Personal income tax: Do you take your clients’ words at face value?
"Here are the documents you need to prepare my taxes. Nothing has changed from last year." Have you ever had a client tell you this before? If so, did you assume your client had reviewed his or her situation thoroughly, or did you still ask questions before filing the returns? It cannot be stressed enough: Always perform due diligence!
Making the same error year after year: The risk is all too real
An error made when a file was opened or processed will be repeated every year if the information is not validated. The outcome is that, with each passing year, the consequences become more serious.
In a real case brought to the attention of the syndic of the Order, a CPA used the wrong rate over several years to deduct expenses related to a rental property held in co-ownership. When the error was finally detected, the returns of both affected taxpayers had to be retroactively amended, resulting in headaches.
Some things to consider for an effective validation:
- A good starting point is your software’s comparison and diagnostic tools. Even though they are not a substitute for a client’s answers to specific questions, they have become increasingly efficient.
- If a client answers no to one of your questions, don’t stop there. Ask follow-up questions to determine whether new tax rules or measures apply.
- Review the data in your client’s file periodically (rent paid by a family member, children’s birthdates, vehicle expenses, etc.). Do this even if the client assures you that their situation has not changed.
- Keep records OR notes (notes on the client’s situation, summaries provided, relevant email exchanges, notes from telephone conversations, etc.), even during the hectic tax season. The lack of documentation in client files is one of the main weaknesses observed during professional inspections.
By implementing reliable client information gathering and validation processes, you’ll be better able to fulfill your duty to advise, as well as provide your clients with the best options available and a quality product.
Review: A shared responsibility between you and your client
As a professional, you are obviously committed to performing quality work, and nobody understands the complexity of tax rules better than you. Your clients almost trust you blindly, with some barely reviewing the returns you provide. Don’t hesitate to make them aware that they are stakeholders in the review process as well, even if they don’t have any tax training. Despite your vigilance, an error may still occur, and your client should know that it will be much simpler to correct the mistake before filing the returns with the tax authorities.