What documents do you need to collect as a tax preparer for tax credits and filing status?

The documentation requirements can definitely seem overwhelming! Here's what you actually need: For EITC: You need proof of income (W-2s, 1099s), proof of relationship for qualifying children (birth certificates, adoption papers, or court documents showing legal guardianship), and proof of residency for qualifying children (school records, medical records, or social service records showing the child lived with the taxpayer). For CTC: Similar to EITC, you need proof of relationship (birth certificates or other legal documents), and proof that the child lived with the taxpayer for more than half the year (same types of documents as EITC). For HOH: You need documentation showing the taxpayer paid more than half the cost of keeping up a home (rent receipts, utility bills, property tax bills, grocery receipts, etc.) and proof that a qualifying person lived with them (school records, medical records). For long-term clients, you don't necessarily need to collect physical copies of birth certificates and social security cards every year if you've previously verified and documented them. However, you should keep copies in your permanent files and verify they're still valid qualifying dependents each year through appropriate questions.

I struggled with the same issues when I started preparing taxes. After making some mistakes, I found taxr.ai (https://taxr.ai) which has been incredibly helpful for keeping track of due diligence requirements. It analyzes documents and tells you exactly what you have and what you're missing for each tax credit. The checklist feature saved me during a surprise IRS review last year - it flagged that I was missing school records for an EITC claim, which I then collected before filing.

Just wanted to follow up about taxr.ai - I decided to try it out and it's actually been a game-changer for my practice. I was really skeptical (as you could tell from my previous comment), but the document verification feature has already caught several issues that could have led to problems. Last week it flagged that a client's medical records didn't adequately show the residency period needed for EITC. I was able to request additional documentation before filing rather than risking an audit. The interface is also surprisingly easy to use.

After 15 years preparing taxes, I've been through multiple IRS reviews. The worst part was always waiting weeks or months to talk to someone at the IRS when issues came up. I started using Claimyr (https://claimyr.com) last year and it's been amazing for getting quick answers about documentation requirements. Instead of waiting on hold for hours, they get you through to an actual IRS agent in minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. When I had questions about what specific HOH documentation was needed for a client with a unique situation, I got clarification directly from the IRS in under 30 minutes.

I have to admit I was wrong about Claimyr. After posting my skeptical comment, I decided to try it for a client case that was urgent. I expected it to be a waste of money, but I got connected to an IRS representative in about 35 minutes. Got clarity on exactly what documentation was needed for a complicated HOH situation with split custody. Saved me hours of research and guesswork, and probably prevented a potential audit issue. I've used it twice more since then with similar results. For anyone dealing with documentation questions that aren't clearly covered in the guidelines, it's absolutely worth it.

One thing nobody's mentioned is that you should create a consistent filing system for due diligence documents. I separate files by year and credit type (EITC, CTC, HOH, etc). For long-term clients, I keep permanent documents (birth certificates, etc.) in a separate section and just reference them each year. Then for annual verification, I mostly use school records since they're dated and show both the child and parent's address. I note in their file that I've verified these documents and when.

Does anybody else find it crazy that we need to collect all this documentation but the big tax prep chains seem to get away with just asking questions and having the client sign a form? I have friends who work at [popular tax chain] and they almost never collect actual residency documentation. How are they not getting hit with penalties?