by Roger Russell
Tax professionals are bracing for the upcoming season by checking supplies, test-driving software, training additional staff and, most important, wrapping up year-end tax planning tips for their clients.
"Year-end planning helps you do two things at once," said John Battaglia, director of Deloitte & Touche’s Tri-State Private Client Advisors Practice. "At the same time you’re getting the information together for tax planning, you’re organizing to do the return itself, so there’s less work in March."
And, said Battaglia, "It’s not too late to make the moves - you’ve got until the clock strikes midnight on New Year’s Eve, but after that, there’s not much you can do. That’s why it’s important to get going early."
Marc Albaum, a New York City-based CPA, agreed. "It’s never too late for tax planning - you’ve got until the ball drops to take action, and if you do it later than that, then you’ve got an early start for 2003." However, he noted, "You’ve got more options the earlier you start."
"It’s really important to get the information together to do projections for next year, especially to find out if a client will be subject to alternative minimum tax or not, and to be able to communicate to the client what tax liability they may have ahead of time," said Battaglia. That’s because "the wisdom of conventional tax planning advice to defer income and accelerate certain types of deductions may not hold true if an individual expects to be subject to AMT."
There are other steps that Battaglia takes to get ready for tax season. "We ensure that our tax compliance manuals are up to date, we check out the software and try to be as electronic as possible. We e-mail organizers or use the Internet organizer for the clients that want it."
Battaglia also makes sure that he has enough staff going into tax season. "We know what we need year to year, and we can also borrow from other groups that may be slow during tax season, so we don’t generally hire additional staff," he said.
Likewise, David Orenstein, a shareholder in Minneapolis-based Simma Flottemesch & Orenstein Ltd., rarely brings in new staff during tax season.
"The problem is that once you learn our software system you know it well, but learning it takes time and effort, and tax season is not the best time to train people - new staff using stuff they’re not accustomed to is a recipe for disaster."
For those who do need to hire additional staff, Neil Lebovits, president of Saddlebrook, N.J.-based Ajilon Finance, has some advice: "Don’t wait until the last minute. That’s the big lesson we learned last year - people were under the assumption that because there was a recession and unemployment was up they would have more flexibility in hiring. But good people are still snapped up quickly."
"Clients are telling us that companies have been lean regarding their staffing so they’re not as poised as they were a year ago to handle any work load," said Lebovits. "And secondly, a lot more people are looking to tax pros to help out with their financial situation - they’ve already refinanced their homes, and they’re looking for additional cash flow. Both of these factors may create more demand for tax preparers this upcoming season."
Ken Burke, tax partner at Rochester, N.Y.-based Mengel, Metzger, Barr & Co. LLP, said that his firm brings in additional people for tax season. "Every year at this time we look at bringing in part-time people. We generally have the same group every year that we can call on - usually stay-at-home moms," he said.
He added, "Most of them are CPAs who have worked at the firm in the past, so they know what they’re doing, they know the firm and they know the clients. We also bring in some student interns who help with inputting individual tax returns."
Burke said that about 50 percent of clients use the organizers they send them. "We start processing and mail them out the last week in December or first week of January - for the ones we know won’t fill it out, we keep it in the file and use as a tool when we prepare the return."
About 10 percent of the firm’s individual returns were e-filed last year. "Clients like the idea of getting their refund faster, but they’re indifferent as to whether it’s paper or electronic where there’s a balance due," he said.
Burke said that the end-of-the-year planning season begins in November. "We do tax plans for most of our clients so they have a good idea of where they’ll be."
"The other thing we do this time of year is scheduling, especially for larger tax engagements," said Burke. "Some of these accounts include wealthy family groups that may have several businesses or trusts and partnerships. We try to pick a team of people to work on those accounts so there’s some continuity."
For Orenstein, there are "a number of odds and ends a taxpayer can do at the end of the year."
For instance, he said that clients should "clean up their portfolios and take capital losses to offset any gains, and take advantage of the $3,000 offset against ordinary income." They can also "make charitable gifts of appreciated securities, make individual gifts up to $11,000 per recipient to lower estate and income tax, establish Section 529 plans for college education, and consider converting a traditional IRA to a Roth IRA if 2002 income is low enough."
Then Orenstein added, "Taxpayers should revisit retirement plan distributions for minimum distribution disbursement reduction to reflect longer life expectancies, and make sure that they are maximizing their 401(k) deferral and extra $1,000 deferral if they are over 50."
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