Reconciled And Ready: The Tax Preparer Handoff

Right now, many firms still use the same tax preparer handoff every year. They send a QuickBooks file, a prayer, and a “Call me if you need anything.” Then March hits, and everyone suddenly needs everything. The preparer asks ten questions, you answer nine, the client answers zero, and everyone gets cranky.

The complication is simple. Missing support turns a straightforward return into an email chain that never ends. It delays filing, adds work, and it makes you look disorganized even when you’re not.

The standard tax prep package to send every time

So, here’s the question to solve: What exact package makes a tax preparer say, “Bless you, Debra,” and move on with their life?

The answer is a standard ‘Tax Prep Package’ you send every time, for every client, along with a one-page cover memo flagging the weird stuff.

The tax prep package checklist

Financial statements

Start with the two financial statements:

1. Balance Sheet
2. Income Statement

Those are the maps. However, the maps without receipts are just nice drawings. So, you back them up with tie-outs and documents proving the numbers.

Reconciliations

Next, include your reconciliations. Send the final bank reconciliation for every bank account and the final bank statements matching the reconciliation. It’s the same idea for credit cards and loans. If the balance sheet says cash is $84,219, your recons and statements make that number inevitable.

Payroll

Payroll needs its own little spotlight. Include the W-3 and show that the wages in the books match the W-3 totals. The IRS literally tells filers to reconcile payroll totals across forms. Do it once and stop the guessing game.

W-2s and officer compensation

The tax preparer also needs two more pieces of information to correctly prepare the return.

1. The number of W2s issued
2. Officer Compensation (if not shown separately on the income statement)

Their question gets answered even before it is asked.

Documented tax related payments

Document tax related payments cleanly. Provide the list of payroll tax payments, estimated tax payments if applicable, and any notices or letters received during the year. If you already know the client got a love note from the IRS, do not make it a surprise party.

Fixed assets

Fixed assets are where good handoffs go to die. You are going to be annoyingly clear. The tax return is supported by a ‘Depreciation and Amortization Report’ generated from their tax software.

Get a copy of the report from the tax guy, and your totals need to match their fixed asset totals. Having furniture and fixtures as one huge amount slows them down.

Send a fixed asset list and a separate list of new assets acquired during the year with dates, amounts, and what they are. You’ll also want to include any disposals. This ties to the balance sheet totals and the ’Depreciation and Amortization Report’.

Now the key move I make next is this. I do not record depreciation for the current year. Once the return is prepared, I ask for the current ’Depreciation and Amortization Report'. Depreciation is right there for me to record. In my cover memo, I add, “No depreciation recorded in the books. Awaiting tax depreciation schedule.” That one sentence prevents incorrect journal entries and second-guessing later.

Meals and entertainment

Meals and entertainment needs a reality check. Entertainment is generally nondeductible and meals are generally limited to 50% unless a specific exception applies. So, if your client is coding meals at 100%, like it’s still a 2021 party, flag it. The IRS guidance on the 50% limit is clear. Your preparer will appreciate it if you don't make them play ‘guess that receipt’.

For the books, record the full spend and keep your job simple: set up three accounts, “Meals 50%,” “Meals 100% Exceptions,” and “Entertainment Nondeductible.” Most client meals live in the 50% bucket. Entertainment gets a full addback on the return. Your tax preparer can make the adjustments cleanly without reverse-engineering your P&L like it’s a cold case file.

If a meal happened during entertainment, make sure it is split. Otherwise, it may fall into the nondeductible pile. If your client thinks small talk with every hostess, cashier, and DoorDash driver makes lunch deductible, flag it in your memo. Your preparer knows where the optimism is booked.

The ‘extras’ every preparer will appreciate

Now include the ‘things the preparer cannot read from the financials’ section. This is where your cover memo becomes a professional favor.

Put these in it:

Add in any 1099 decisions. If you advised the client to issue 1099s and they refused, say so. If they issued only some, say so. The IRS penalties for late or missing information returns stack up per form, so this is not a casual choice.
Add reasonable compensation conversations for S corps. If you discussed it and they refused changes, put that on the record. Add anything unusual: new loan covenant issues, owner distributions that spiked, forgiven debt, major software change, one-time insurance proceeds, settlements, you name it.
Add things you aren’t sure about and how YOU arrived at the decision.
If cash books are sent to the preparer, explain the accounts QuickBooks Online (QBO) creates automatically, ’Unapplied Cash Payment Income’ [Cash IN before the Invoice Date] and ‘Unapplied Cash Bill Payment Expense’ [Cash Out before the Bill Date]. It’s part of the Cash --> Accrual conversion. Leave it alone.
Explain the new Whack-A-Do account that QuickBooks makes automatically if the client uses QBO Payroll – the ‘Tax Holding Account’. Again, this is part of the software.
Finally, include your ’prior-year bridge’. Tax people love that I do this. Provide any adjustments you made to align the books to last year’s tax return. I match the balance sheet as best I can. That helps the preparer roll forward without rebuilding history. Part of the packet is the comparative balance sheet, which is last year to this year, showing the $$ differences.

Pulling it all together

Scan a complete copy of this prep and send it securely. Keep track of when it was sent. This will cover you – just in case.

Here’s the simple cover memo format I use. Take out what doesn’t apply for each client.

Dear Tax Preparer,

Attached is the Tax Prep Package for 20XX. Books are closed through December 31, 20XX.

All bank and loan accounts are reconciled through year-end.
Payroll wages tie to the W-3.
# W2 Issued: ___________
Officer Compensation is: ____________
Reasonable compensation discussed on (date). Client chose (action/inaction).
Depreciation is not recorded. Awaiting tax depreciation schedule.
1099s discussed with client on (date). Client chose (action/inaction).
Decisions I made throughout the year and how I handled them in the books.
Items to be aware of.
Weirdo accounts you’ll see and what they are.

Questions are welcome. Call/text Debra at (number).

Thanks, Deb

This time of year is challenging for tax preparers. I know – I am married to one. Let’s make this tax season a bit easier for them. And tax people in return? Please treat us with the respect we deserve. I know most of you do.

We can succeed together, and we’re on the same team working together to make our clients successful.