:26:47 John Tripolsky: I will drop a link in this for this as well as I will definitely keep everybody updated on our social media when we launch this. This is not something that we just pulled out of our hat. It’s not something that we just decided one day it’d be a great idea. A lot of thought went into this, basically without giving away all the details I mentioned previously with something that everybody needs, something that everybody could take advantage of. So the hint I’ll give you today is when it comes to that tax pro selection, we may have something.

0:27:18 John Tripolsky: So that being said, I’m going to end it there before I give away too much. Same time, same place. Let’s do it again next week here on the teaching text lope podcast. Thanks for hanging out with us. As always on this episode of the podcast, hopefully you got a little kick out of me and Chris bantering back and forth. But more importantly, hopefully you got some great notes on what you can do as A-U-S. Taxpayer. So again, we touched on a lot of what you should, what you shouldn’t do, what you could do for planning, and as Chris always says, legally and ethically reduce the tax you pay over your lifetime. So hopefully you got those notes.

0:28:06 John Tripolsky: Go back, relisten to this podcast if you can. If you want to, you should. But go back and listen to the others as well, too. They all tie in together. We are in episode 65 and I can pretty much guarantee you that 62, 63, 64, maybe even 65 of these all tie in together. So check them out, go back, look at all those previous shows, and don’t forget to subscribe if you haven’t already. And please drop us a review, even if it’s just clicking on the five stars. We don’t accept anything less. By the way, click on those stars. Leave us a review wherever you consume your podcast on a weekly basis here with the teaching tax flow team.

0:28:46 John Tripolsky: We appreciate it, so look forward to next week’s we will continue our journey through what some refer to, unfortunately, as tax season. Leading up to some of those deadlines, we have a slew of guests and topics we will be recording and delivering to you on a weekly basis, so be on the lookout for those. We’ll see everybody very soon.

0:29:13 Disclaimer: The content provided is for educational purposes only. We encourage you to seek personalized investment advice from your financial professional. For all tax and legal advice, please consult your CPA or attorney. Investment advisory services are offered through Cabin Advisors, a registered investment advisor. Securities are offered through Cabin Securities, a registered broker dealer. The content of this podcast does not constitute an offer of securities. Offerings can only be made through an offering memorandum, and you should carefully examine the risk factors and other information contained in the memorandum.