so many people can learn from them.
by ed mendlowitz
how to review tax returns: the field-tested update
tax comparison schedules or worksheets are a very effective tool to use to review returns. they provide an easy-to-view comparison with the prior year and most show the year-to-year differences. they are part of every tax preparation software program.
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most comparison schedules show the major categories of income, deductions, tax breakdowns and balances due or to be refunded. i suggest that reviewing the schedules or worksheets should be a first step to get a handle on the return, the large items, significant differences and the net bottom line effect.
except for the larger or more complicated returns, the tax program-generated comparison schedules are effective both as a review tool and deliverable to the client. however, the larger returns need additional information on the comparisons to make them effective and usable for both purposes. for most firms this would apply to about 10 percent to 15 percent of the returns that are prepared.
comparison schedules should serve the following purposes:
- the preparer should use it to check their work and spot their own errors where there are large or unexpected differences. this by itself, will elevate the quality passed on to the reviewer, thereby reducing their time.
- by having the preparer look at and also understand the comparisons and differences it becomes a training tool and elevates the preparer’s skill level and the quality of what they do. it is also a low-effort process. note that if a more involved and thorough tax comparison worksheet is prepared by the tax return preparer, it will add time to this part of the preparation process. however, it would also reduce the reviewer’s and partner’s time, which i feel is a profitable tradeoff. it also becomes a method of self-teaching for the preparer, which also provides a time benefit to the reviewer.
- the reviewer should use the comparison schedules or worksheets to get a quick handle on the major categories of income, deductions, tax calculations and balances due, or to be refunded. i have always found this to be a reliable way to get started delving into the review.
- the comparison schedule can be an effective deliverable to the client because they can review the comparison schedule or worksheet to understand what’s on the return and the net results. in reality very few clients fully understand their tax return and i believe this schedule or worksheet can provide some added understanding. the preparer-generated worksheets can reduce the information on a 20- or 400-page tax return to two, three or four easily followable pages.
- the comparison can be used when meeting with the client later in the year to do tax planning, year-end projections or financial planning. on some level it is a cross-selling tool when used to provide an added service to the client.
- it makes it easy for the client, preparer, reviewer and partner to grasp the big picture.
- when used effectively by the reviewer and partner signing the return, the quick overview reduces their time while making them able to get a quick big-picture understanding of the tax return.
