Effective tax planning builds trust with clients.
Michael M. Eisenberg, CPA/PFS, is proactive in contacting his clients. Taking his role as a trusted advisor to heart, the Los Angeles, Calif., practitioner says, "I don't want my clients to have any surprises on April 15."
Most tax accountants begin the process with last year's return. It is important that client information is accurate, an area where high quality tax planning software is invaluable. Baltimore, Md. CPA Lyle K. Benson, CPA/PFS recommends that practitioners ensure their software takes into account AMT, while performing rigorous, accurate calculations. His firm, L. K. Benson & Company, chose BNA Tax Planning (www.bnatax.com), a package that handles multiple years, multiple cases and all states. Benson stresses the importance of incorporating investment planning into the overall financial planning process. According to Benson, "Tax planning and investment planning go hand in hand."
Most experts agree there should be fewer complications in the planning process this year than last year; most of the provisions of the President's 2003 Tax Act remain unchanged for 2004. Nevertheless, tax rules are never simple, and tax accountants must examine each client's tax picture on an individual basis. New York City-based Phyllis Bernstein, CPA/PFS, president of Phyllis Bernstein Consulting, Inc., shared two tax tips she recently discussed with clients:
1. Tax Savings for Moving Expenses
Clients who qualify can deduct moving expenses for them and their belongings as an adjustment to their income, even if they do not itemize, providing a large break for taxpayers. The requirement is that the move must be connected with a change in their place of work, and the new job location must be at least 50 miles farther from their old home than was their old job location.
2. Tax Savings for Adoption
If clients adopt, they can generally claim a credit of up to $10,390 (2004) per child to help cover expenses. If the credit wipes out their tax for the year in which they claim it, the unused portion can be carried over to future years. The credit begins phasing out when modified AGI exceeds $155,860 (2004) and is not available when modified AGI exceeds $195,860 (2004).
All the tax accountants we talked to agree that the AMT is becoming increasingly important in the tax planning process. Designed 30 years ago to shift the tax burden to wealthy individuals, AMT now impacts an ever-larger number of taxpayers, and not necessarily the wealthy ones.
"We like to call it the 'Awfully Mean Tax;' no one likes it," says Eisenberg. By doing the appropriate tax planning, tax accountants can project whether the client will fall into an AMT situation. With AMT, the familiar rules of accelerating expenses or deferring income may not apply in that particular year. Benson suggests that tax accountants look particularly closely at clients with large state tax deductions, outsized capital gains, large miscellaneous deductions and investment stock option (ISO) elections. "They will be the ones most impacted by AMT," he says.
Effective tax planning should include other key factors as well. The spread between capital gains and ordinary income is still the largest it has been in a long time, so taxpayers should take advantage of that fact, according to Benson. State taxes continue to be a very important part of the tax-planning picture, particularly in high tax states, such as New York and California. Depending on the results of the November elections, clients could be dramatically impacted. If Bush is reelected, the tax structure in place today will likely remain. If Kerry wins the election, there is almost certain to be a tax increase for wealthier taxpayers. As with all tax planning issues, the tax accountant's role is to educate the client as to potential consequences, and to direct them toward the best position.
According to Eisenberg, there is no better way to build rapport with your client than to sit down with them and provide the benefit of your experience and expertise. "At the end of a session, the client has a snapshot of their estimated tax obligation. The client can put money aside if they know in advance it's going to be needed." No one likes surprises--particularly when they cost money. Planning ahead eliminates surprises and allows taxpayers to be proactive.
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|Publication:||The National Public Accountant|
|Date:||Nov 1, 2004|
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