Provide Tax Planning Services Outside of Tax Season

The tax deadline has passed, but the tax planning season is just beginning. Whether your client files as an individual, pass-through entity, or C corp, you most likely noticed a number of opportunities when preparing their returns that could be leveraged to lower their taxes this year. Let’s take a look at some ways you can save them some money with a little planning, and ways you can start building your book of business in the off season.

Tax Planning

It’s never too early to think about how to reduce your clients’ tax burden. The accounting world has seen the most industry-shifting legislation passed over the last couple of years, and with a new administration, the future of tax will not get any simpler. Between the blend of previous tax policy changes, sunsetting provisions, COVID-19 tax relief, and proposed tax changes on the horizon, there is ample opportunity to favorably position your clients for the years ahead.

With help from Corvee’s tax planning software, you can identify different strategies that will save your clients real money in taxes. Some possible new strategies include:

Applying for New Tax Credits

Consider if your client is eligible to receive new credits based on recent changes in their operations. For example, did one of your business clients recently hire any employees categorized in a targeted group that has historically faced employment challenges? Your client may be eligible for the Work Opportunity Tax Credit. The maximum credit is $2,400 for most eligible workers in their first year of employment.

The Research and Development (R&D) tax credit is another valuable tax savings opportunity that encourages businesses to innovate and improve processes, products, software, methods, and techniques. (The range of activities and businesses that can qualify might surprise you, which is why the opportunity to claim it is often missed.) Qualifying businesses with eligible R&D expenses can claim up to a $250,000 credit each year for five years. They can apply those credits against the employer’s share of Social Security tax or against income tax.

Employing a Family Member

Depending on how your client’s business is structured, they could save Federal Unemployment Tax (FUTA), Medicare and Social Security Tax (FICA), income tax, and/or self-employment tax if they hire a family member as a bona fide employee. For example:

• Payroll costs are deductible to businesses, even when those payroll costs relate to family members. Being able to deduct a spouse’s or child’s wages, benefits, and medical insurance will reduce a business owner’s income and self-employment tax liabilities.
• If your client is a sole proprietor and employs their spouse, they can deduct healthcare costs for them and their spouse. If your client uses a self-insured medical reimbursement plan, their spouse may even receive tax-free reimbursement of medical expenses.
• If your client employs their child, not only is their child’s salary deductible, their wages will not be subject to FICA if they are under age 18. If their child is under age 21, their wages will not be subject to FUTA. Please note: Your client is still responsible for paying employment taxes for adult children over age 21 and other family members.

Planning Asset Purchases

Mid-year tax planning is an optimal time to help your clients decide whether they want to buy personal property for their business. Does it make sense to purchase it this year, next year, over both years, or sometime in the future? Qualifying assets placed in service prior to December 31, 2022 are eligible for 100% bonus depreciation in the same year that the assets are placed into service. Phase-outs begin in 2023, dropping 20% until bonus depreciation expires in 2026. Qualifying property includes vehicles, furniture and fixtures, machinery, computer software, and other business equipment. Because of the approaching phase-out period, it’s important to have a discussion with your clients about this deduction before the opportunity is diluted.

Performing a Nexus Study

If your client sells products or services online, you could offer to perform a nexus study to determine if their business has economic nexus in any other state or municipality, helping them to improve their sales tax compliance process.

Business Planning

You can be a valuable resource to help your clients find ways to improve efficiencies in their business, regardless of their size or industry, and you may even be able to prevent future problems.

One thing you can do is evaluate your client’s internal controls to measure the business’ operational efficiency and reliability of financial information. Establishing strong internal controls can help mitigate fraud and theft by implementing a system of checks and balances, increase productivity with more organized and straightforward reporting procedures, and reduce human error.

As you drill down into your client’s finances, there may be ways to streamline financial reporting that would result in cost savings. You could suggest different ways to track expenses, help them clean up their trial balance, recommend a change in accounting methods, and even assess whether their entity choice is an ideal structure for their business. These adjustments could turn muddled data into financial information that provides valuable insight into the company. Accurate financials are necessary if a business wants to keep pace with changes within their industry and shifts in customer preferences.

Retirement Plans

Thanks to the SECURE Act passed in late 2019, businesses can now receive a sizeable tax credit to implement a new 401(k) plan for their employees. Businesses with 100 or fewer employees are eligible to claim an annual credit of up to $5,000 to cover retirement plan startup costs. The credit is available the first three years of the plan’s effective date and only applies to businesses that establish a new retirement plan, including 401(k) Plans, 403(b) Plans, Profit Sharing Plans, Cash Balance Plans, SIMPLE IRAs, and SEP IRAs.

Estate Planning

ith proposed tax changes on the horizon, an estate plan can help protect your clients’ wealth during times of economic uncertainty. Currently, the federal estate and gift tax lifetime exemption is at an all-time high at $11.7 million per person in 2021 with that amount set to sunset on December 31, 2025. In 2026, the exemption will return to the 2017 amount of $5 million, with adjustments for inflation. However, there is concern that President Biden’s tax proposals will accelerate the 2025 sunset provision and go further to return the estate and gift tax exemptions to their 2009 levels of $3.5 million for the estate tax, and $1 million for the gift tax, per individual (both would be adjusted for inflation). His proposal also includes an estate tax increase from 45% to 65% for estates valued at $1 billion or more.

One way to help your clients plan for any potential changes to the estate tax is to take advantage of the current laws while you can. Your clients may consider putting gifts into an irrevocable trust, like a Spousal Lifetime Access Trust (SLAT) or a Grantor Retained Annuity Trust (GRAT). Or they may start taking advantage of the $15,000 annual gift exclusion to methodically reduce the value of their estate. Setting up a donor-advised fund is another tax savings vehicle that might allow your charitably-inclined clients to take an immediate tax deduction and reduce the value of their estate.

Extend New Services to Clients

To provide the best services to your clients, consider offering different services outside of tax season. If you’re able to engage clients in areas other than income tax compliance, you’ll build stronger, more valuable relationships with them. Consider introducing some of the following services:

• Payroll tax services
• Employee benefit plan audits
• CFO services
• Bookkeeping
• QuickBooks or Xero training

Corvee’s tax planning software suggests myriad tax planning strategies right out of the gate. Our software combines machine learning and artificial intelligence with your clients’ financial information to calculate real tax savings in a matter of minutes. For your free demo of Corvee’s tax planning software, please contact us to learn more about the software that can prepare a tax plan ready to implement.