I often get asked in the summer and fall by clients: How much am I going to owe in taxes by April 15 of next year? Am I going to get a refund or am I going to have to owe? Now, it would not be prudent of me at a cocktail party to say to a client (or potential client) in August that he or she is going to owe $2,000 off the top of my head. There is no way I could know this. The year is not over and I do not have any of this client’s information in front of me. Oddly enough, because I am a CPA, it sometimes seems that this is expected of me!
I can give you a much better answer to this question through what is called, a “Tax Projection.” Usually, these are done in the fall when a majority of the year is complete. Basically, I would gather as much information as possible during that point in the year. Sometimes estimates have to be made. This is okay as it is not an exact science. Through this information, I will use my vast accounting knowledge and powers to come up with a projected amount that a client would owe, or be refunded, on April 15. It is that easy!
Usually, the first question I get is: What information do I have to give you? If I have prepared your tax return in the past, I can get you a list and you can just follow along. If you are a new client, I will send you a general questionnaire. This initial form may be a bit lengthy, but we want to make sure that, since you are new, we do not miss anything. Some examples include, but are not limited to: a copy of last year’s tax return, most recent pay stub, other sources of income, amount of excise tax paid on vehicles, property taxes, mortgage interest, rental payments, and amount of charitable contributions. In addition to being able to project your tax liability at year-end, another advantage of compiling this information in the Fall is just that: This information is compiled in the Fall. All we have to do is tweak the numbers in early 2015. Easy!