Picture this: You’ve just started working with a new CPA. You’re ready to hand over your financials, discuss your goals, and get down to business. Then they ask, “Can you send over your last few years of tax returns?”
You pause. “Why? Can’t you just handle this year’s taxes?”
Great question! And the answer is: Sure, we could just file this year’s return. But that would be like a doctor diagnosing you without looking at your medical history. Your prior tax returns tell a bigger story—one that can help us not just prepare your taxes, but also optimize your entire financial strategy.
So, let’s break it down. Why do we care so much about those old tax returns?
Your Business’s Past Shapes Its Future
Your tax returns are a financial time capsule. They show where your business has been, how it’s grown, and what challenges you’ve faced. Reviewing them helps us understand:
- Revenue trends – Are you scaling up? Experiencing fluctuations?
- Deductions and credits – Are you maximizing all available tax breaks?
- Business structure changes – Did you switch from an LLC to an S-corp? Expand into new states?
- Carryover opportunities – Are there unused losses or credits from previous years?
All of this helps us identify patterns and plan smarter. Instead of just filing taxes, we’re crafting a long-term strategy to improve cash flow, reduce liabilities, and maximize profitability.
Carryovers Are Like Frequent Flyer Miles—Use Them or Lose Them
Certain tax benefits don’t expire at the end of the year; they carry forward. But if they’re not tracked properly, they can get lost in the shuffle.
For example:
- Net Operating Losses (NOLs) – If your business had a loss in a prior year, you might be able to use it to reduce future taxable income.
- Tax Credits – R&D credits, energy tax incentives, and other credits often have carryforward provisions.
- Depreciation Adjustments – If you invested in major assets, you might have additional deductions that still apply.
Without reviewing prior returns, these valuable tax-saving opportunities could disappear—and we don’t like leaving money on the table.
Mistakes (Even Small Ones) Can Cost Big Money
Let’s be real: Not all tax returns are perfect. Even if your previous CPA did a great job, errors can slip through the cracks. A second look can help uncover:
- Misclassified expenses (which might mean missed deductions)
- Incorrect estimated tax payments (leading to cash flow surprises)
- Overlooked tax credits (a common issue for growing businesses)
- Inaccurate payroll or contractor reporting (which can trigger IRS attention)
Spotting these issues early means we can correct them before they become costly problems—or even amend past returns if necessary.
Tax Planning Is More Than Just Avoiding a Bill
A tax return isn’t just a form—it’s a strategic tool. By understanding your prior filings, we can:
- Adjust your tax strategy to fit your business growth – Maybe you’ve outgrown your current entity structure and need a better tax setup.
- Help with proactive planning – Should you accelerate deductions? Defer income? Invest in new equipment? Reviewing past tax returns helps us guide you on the best moves.
- Improve cash flow – If you’ve been overpaying estimated taxes, we can adjust them so you’re not tying up unnecessary cash.
The Bottom Line
When you work with a CPA, it’s about more than just tax compliance—it’s about partnership. By reviewing your prior tax returns, we’re not just looking at numbers; we’re getting to know your business inside and out.
So when we ask for them, it’s not just paperwork—it’s insight, opportunity, and planning. And that’s what leads to real financial wins.
Ready to build a better tax strategy? Contact us today!
