Accountant going through the paperwork needed from his client to prepare her taxes

How to Prepare Clients for Tax Season

At tax time, accounting clients run the gamut from perfectly prepared to rushing in at the last minute with receipts shoved in an envelope. As an accountant, you’ve probably seen it all. You can increase the number of clients who come to you organized and prepared by educating them before tax season. Helping your clients prepare makes the process easier for both of you, with less time spent per client and maximized tax deductions on their returns.

Therefore, as a certified tax preparer in Canada, here are some steps you can take to help you and your clients prepare tax returns and get ready for the busy yet successful tax season ahead.

8 Tax Preparation Steps to Consider as a Tax Professional

1. Update personal information

Accurate, updated information from your client makes it easier to jump right in on tax prep. Your clients can update their information online with the Canada Revenue Agency (CRA) if they need to make changes. That includes all their basic personal or business information, including a physical address, mailing address, telephone number, and direct deposit information. Then, it only takes a few minutes to make any necessary corrections. 

You also want to make sure you have updated contact information in your records to contact your clients with questions if necessary when preparing tax returns.

2. Start preparing clients early 

Reach out to all of your clients ahead of schedule to make sure they start preparing their documentation and collecting all applicable information that you will need to file their returns. As a certified tax professional in Canada, you must ensure that you're staying ahead of the deadlines and have all the required paperwork verified in time to prepare and successfully file your clients' taxes. For that reason, it is imperative to ensure clients understand what you need of them. 

Starting the process early will give your clients adequate time to gather all necessary tax documents and supporting evidence they need. It also means less chaos and stress if you need to collect further information down the line, as you won't be racing against the clock. With steep fines for missing deadlines, it's vital to keep to a schedule that will allow for client filing on time. 

3. Upgrade data security

Now more than ever, data breaches and security breaks are causing issues worldwide, as news outlets report on large corporations continually being hacked and data leaked. With so much important information and sensitive data on your computer, it's essential to ensure your cybersecurity is up to date and working well. 

For that reason, before the tax season gets underway, be sure to use tools that help keep your information safe. The last thing you want is to inform your clients that their sensitive information has been compromised through your practice. 

4. Switch to digital receipts 

Arriving at the end of the tax year with a mountain of unorganized paper receipts can create problems for both you and your client. Digitizing receipts by scanning them into a computer or a smartphone can help your clients improve the accuracy of their records while saving on storage space. It also saves time for you because you don’t have to sort through paper receipts. 

The CRA accepts digital receipts, so you can help clients out by suggesting they make use of apps such as Expensify or Dext. If you use QuickBooks Online Accountant or a similar type of accounting and tax software, make sure the app you recommend is compatible. That way, you can sync everything quickly and easily.

5. Consider using digital signatures and verifications on certain tax forms

Sometimes you might work on tax returns that belong to clients hundreds or thousands of miles away from your practice. Should you need to send them documents to sign and return quickly, digital signatures and verification software can help save you time, money, and stress overall. 

The CRA has only approved certain tax forms for e-signatures, such as individual T183 and corporate T183 CORP forms, so it is essential to understand what parameters are allowed for these digital verifications. Learn more about the Government of Canada’s guidance on electronic signatures.

6. Make regular RRSP contributions or carry forward unused contributions 

Individuals can make Registered Retirement Savings Plan (RRSP) contributions up to a couple of months into the next year, but your clients can handle RRSP contributions more smoothly and efficiently by making scheduled, pre-authorized contributions during the year. That works better than scrambling at the last minute to figure out allowable contributions and beat the deadline. 

As a tax professional with expert knowledge in RRSP rules and contribution limits, you will want to help your clients set up a contribution schedule and guide them toward the contribution amounts that best fit their financial situation.

7. Prepare for possible tax deductions and credits 

Meeting with clients before year-end gives you a chance to encourage planning for potential tax deductions or tax credit eligibility, such as charitable donations, childcare credits, or education expense credits. Because tax laws change and your clients’ personal and business situations may change, eligibility for deductions and credits may also change. 

