Client loyalty in a year of uncertainty

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With the complexity of the Tax Cuts and Jobs Act passed in mid-December, taxpayers are likely either to be confused or to think they know more than they know about their own tax situation. This presents professional preparers with the opportunity to build client loyalty, while lowering their client attrition rate.

When a client leaves your office after having their taxes prepared, it’s important that they have a positive feeling about the experience, according to Chuck McCabe, president of Peoples Income Tax and The Income Tax School. Part of that feeling comes from confidence that the preparer took note of their personal situation in applying the law for their benefit.

“We take a look at their total situation, especially if there have been any changes during the year, or they anticipate any changes in the year ahead. These could be typical lifestyle changes, such as buying or selling a home, having a child at the eligible age for the child tax credit, or having a child getting ready for college.”


Filing season is an opportune time to revisit the level of a taxpayer’s withholding, according to Jeff Fosselman, CPA, Esq., a senior wealth advisor at Relative Value Partners: “They can change the level of withholding whenever they want, but it’s timely to point this out to them when you do their taxes, if they are due a large refund,” he said. “A lot of people traditionally over-withhold, because they like large refunds. But objectively, they’re giving the government an interest-free loan. Conversely, if they withhold too little, they can be subject to penalties, so it’s important to get it right.”

Fosselman suggested that tax professionals work with clients that are not well organized. “Take steps to train them not to come in with a shoebox full of receipts on April 10,” he said. “Make a gentle push for them to get more organized during the year. It reduces the stress level of both the client and the CPA.”

John Vento, a CPA, CFP and author of “Financial Independence: Getting to Point X,” has a list of specific suggestions that tax pros should consider making to clients when they see them during filing season:

  • Advise them to increase their 401(k) deferral to the maximum allowed, or at least to the most they can afford to contribute.
  • Suggest they consider making a traditional IRA or a Roth IRA for 2017 and 2018. Taxpayers have until April 15, 2018, to make a 2017 IRA contribution.
  • If the taxpayer has a high-deductible health insurance plan, they should fully fund it for 2017. This can be done up until April 15, 2018.
  • If the taxpayer is due a large refund, advise them they can adjust their W-4 form through their employer so that it is consistent with their true tax liability. Claiming a larger number of exemptions will give them more money in their paycheck and a smaller refund next year. If they owe a large amount of money, they should claim fewer exemptions.
  • If the taxpayer has children who are expected to go to college, they should consider opening up a 525 plan, since all income earned through the plan will be tax-free so long as it is eventually used to pay for higher education. Many states, such as New York, also provide an additional benefit that makes these contributions tax-deductible in the year they are made against state taxable income.
  • Ask if the taxpayer has long-term-care insurance. A portion of qualified long-term premiums can be deductible as a medical expense, and many states, such as New York, also provide a long-term-care tax credit, which could help pay for as much as 20 percent of the premium.
  • Taxpayers with children in their last year of college should be advised not to pay their full tuition cost before Dec. 31, 2018. If they are in school for part of 2019 and pay a portion of their tuition next year, they can be entitled to an education tax credit of as much as $1,500. If all tuition is paid in 2018, they can lose the credit.
  • Ask if the taxpayer had an interest or signing authority over a financial account in a foreign country. There are significant penalties for failing to report this on the tax return.
  • Ask if the taxpayer made any residential energy improvements during 2017. If so, they may be entitled to claim a residential energy credit.

Taxpayers whose preparer takes a personal interest in their situation and explains the applicable tax law will feel they have been well served, McCabe observed.

“They are likely to tell their friends and associates, and are more likely to continue to use your services,” he said. This is important because client satisfaction is a component of successful “word of mouth” marketing, and by keeping the client attrition rate low, fewer new clients have to be added to a practice year to year just to stay even.


“It’s a good time for tax professionals to examine a client’s business entity, to determine if the client might be better off choosing a different form,” said McCabe. “There’s still time to convert an S corporation to a C corporation, if that gives a tax advantage. An S corporation can be revoked at any time, but to be effective on the first day of the taxable year for the C corporation, it must be done by the 15th day of the third month of the taxable year. Otherwise, it won’t be effective until the next taxable year.”

“Your clients want to know that you’re knowledgeable in the tax law and that you’re going to take care of them,” said Roger Harris, president of Padgett Business Services. “If something happens that will impact them, they want to feel comfortable that you’re going to let them know.”

Automatic accounting method changes, if favorable to the client, are still available in 2018 until the return is filed, noted Ron Wainwright, a partner at Top 100 Firm Cherry Bekaert and the national leader for federal credits and accounting methods. Wainwright intends to spend time with clients doing a “BEAM” or “Business Entity Analysis Modeling” when they speak during filing season. “We’ll look at their entity structure in relation to current legislation, and attempt to determine whether they might be better served by switching to a different form of entity.”

It’s a good time for tax professionals to review strategies going forward, according to Mike Silvio, tax director at Hall & Co. CPAs. “The owner of an apparel company recently asked me about what they should do to minimize taxes,” he said. “We ended up talking about looking deeper into the R&D credit, because some of the things they were doing needed enhancing in order to maximize the credit — for example, the way they treat their internal software development costs can affect R&D credit eligibility.”

“We also ask them about their growth goals, and where they want to be in three to five years. That opens up another opportunity,” he added. “California has a credit if you hit certain milestones based on the number of people you will hire and your capital expenditures within the state.”

“And also from the state perspective, we look at the possibility of shifting income out of high-tax states into lower-tax states. By the operation of the apportionment rules, we can push income into states with a lower tax rate. For example, if a C corporation that is housed in California develops and sells software, under new market-based rules, the transaction is taxed where the benefit is derived by the client where the sale ends up. If they sell the software in Kansas, it’s not a California sale, so they can move the sale out, and save tax that would otherwise go to California.”

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