Question

Maurice has recently graduated from University and started working for a small public accounting firm who specialise in providing taxation services to a range of clients. He has just returned from a review interview with one of the partners and is upset because the partner was not happy with the quality of the work papers he has prepared to support the income tax return for a client.

Explain to Maurice the reasons why quality work papers are important, what should be included in a set of work papers that support the income tax return for a client, and what they may be used for in the future. 10 marks

Answer 1

Importance of Quality Work Paper :-

The Work Paper is the most important set of documents to support income tax return for a Client.

And to make it effective quality work paper should be maintain because they act like a basis for the income and deduction declared in the income tax return of the client for particular financial year.

Each reported figures or claimed amount need to be backed by proper supporing quality work paper in order to avoid future investigation and penalties if any. Quality Work Paper is important as they are proof of the declaration by the client in his/her income tax return.

Set of Work Papers required to Support Income Tax Return of Client :-

Personal Information - Copy of Social Security Number or Tax ID number, Spouse Full Name and his/her Social Security Number or Tax ID number.

Dependent Informtion - Should Provide Date of Birth and SSN or Tax ID number, Income of dependent in your home, Form 8332 for Non Custodial Parent. Of every depended if any.

Sources of Income - If Employed - Form W-2, If Unemployed - State Tax Refund (1099-G), Self Employed - Form 1099, Record of all expenses, Asset information for depreciation, office in home information etc, Rental Income - Record of income and expenses, rental asset information, Retirement Income - Pension/IRA/Annuity Income, Saving Investment or Dividents - Interst Divident Income, Income from sale of Stock, Expenses related to investment etc.Other income & losses - Gambling Income, Prizez and awards, Trusts etc.

Type of Deduction - Home Ownership - Form 1098, Real State , All other 1098 Series forms, Charitable Donations - Cash Amounts donated to houses of workship, records fo non-cash charitable donations, Medical Expenses - Amounts Paid for Health care insurance to doctors.

Need for future use - Above set of document need to be collected in a copy and need to be stored for future use for the purpose of if any point raised in future by income tax authority for any declared income or deduction claimed, then these stored document need to be sumbitted to support those claims and income.