How to File Other People’s Taxes: What You Need to Know

Preparing taxes for someone else requires careful attention to legal requirements and financial details. Whether you’re assisting a family member or working as a professional tax preparer, understanding the necessary steps helps prevent errors and penalties.

To do this correctly, you need proper authorization, knowledge of required documents, and an understanding of how to handle sensitive financial information.

Legally Required Documentation

Gathering all necessary paperwork ensures accuracy and compliance with IRS regulations. Missing or incorrect documents can lead to processing delays, audits, or penalties.

W-2 and 1099 Forms

All income sources must be reported to avoid underreporting penalties, which can be as high as 20% of the understated tax. Wage earners receive a Form W-2 from their employers, detailing earnings and tax withholdings. Independent contractors and freelancers typically receive a Form 1099-NEC if they earned at least $600 from a client. Investment income is reported using Forms 1099-INT for interest and 1099-DIV for dividends. Social Security recipients receive Form SSA-1099, summarizing total payments and any withheld taxes. Cross-checking these forms against financial records ensures accuracy before filing.

Identification Papers

Verifying the taxpayer’s identity prevents fraud and ensures compliance with IRS guidelines. A Social Security card or Individual Taxpayer Identification Number (ITIN) is required for accurately reporting income and claiming tax benefits. For dependents, birth certificates or adoption records may be needed to confirm eligibility for credits like the Child Tax Credit, which provides up to $2,000 per qualifying child. A government-issued photo ID, such as a driver’s license or passport, should also be retained to authenticate identity in case of an IRS inquiry. Ensuring all names and identification numbers match IRS records prevents common errors that can result in rejected filings.

Deduction and Credit Records

Maximizing tax benefits requires thorough documentation of deductible expenses and eligible credits. Mortgage interest statements (Form 1098) and property tax receipts substantiate itemized deductions. Medical expenses exceeding 7.5% of adjusted gross income (AGI) may be deductible if properly documented. For education-related deductions or credits, Form 1098-T reports tuition payments, while Form 1098-E details student loan interest paid. Charitable contributions must be backed by receipts from qualified organizations, and donations over $250 require written acknowledgment. Business owners should maintain expense logs and receipts for travel, equipment, and office supplies to support deductions under Schedule C. Properly organizing these records reduces audit risk.

Third-Party Authorization

Before preparing and filing taxes on someone else’s behalf, obtaining proper authorization is required. Without documented consent, the IRS will not discuss a taxpayer’s information with a third party.

Form 2848, Power of Attorney and Declaration of Representative, grants legal authority for a designated individual to act on behalf of a taxpayer in dealings with the IRS. This form is commonly used by tax professionals, attorneys, and CPAs who need to negotiate tax matters, sign documents, or represent clients in disputes.

For those who only need permission to discuss tax return details without full representation rights, Form 8821, Tax Information Authorization, is an alternative. Unlike Form 2848, this authorization does not allow the representative to act on the taxpayer’s behalf but grants access to tax records, transcripts, and notices.

If a tax preparer is submitting a return electronically, Form 8879, IRS e-file Signature Authorization, is often required. This document allows an electronic return originator (ERO) to transmit the taxpayer’s return without requiring a physical signature.

Qualifications for Paid Preparers

Anyone who is paid to file tax returns must obtain a Preparer Tax Identification Number (PTIN) from the IRS. This unique identifier is mandatory for all professionals who prepare federal tax returns for others. Applying for a PTIN is done through the IRS website and must be renewed annually. Failing to include a valid PTIN on a return can result in penalties.

Certain tax professionals must meet additional credentialing and regulatory requirements. Enrolled Agents (EAs) must pass a comprehensive three-part IRS examination covering individual and business tax laws and complete 72 hours of continuing education every three years. Certified Public Accountants (CPAs) and attorneys, while regulated by state boards and bar associations, must also adhere to IRS rules when offering tax preparation services. These credentials allow practitioners to represent clients before the IRS in audits, appeals, and collection matters.

Uncredentialed preparers who are not EAs, CPAs, or attorneys can still prepare returns but face limitations. They may participate in the IRS Annual Filing Season Program (AFSP), which provides a Record of Completion upon completing continuing education requirements. While AFSP participants gain limited representation rights for clients whose returns they prepared, they cannot represent taxpayers in audits.

Managing Client Tax Information

Handling taxpayer data requires strict adherence to confidentiality rules and data security protocols. The IRS enforces privacy requirements that prohibit tax preparers from disclosing or using client information for any purpose other than tax preparation without explicit written consent. Violating this statute can result in criminal penalties, including fines of up to $1,000 and potential imprisonment.

Secure storage and transmission of tax records help prevent identity theft. The Federal Trade Commission’s Safeguards Rule mandates that businesses implement a written information security plan. This includes encrypting electronic records, using multi-factor authentication for remote access, and restricting data access to authorized personnel. Physical files should be stored in locked cabinets, while digital records must be backed up on secure, encrypted servers.

Handling Refunds and Payments

Managing tax refunds and payments correctly is essential. Whether a taxpayer is expecting a refund or owes money to the IRS, ensuring that funds are handled securely prevents delays and penalties.

Refunds should always be directed to the taxpayer’s own bank account or mailed as a check to their registered address. The IRS prohibits tax preparers from receiving a client’s refund directly. If the taxpayer opts for direct deposit, verifying the accuracy of their bank account and routing numbers prevents misdirected payments. Taxpayers expecting a refund can track its status using the IRS “Where’s My Refund?” tool. If a refund is delayed beyond 21 days for e-filed returns or six weeks for paper filings, it may require further review.

For those who owe taxes, ensuring timely payment is necessary to avoid penalties and interest charges. The IRS offers multiple payment options, including direct debit, credit card payments, and the Electronic Federal Tax Payment System (EFTPS). If a taxpayer cannot pay in full, setting up an installment agreement can prevent collection actions. Short-term payment plans are available for balances under $100,000, while long-term agreements apply to amounts up to $50,000. Interest accrues on unpaid balances, and a failure-to-pay penalty of 0.5% per month applies until the balance is settled.

Retaining Records

Maintaining proper tax records after filing is necessary for compliance, audit protection, and future tax planning. The IRS generally requires taxpayers to keep records for at least three years from the filing date, though certain situations demand longer retention periods.

Supporting documentation, including income statements, deduction records, and tax return copies, should be stored securely in both physical and digital formats. If a taxpayer claims a loss from worthless securities or bad debt deductions, records must be kept for seven years. Businesses should retain employment tax records for at least four years. In cases of fraud or failure to file, the IRS has no statute of limitations, meaning records may need to be kept indefinitely.

Proper organization of tax documents simplifies future filings and ensures readiness in case of an IRS audit. Taxpayers selected for examination must provide substantiating records, and missing documentation can result in disallowed deductions or additional tax liabilities. Digital storage solutions, such as encrypted cloud services, help safeguard records against loss or damage while ensuring easy retrieval.