Around the corner: Helping clients prepare for Tax Day 2019
Monday, April 15, 2019, is nearly nine months away – meaning that given tax reform’s complexities and the nature of clients, now is the time to help the latter start preparing.
“There’s a lot to keep track of, not only with federal tax compliance but with how the states are responding to Tax Cuts and Jobs Act,” said Phyllis Jo Kubey, an Enrolled Agent in New York.
How to get ready? “Continue making estimated payments as planned with the hopes that our elected officials will defer tax skullduggery until after the midterm elections,” said EA John Dundon, president of Taxpayer Advocacy Services in Englewood, Colorado.
Like many preparers, EA Laurie Ziegler at Sass Accounting in Saukville, Wisconsin, sends a quarterly e-letter to notify clients about the “vast changes” in the tax laws. “Many employers are encouraging mid-year withholding check-ups and we’re assisting clients with these as well.”
‘Lot of misinformation’
The TCJA promised good news for taxpayers. Planning to take best advantage of those provisions has proven tough, however, because of uncertainties and lack of official guidance.
“We’ve performed an entity analysis for each business client to verify their original entity selection still makes sense,” said Amber Goering, a CPA with Goering and Granatino, Overland Park, Kansas. “We’ve also prepared 2018 federal and state tax projections so there are no April 15 surprises. There’s a lot of misinformation out there.”
“We’ll be reaching out to our clients this summer who may be impacted by the [qualified business income] deduction to discuss any possible changes in choice of entity, payroll issues or its overall impact on them,” added Twila Midwood, an EA at Advanced Tax Centre in Rockledge, Florida.
Preparers seem to be turning to tested tools to get the word out even in this weird year. Manasa Nadig, an EA and owner at MN Tax and Business Services and a partner at Harris Nadig, in Canton, Michigan, runs tax projection worksheets every year when meeting clients at tax time, and again in early fall if the client had major changes in their financial situation.
“For those who live in high-tax states and will lose benefit of the SALT deduction,” she said, “this planning helped a lot, and those who will not be subject to AMT anymore suddenly found they would have more cash on hand.”
This summer, the goal of Andrew Piernock Jr. of Piernock Accounting and Tax Services in Philadelphia is to “analyze a few clients’ tax situations in 2017 and figure out whether they would owe or receive a larger refund in 2019. I’ll be preparing a pamphlet describing how some of the changes are going to affect their 2018 return,” he added, “regarding itemized deductions [and] business losses or profit.”
Some of reform’s changes have been addressed in at least some guidance and have morphed into the stuff of concrete advice. EA Nayo Carter-Gray of 1st Step Accounting in Towson, Maryland, for example, encourages clients to adjust withholdings by completing a new W-4.
“Secondly, I’m personally calling the clients I know that will be vastly affected by the new tax bill to come into the office for a complete tax planning session,” she said. “I identified these clients during this year’s season and briefly mentioned they could be negatively affected, but now is the time to remind them of these changes before it's too late to avoid any additional taxes being due next year.”
Robert Seltzer, a CPA at Seltzer Business Management in Los Angeles, sees two areas of concentration for clients’ next tax day. One “is the change in the itemized deduction rules. For clients of mine who are wage earners, the big change is the elimination of employee business expenses. The planning opportunities in this area usually run two possible ways. For clients who don’t have the option of incorporating, I have suggested talking to their employer about getting some business expenses reimbursed in lieu of a bonus. For those clients where incorporation is possible, I run the numbers to see if incorporation, after the compliance costs, will end up saving the client money.”
Kubey is preparing tax projections for all clients to show 2017 and 2018 numbers side by side. “Part of this involves checking W-2 and retirement distribution/SSA withholding,” she added.
“At first, I was spending a lot of time trying to sort out the new tax law and applying it to various client situations,” said Jeffrey Gentner, an EA in Amherst, N.Y. “The prep software I use had a nice tax planner worksheet which included the changes in the law for 2018. I could easily look at the 2017 and tell clients what 2018 would look like if the returns were the same,” he said. “Most clients really only wanted to know if they were going to be better or worse off. I spent a good deal of time looking at W-2s and W-4s after the 2018 withholding charts were released.”
Maryland’s Carter-Gray is also sending out more tax-specific email newsletters. “With some deductions being completely eliminated or drastically changed, I know it could play a major factor in tax refund amounts being reduced, and I want to make sure my clients are prepared,” she said. “Also, I’m going back and identifying clients who have itemized in prior years and encouraging them to pay multiple years’ worth of medical expenses and charitable deductions in advance to help maximize their itemized deduction this year.”
“When February 5 rolled around and suddenly several expired provisions for 2017 were not going to be allowed – for my clients, this mostly applied to those who had PMI, unused energy credits and the tuition and fees deduction – I decided to take another approach,” Gentner said. “I talked as best I could about the changes, but in the end I told my clients to prepare for 2018 just like they have always prepared. With technical corrections most likely coming this fall, it’s anybody’s guess exactly how the 2018 return will flow.”