Did you know that tax preparers have a series of questions we must ask in order to show our due diligence for certain tax credits taken? We are subject to fines if we don’t ask you and document that. As part of exercising due diligence, we interview the client, ask adequate questions and obtain appropriate and sufficient information to determine the correct reporting of income, claiming tax deductions and credits and compliance with the tax laws. Now your return preparer may not ask for any specific documentation, but we do note in the file how we verified you are eligible for the credit. In many cases, because we know our clients and their families, we rely on the taxpayer interview to support the claim. However, if you are new to a preparer, they may ask you to provide the support that the children are yours. Birth certificates or school records may be requested.

We are required to file a form for due diligence surrounding the following claims: EIC (Earned Income Credit), CTC/ACTC/ODC (Child Tax Credit, Additional Child Tax Credit, Other Dependent Credit), AOTC (American Opportunity Tax Credit) and HOH (Head of Household).

The IRS has begun to help preparers with the due diligence requirements:

Tax preparers who have submitted returns with questionable claims for the Earned Income Tax Credit, the Child Tax Credit Tax Credit/Additional Child Tax Credit, American Opportunity Tax Credit and Head of Household will soon receive a letter. The intent of the letter is to raise awareness around questionable tax returns and assist preparers in meeting their due diligence requirements.

There has been an abuse of these credits in the past. Now the IRS is beginning to hold tax return preparers accountable. If you get seemingly odd questions, please know we are simply doing our due diligence as required by the IRS. We do not want to prepare an improper return, and we certainly don’t want to be fined for making a mistake. Please be considerate and answer our questions truthfully and provide */support when needed.

We have the privilege of helping others by preparing their returns. We strive to get the maximum refund or lowest tax liability possible. In order to do this, we need to know as much about our clients as possible and, in some instances, as mandated by the IRS. Please work with your tax preparer and stay in close contact to inform us of any life changes going on. You never know how it may impact your tax deductions.

Ready to reduce your tax bill? Talk to your tax return preparer for some ways to reduce your taxable income. There are a few everyday things you can do. The best way to reduce your taxable income is to maximize your retirement savings. Another area that helps is contributions to your health spending accounts and flexible spending accounts. While your tax return preparer has due diligence requirements for your deductions and credits, your due diligence should begin by discussing your taxable income with a CPA.