I believe I am one of the best experts on tax season management. For over 40 years, I have been conducting live programs across the United States and webinars to participants in over 30 counties. I wrote a book about Managing tax season for the AICPA, which had three editions and one on Review of tax returns for CPA Trendlines, which is in its second edition, as well as too many articles to count. I also know many firms that have successfully followed my methods.

A few weeks ago I posted mine a three-step review process and I’ve received requests for clarification regarding the tax comparison tables I recommend for more complex returns. I also believe that using these letters correctly is the single best way to improve the quality of your tax returns in all respects. Here are some details:

My self-check and review process involves comparing current income to the previous year’s income line by line. Any unexplained, unusual, or unexpected differences or results are reviewed and either clarified or noted in a memo to the reviewer and the manager, owner, or partner signing the appeal. If the difference is the result of a preparer’s error, this review provides a self-checking mechanism for the preparer to correct it before sending the appeal to a reviewer. If it’s something new, a brief explanation will save the reviewer or partner time from asking about it. It’s also an easy way for an owner or partner to learn about unusual activity for that customer, and for a training professional to learn more about that customer.

As I explained in my previous column, tax preparation software is sufficient for about 80% of returns. My worksheets are recommended for the remaining 20%. Many people have asked me to explain how I determined that other 20%. These are the returns that are a bit more complicated when the tax preparation software comparison can’t pinpoint the items on the tax return. Examples are clients with more than one Schedule C or more than one Schedule E item, such as multiple rentals or K-1s. If there are more than one, they will be combined and the reviewer or partner will not know what the results are for each activity without looking at the tax return or master data. A comparison of these results with the previous year will require a revision of the previous year’s earnings; however, comparing net results for each activity or K-1 can easily be done by looking at a worksheet with separate rows for each activity, thus the need for “my” comparison sheet, which I now call the SmartProof sheet.

The SmartProof worksheet is prepared in Excel or any other spreadsheet software. It has a line for each item on the tax return for the current year and the previous year. Personally, I like to see at least two previous years. After preparation, which can take about 20 minutes, the annual renewal is quite simple, taking no more than five minutes. I know many readers will balk at the extra time, so let’s see what you’re “buying” with that extra time:

  1. The compiler will check the submission for its own errors, rather than leaving it up to the reviewer to find and, ugh, correct.
  2. The drafter will have a better understanding of the client’s situation.
  3. The preparer will realize the effort they put into creating the tax return and better appreciate the output and outcome.
  4. The reviewer will spend less time reviewing the preparation of the declaration.
  5. The reviewer will have explanations for many irregular problems that they had to figure out on their own.
  6. The reviewer will have a thorough two-page summary in front of them that can be used for planning purposes as well as reviewing tax payments and credits.
  7. The partner will have a SmartProof worksheet that they can review in just a minute or two and get a complete picture of the client’s income and expense situation for the previous year, as well as significant differences from previous years or new issues that have arisen this year. A partner can also use their brain to think about how the firm could add value to that client.

Note that the extra time for the drafter will be paid for in less time for the reviewer and partner, and a better understanding of the client situation by the reviewer and partner, and more planning and added value for the client. Also, preparers are typically paid much less than a reviewer and partner and are easier to hire and train, so adding time for them and being compensated for less manager and partner time seems like a good business move. In addition, a more knowledgeable staff is an investment in the quality of the firm and provides advancement opportunities for all including partners.

I used to provide spreadsheet templates, but I don’t anymore because the changes are too frequent and cumbersome for many customers. My suggestion is to start from scratch for each client. If you would like some sample SmartProof worksheets, send a request to GoodiesFromEd@withum.com and just put SmartProof as the theme. No messages needed.

These sheets work. I’ve been using them for over 40 years (long before spreadsheet software) and have constantly made changes to make them more relevant, informative and useful, always looking to save time for the reviewer, myself and partners. I’ve always been very selfish about how I spend my time and never wanted to do what someone else could do. I boiled it down to spending the minimum amount of time reviewing the customer’s return and situation while gathering as much information as possible.

A final note is that SmartProof worksheets are an efficient and convenient product for customers. It condenses a 100- to 1,000-page tax return into an easy-to-read, easy-to-understand two-page spread that I can go over with a client over the phone or in a virtual meeting in minutes, and certainly much less time than it takes to find the pages of a return , which I would like to discuss with the client.

This method works.

Feel free to contact me at emendlowitz@withum.com with your practice management questions or about tasks you may not be able to complete.

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