A meeting with your client is the best way to anticipate and prepare for tax credits or deductions and let them know which receipts or records they need to keep to claim those credits. Also, be sure to check with clients about all home office deductions, as more and more people have been working from home during the COVID-19 pandemic happening the last few years. 

8. Backup Client Tax Returns and Files 

The majority of people today have had a computer crash on them, losing irreplaceable files and information as a result. Do not let this happen to you with your client files. Such a loss could negatively impact the reputation of your accounting firm or professional services. Instead, back up your computer routinely to ensure the work you have done does not disappear. One way to do this is to back up all information on the cloud. 

Backing up files in the cloud means that even if your computer crashes, all data is safe and sound, stored in a data centre separate from your computer. Ergo, before the busy time of tax season hits, you might consider switching your practice from desktop software to cloud software. 

Tax cloud software is the most technologically advanced software that allows users to access files and data from anywhere when they use the internet to tap into their cloud account. This makes it an excellent tool for a tax return accountant to use, providing the freedom to work from anywhere knowing your data is stored safely online.

Preparing Different Types of Tax Returns For Different Client Types

Not all clients will have the exact needs or file the same tax forms every year. Whether your clients are business owners, sole proprietors, in partnerships, or are incorporated, the tax preparation, filing due dates, and tax payments will differ. Therefore, as a certified tax preparer of Canada, you must ensure your clients are prepared for the tax season ahead.

Tax prep for sole proprietorships

Sole proprietors are individuals that own an unincorporated business. If you have sole proprietors as clients, you will need to report their business income and personal income on their T1 General Tax Return form. First, determine the company’s earnings before tax (EBT) when filing client T1 returns, as this is the client’s taxable income.

When preparing sole proprietor income tax returns, you should include: 

  • T1 General Return
  • T2125 Statement of Business or Professional Activities
  • All sales tax forms (GST/HST/PST)
  • Applicable tax credits
  • Deductions with receipt or expense summaries as evidence
  • Vehicle expenses and documentation if a vehicle is used for work purposes- ie how often the car is driven for work, mileage, and any maintenance fees with relevant documents
  • Last year’s tax return or notice of assessment

Tax prep for self-employed

Self-employed tax returns must be filed by those who work for themselves. Sole proprietorships and partnerships can be considered self-employed persons. For that reason, the tax forms and filing process will be similar to clients that fall into the category above. 

Self-employed individuals will need to pay personal income tax, sales tax (HST/GST/PST), and federal tax, as well as make contributions to employment insurance and pension plan contributions. The documents you will need to gather from these types of clients will include: 

  • Financial statements of the business
  • Expense summaries and receipts for work-related expenses and deductions, including home office expenses
  • Vehicle information including mileage driven, if used for work
  • Last year’s tax return or notice of assessment
  • Tax forms including- Form T2125 (Statement of Business or Professional Activities), Form T5013 (Partnership Information Return if applicable), T1 Return (Personal Income Return), GST/HST/PST forms

Tax prep for small business owners

Clients that own and operate a small business are also self-employed. However, you will need to check with these small business clients to see if they own an incorporated business or an unincorporated business, such as a sole proprietorship, partnership, or limited liability partnership. Determining their business structure is paramount for a tax return accountant to process the correct forms on the client’s tax return. 

Tax prep for corporations

If your clients own an incorporated business, they will need to file corporate tax returns separate from their personal returns. Since corporate income tax returns differ from self-employment returns, you will need to gather the following: 

  • T2 Corporate Income Tax Return
  • The corporation’s financial statements for the year
  • Last year’s corporate tax return or notice of assessment

That being said, if you are responsible for preparing your client’s personal returns on top of their corporate returns, then you will also need to collect information and fill in the correct tax forms on their personal income returns. This includes their employment income from the corporation. Otherwise, your tax preparation will only need to be on processing and filing T2 Returns for corporate clients. 

Helping your clients prepare for filing taxes is one of the most important services you can offer them, and it increases your value as a tax professional consultant. Now’s a good time to get your business in order, as well, so you’re prepared for tax season. Accelerate your year-end adjustment process and start saving time on corporate returns with QuickBooks Online Accountant Pro Tax. Accounting professionals can sign up for free today.

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