Doing It Right

I finished a large tax return today (I am writing this Monday night) for filing later in the week. He had a valid extension, but he waited until it was impossible for me to prepare an accurate return. Several pieces of information didn’t arrive in my office until after the due date.

As much as I hate missing a deadline, even if not my fault, I hate inaccurate returns more. I will never file an inaccurate return intentionally. This brings up a good question: Where do you draw the line on accuracy?

Remember your college days? All the quizzes and exams had a correct answer from the information provided. In the real world, people forget to keep receipts, lose mileage logs, and sometimes wait years before deciding to file.

Rather than go into a long dissertation on what the tax code says, I want to provide some user friendly guidelines. First, if the information is obtainable, you need to acquire it before I am willing to file the return. If documentation is lost or never recorded, a best effort to get a reasonable number is allowed. This is the least preferred way to file a return and used as a last resort only. But you still need to file. If data is impossible to get, you need to make a best guess.

The IRS will do the same thing if you lose documents. However, their reasonable number will be different than your reasonable number. A good accountant comes in real handy at times like these. I use formulas that have withstood IRS scrutiny and help clients build a strong reasonable number.

Accountants refer to this as Cohen’s rule. I will not bore you with tax court rulings; this is a family-friendly blog. The only way I will delay a return is if the information is available and forthcoming. Otherwise, we file the return and amend later if better data becomes available.

To reduce or eliminate this problem, start early. Lowers stress, too.