"There have been nine pieces of tax legislation passed this year," he noted. "The primary responsibility for accountants is to adequately and accurately reflect things that happen to the taxpayer in a way that gives the taxpayer the greatest benefit allowed by the legal system. Tax planning helps the preparer to meet this responsibility."
The importance of tax planning increases during economic slowdowns, according to Dean Sonderegger, product director at BNA Software. "When you have tight economic times, that's when practitioners can provide additional value to clients," he explained. "It can be very helpful to the practitioner, because these are times when customers might be pulling away from services like compliance. It can be as simple as making sure that if you have new clients, you look at their prior years' returns to see if there's an opportunity to amend."
"Other things to look for are whether a client should have filed MFJ [married filing jointly] or MFS [married filing separately] on this or a previous return," he continued. "You're looking for money you can bring back to the client. Tax planning allows practitioners to shine in the eyes of their clients."
"Things that impact tax returns don't just happen around filing season," said Roger Harris, chief executive of Padgett Business Services. "A taxpayer might inherit something, sell something, or expand the business. Tax planning can give you some interaction with them outside the filing season."
"It gives the practitioner the opportunity to provide additional service," said Ron Sosinski, product manager for tax client relations at CCH. "It's a necessary service because taxes affect everyone so greatly. It allows the practitioner to provide the client with a number of different scenarios and explain what each will mean to the client. For example, the two political parties each have different tax plans. With tax-planning software, the practitioner can show clients what their situation will be under each plan, and what they can do to mitigate the effect of those changes."
"We've seen a huge increase in interest in tax planning as people evaluate the positions of both presidential candidates," said Teresa Mackintosh, a senior vice president at Thomson Reuters. "In addition, many people are concerned about economic growth and the status of their investments, combined with the demographics of Baby Boomers retiring or partially retiring. Tax planning is a critical tool to help clients understand the choices they have going forward."
"In recent times, we've all been concerned about putting money into retirement accounts to save on current years' taxes and get deferral of income on earnings," said Beanna Whitlock, a San Antonio-based preparer and former director of National Public Liaison for the Internal Revenue Service. "But with our aging population, most tax planning now is focused on the reverse - how to take money out of retirement accounts. That strategy is just as important as why you put it into the account in the first place. The question is what is there and what's the rate of tax they have to pay. You never want to leave any money on the table."
"For example," Whitlock said, "say a senior has a standard deduction and personal exemption, and her income is such that she winds up with zero tax liability. She's the one you should get to before the end of the year and tell her she can take out some of that money tax-free. But she has to do it by December 31."
"We need to give them the alternative of paying lower taxes now, so their heirs don't pay higher taxes in the future," she continued. "In 2011, the estate tax threshold goes up to $1 million. If the taxpayer has an estate of $1.5 million, the estate will pay $100,000 in tax. If it's in a traditional IRA, the recipient will also pay taxes. The alternative is to go to the son now and let him pay the tax at 10 percent now, rather than at 35 percent in the future."
"Another issue is that most seniors are used to itemizing and want to continue, but with the standard deduction and personal exemption increasing, they're going to find it won't be as effective," she said. "A typical strategy is to bunch your deductions, meaning that this year you make your charitable contributions for 2008 after the first of the year. The same thing goes for property taxes - in Texas you can pay them up until January 31, so you can pay two years of taxes in the same year. That way you can itemize one year, and use the standard deduction and personal exemption the next year."
"My planning software lets me put in these different hypotheticals and show a client how it will affect their tax situation," said Whitlock.
BNA's Sonderegger said that by 2030, one in five people will be age 65 or greater. "That's the greatest concentration ever in the country's history of people of retirement age. Also, in 2010 there is the relaxing of income limitations on conversions of traditional IRAs to Roth IRAs, so there's a potential savings for customers and their heirs when that occurs. This type of analysis can help customers make informed decisions on estate work and retirement planning."
HOW THE SOFTWARE HELPS
The BNA Income Tax Planner already has been updated with changes reflecting the Emergency Economic Stabilization Act of 2008, Sonderegger said.
The BNA product is sold as a stand-alone program, and integrates with all major tax prep programs.
The majority of tax prep programs contain built-in capabilities that allow the practitioner to project simple "what-if" scenarios a year or more ahead. For example, TaxSimple has planning worksheets that allow the practitioner to project tax liability to future years.
More powerful tax-planning software can handle highly complicated scenarios and analysis. Drake Software includes a Tax Planner that allows up to seven years or seven scenarios of tax planning.
"The Tax Projector in CCH ProSystem fx allows the preparer to project a scenario out one year," said CCH's Sosinski. "ProSystem fx Planning projects out three years, and enables the preparer to plug in a number of different scenarios."
"Naturally, ProSystem fx Planning integrates with ProSystem fx Tax, but we do have a number of clients that license it separately," he said.
Likewise, Thomson's Ultra Tax has one-year projections built in, according to Mackintosh. "But we encourage practitioners to use Planner CS if they need to do 'what-if' analyses with various scenarios," she said. "For example, they have a client that is looking at retirement in potentially different geographic areas. With Planner CS they can examine the consequences of living in Arizona versus Florida. You can compare unlimited states and change assumptions across the board."
"When their life stays the same from one year to the next, a simple projection will give them a fair estimate, but when there are a number of complicating factors - such as the sale of a home, beginning a business, retiring or dealing with investments - the more powerful planning product should be used," she said.
Planner CS integrates with both Ultra Tax and GoSystem, Mackintosh explained.
The Lacerte Tax Analyzer likewise allows the comparison of multiple complex scenarios using current and future tax rates, and generates graphs, reports and letters to communicate with the client.
"The Tax Analyzer takes a scenario and provides tax-saving tips," said Jorge Olavarrieta, senior product manager for Lacerte. "The analyzer is built right into the software, while the Lacerte Tax Planner is more of an integrated solution. Both are also sold separately."
All of the different tax law changes are incorporated into the software, according to Intuit's D'Avolio. "Any expiring provisions or future provisions are already incorporated to the extent that we know those provisions," he said.
PREP AND PLANNING MEET
Both CCH's Client Relate and Thomson's Tax Alerts integrate with their company's tax compliance products to identify clients that might be affected by a tax development or need an additional service.
"Client Relate gives the preparer the ability to have us do the research and pinpoint which clients might be affected," said Maureen Bornstein, manager of accounting and auditing at CCH.
"If you're interested in the sales tax deduction, you can launch Client Relate and use the wizard to come up with a list of clients affected by it. This cuts the amount of work significantly, so it's a great productivity tool," Bornstein said.
"Last year, there were changes affecting savings plans in the middle of the summer," noted Mark Sheiner, senior product manager with the Tax & Accounting business of Thomson Reuters. "Why wait until you see your clients during tax season to tell them about it?"
Products such as Tax Alerts and Client Relate, which bridge the gap between tax compliance and tax planning, have several benefits, said Sheiner. "They build additional income for the practitioner, and they help build client relationships," he said.
Tax Alerts works with both GoSystem RS and UltraTax CS, and also is offered as a stand-alone product, said Sheiner. "When we write a query, we provide the plain-language logic, so no matter what compliance product practitioners use, they can apply it to their own query-writing tool within their compliance software," he said.
"Compliance work is becoming more of a commodity," noted Sonderegger. "Planning is where practitioners can really differentiate themselves with their clients and add value."
"Tax planning really gets to the art of tax," agreed D'Avolio. "At the end of the day, you're trying to minimize a client's tax liability, or at least adequately project it so that there are no surprises."
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