What is your "go to" checklist when reviewing a prospective client's return?

[DebitThatCreditThis]

Can we put our minds together and come up with a master list of sorts for when a prospective client gives you their previous year's tax return? I have a mental checklist I step through when reviewing but it would be nice to hear what others look for in this scenario.

I love coming back to a prospective client with some big tax savings ideas and it'd be great to have a more robust systemic checklist to just run these returns through.

I will start with my easy favorites:

- Look for late filing / underpayment penalties
- Would they benefit from being an S Corp
- If they already are an S Corp, see how "reasonable" their comp is
- Have they taken advantage of depreciating their real estate investments (i.e., component depreciation, bonus, 179)?
- Are they writing off health care premiums
- Are they taking a home office deduction, depreciating office equipment, writing off portion of mortgage, utilities, taxes, etc.
- Writing off vehicle usage for business?
- Did they write off their prior year accounting fees?
- Look for any glaring mistakes on the return
- If we get multiple prior years of returns, look for proper treatment of carryforwards
- Are all dependents on their returns
- Also try to get a hold of their books to see if they agree to the TR and if anything weird is going on there.

[Uncle Sam]

Are you talking about only clients with businesses or 1040s as well?

I will add some more:

Maximization of pension contributions
Maximization of gifts to children/relatives and required gift tax return filings
Maximization of college tuition plans
You now have recent year provisions due to COVID 19 changes
RMDs taken for retirees and exceptions for years when allowed to defer
Sales of home residence with Sec 121 exclusion
Prior audits if any
Charitable donations that require written substantiation, including automobiles
Education Credits for eligible childrens' education
Tax Credits for energy efficient equipment installed

These are the immediate ones that come to mind.

[Rapid Robert]

I guess this is why we need tax preparer regulation, because you should really be able to rely on the prior paid preparer not missing so many obvious things (which I'd say describes at least half of the items listed above). If you don't have every single source document and all the interview information used to prepare the prior return, how will you know what's missing and what's not? And how much will you charge for essentially "re-preparing" the previous returns? It's also the case that you are assuming some due diligence responsibility for the entire return if you amend it, not just the changes you made.

"big tax savings ideas"

I suspect that often what are presented as "big tax savings" are actually just tax deferrals, or have other negative ripple effects such as lessening the amount of future Soc. Sec. benefits, or increasing tax brackets in future years.

Just one simple example - yes, a home office deduction including depreciation sounds nice... until you find that you have to pay cap gains tax on the Sec 1250 gain up to 25% (and at ordinary income rates, if your state does not have special cap gains rates) when you sell the property. The tax may well be more than what you would have paid originally if you had just picked the safe harbor amount for home office. But will you take the time to explain that?

Then there are gifts, retirement savings, and charity -- sure sometimes they can save on current taxes, but do they fit into the taxpayer's overall financial situation and goals? How much time are you going to spend really diving into that, if the client just wants the return prepared? What liability are you going to assume for financial advice taken that turns out bad?

In the end, I will recreate just one prior year return in my tax software, including review of diagnostics, but otherwise I focus on doing the current year work the client is paying me for, unless they specifically want to have an in-depth review of prior returns (and if they did, I'd want to know why they don't trust their prior preparer).