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How to Prepare Clients Now for Next Tax Season

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Aug 9th 2017
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Times have changed. Your clients need a reason to adequately prepare in advance and if all they want to do is use a simple form and file their taxes, they are probably better off with a tax preparation service. But, if they want to minimize their taxes and actually plan for the year ahead, that’s where you come in. However, for you to do your job, they need to do theirs first.

Years ago, accountants joked about how clients would literally toss receipts into a shoebox, pile up their forms and send everything off to their CPA in the first quarter. 

Most accountants send clients a tax organizer months in advance, which used to be predominantly paper-based but like everything else, they’ve migrated to the digital world. Many clients still ignore them.

As an accountant you bring a valuable skill to the table – the ability to help a client legally minimize the amount of taxes they pay. And, as you know, this can be tough (and expensive for the client) if your client turns your job into a hunt for buried treasure.

As such, I have compiled a list of 10 ways that you can help your clients prepare today, so that you are both ready for the next season:

Let’s assume you either send them a tax organizer or an accordion folder to file documents as they arrive. You make the case why they should use it.

1. Business Expenses – In 2011 the US Census released a report indicating “approximately 75% of all US business locations are non-employer businesses. If your client runs a one-person operation, documenting business expenses can be tricky.  A simple system is to have a daily habit of putting receipts from bank deposits and client entertaining into a dated envelope.  This allows them to calculate mileage and account for petty cash expenses.  All these expenses should involve one checking account.  Receipts go in, expenses go out.  This maintains integrity.

2. Advice Given on April 15th – Earlier in the year, you logically passed on some advice when your client balked about the amount of taxes they pay.  You might have suggested municipal bonds for earning tax free income.  Have they followed your advice yet?

3. Estimated Tax Payments – Given the variable nature of your client’s income, you provided forms and instructions to make quarterly tax payments in advance. The timing during 2017 isn’t critical, but the federal government wants them before 1/15/18.  Many states follow similar timing.  Has your client been making those payments?  Have they forgotten about them?

4. Accounts to be Established – Some of your April 15th advice might have been to setup an additional retirement account for the small consulting business they run on the side.  Keogh plans must be established by the end of the tax year.  IRAs and SEPs can be setup by the April 15th.  FYI:  IRA contributions must be made by April 15th. SEP and Keogh contributions can be made by the extended filing deadline.

5. Overview LT and ST Gains/Losses in Investment Accounts – Many investors maintain multiple brokerage accounts.  Sometimes they allocate between “fun” and “serious” money.  Clients often trade without considering the gains and losses they are incurring.  Explain how the government is thrilled to be their silent partner!  Keep track now, not in December.  Ask your financial advisor for advice.

6. Be Aware of Capital Gains Distributions from Mutual Funds – Most fund companies distribute gains from trading towards year end.  This might be in November  Its not “found money." The share price declines to reflect the distribution.  This is important for two reasons:

  • Taxes – A LT or ST gain in a taxable account has tax consequences.
  • Timing – An investor buying into a fund the day before will actually owe taxes on gains they didn’t actually earn because they weren’t holders when the shares were cheaper.

7. $14,000 Gifts – Under the annual Federal Gift Tax Exemption, taxpayers are allowed to make many gifts to individuals up to a maximum of $14,000 per person annually (2016 numbers). If you are planning gifts of appreciated securities, don’t wait until the last minute to complete the transactions.

8. Charitable Giving – According to Charity Navigator, 31% of annual giving takes place in December, while 12% takes place in the last three days of the year! Try to plan your charitable giving in advance. It gives you more time to consider how your money will be put to best use.

9. Health Care Expenses – Today we have co-pays for almost everything.  It’s convenient to make them by credit card.  Suggest your client keep a file on how much they have paid out of pocket for medical expenses during the year.

10. Health Insurance – It’s an emotionally charged subject.  It gets more expensive over time.  Suggest your client review their health care coverage with their insurance agent.  Are there gaps?  Are they in the best plan for this stage of their life?

Your client doesn’t want to miss out on opportunities because they waited until the last minute.  You can help them legally minimize their taxes, but you need their help too.

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