How to Manage Workflow for Complex Tax Returns

Practice Management, Workflow tools Form W-2

Complex tax returns present a unique set of challenges for tax professionals – there are more moving parts, more hands involved and more time devoted to the effort. However, these more involved tax returns also present an opportunity to provide extra value to your clients and generate revenue for your office. The more effectively and efficiently you can handle these higher-end tax returns, the more likely you’ll get it done right and generate additional referral business for your firm.

Complex tax returns typically involve some of the following situations:

  • Business and flow-through activities from Schedule K-1s
  • Multi-state and non-resident scenarios
  • Preparing the children’s returns and figuring out the “Kiddie Tax”
  • Net operating loss, passive loss and other types of carryovers
  • Alternative minimum tax
  • Net investment income tax
  • Filing of election statements

These more complicated tax returns also present opportunities for your firm to provide year-round services. For example, the tax return may need to be extended and filed over the summer, or into the fall, because you didn’t receive all the necessary information on time. You also may have to address changes in circumstances throughout the year by running projections and by providing tax-planning service to get the quarterly estimates correct.

Here are some tips you can use to better manage workflow for complex tax returns:

Stage 1: Data Collection

It’s no secret that data collection is one of the most important – and time intensive – pieces of the puzzle. You’ll want to send out a paper, or electronic client organizer, in an effort to start collecting source documents (W-2s, 1099s, etc.), a list of deductible expenses and a questionnaire to address any changes in circumstances. Once the organizer is filled out and returned, you should also schedule an appointment, either face to face or over the phone. This interaction with your client will not only increase the odds that you don’t miss anything, but also give you an opportunity to build a stronger relationship with your client.

Someone in your firm would be tasked with creating an electronic or paper file for the client. Copies of the source documents and back-up information are made to support your work papers. You’ll also receive QuickBooks® files, or Excel spreadsheets, for business and rental income and expense information. Review last year’s return and run a two-year comparison to help you identify any potential missing information.

Taking advantage of an electronic portal, such as Intuit Link, can be a lifesaver if you have a high volume of complex tax returns. It will simplify client collaboration and expedite data collection.

Stage 2: Return Preparation and Review

Next, the tax return should be prepared by an accountant, or knowledgeable staff member, by entering information from the work papers and source documents into the tax software. Certain issues may have to be researched along the way, and you may have to contact the client for any missing information and questions that arise. Audit checkmarks are used to sign off on the various forms and schedules marked as complete and what remains as work-in-progress. The preparer should also clear any diagnostics identified by the software. Having a more experienced accountant look at the return serves as a good review mechanism, as errors may be uncovered and issues may be spotted, such as properly classifying family loans versus gifts.

Stage 3: Return Completion and Filing

Once the return is completed, you’ll need to assemble copies for the government, the client and your office. Securely send a PDF version of the watermarked tax return, estimate vouchers, filing instructions and bill to the client for review. Request a manual or electronic signature on Form 8879, and once returned, e-file the tax return.

Stage 4: Administration

You should track the various stages of the client engagement with your tax software, practice management software or on a spreadsheet, so that your office always knows where the return is in the process (interview, preparation, etc.). Time or tax form charges are calculated and a bill is prepared for your client. Once a check is received, it gets deposited into your bank account. The bill should get copied and given to the bookkeeper to record in the files.

Each office will ultimately set up a system that works well for their practice. However, the various steps outlined above should be covered in an effort to produce an accurate return, a delighted client and an efficient tax practice. If you have a sizable amount of customers with complex returns, consider Intuit’s® Lacerte Tax Planner, which allows you to quickly provide customized strategies to help clients reduce their future tax liability, or Intuit’s ProSeries Tax Planner, which allows you to run projections over a number of years.