When you’re in the thick of it, the term “busy season” might seem like an understatement – especially when long days and dinners at the office happen more frequently than you’d prefer. But a little preparation can go a long way to help minimize time-consuming delays and the potential for errors caused by last-minute stress. This includes helping clients get tax-season ready.
Timely and effective communication is key to helping create a path to busy season success for both you and the client. Here are five ways to help your clients prepare.
- Inform clients of significant tax laws that may affect them. Depending on your client base, they may be affected by the Inflation Reduction Act of 2022, SECURE 2.0, the CHIPS and Science Act, or other tax legislation.
Other pressing tax discussion items may include:
- state pass-through entity tax elections that may help work around the state and local tax (“SALT”) deduction limit for federal income tax purposes;
- reporting of digital asset activity in light of guidance issued by the IRS affecting the taxation of digital assets;
- 1099-K reporting and other receipts associated with “gig” work;
- IRS Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, requirements for S corporations;
- the taxability of debt forgiveness, including student loans;
- Schedules K-2 and K-3 filing requirements;
- outstanding Employee Retention Credit claims that have not been accepted by the IRS and next steps;
- whether existing clients have addressed any Corporate Transparency Act/Beneficial Ownership Information Reporting requirement; and
- potential planning for the expiration of the Tax Cuts and Jobs Act (expires December 31, 2025), such as the impact of changes to tax rates/brackets, changes around standard and itemized deduction amounts, changes to depreciation/179 expensing, and possible changes to IRC §199A (qualified business income deduction).
If clients are provided mass-distributed communications containing technical updates or plannin gopportunities, retain a distribution list of all client communications (e.g., newsletters), including the dates transmitted.
- Alert clients to filing obligations related to offshore activity. Such obligations include Financial Crimes Enforcement Network Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”), IRS Form 8938, Statement of Specified Foreign Financial Assets, and other, less frequently encountered forms such as IRS Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and IRS Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner. Be sure to discuss the consequences of non-compliance, which can be severe. For more, see Mitigating risk of large FBAR and international tax claims.
- Contact higher complexity clients prior to year-end. Prioritize year-end planning for clients with more complex financial affairs or business structures, or that have undergone significant changes from the prior year. Evaluate whether their complexity and/or compliance needs have expanded beyond your firm’s capacity to serve them adequately. Determine how the firm can competently service them. If the firm cannot serve them, promptly let them know that they should find another CPA whose experience better matches their needs so they may have ample time to plan accordingly.
For clients you retain, discuss items affecting their 2024 return. Understand how your clients’ finances or operations have evolved over the last year and whether that evolution has resulted in expanded tax filing obligations in other jurisdictions, or the need for time-sensitive elections. For business clients, understand your clients’ management and staffing changes and assess if they can fully support the CPA firm to meet stated deadlines.
If tax consulting will be performed, obtain a separate, signed engagement letter for these additional services. Sample tax consulting engagement letters are available to CNA policyholders in the Policyholder Resource Center and AICPA Tax Section members in the Annual Tax Compliance Kit. Be specific about the scope of services. For example, “calculate the impact of possible increases in the IRC Sec 41(h) research tax credit for small businesses, in view of the Inflation Reduction Act” is preferable to “explore the impact of the Inflation Reduction Act on the company.”
- Identify and contact clients who have historically procrastinated in providing their tax return information to you. Develop a “procrastinator list” and identify those clients who routinely create a time crunch or create situations where mistakes are more likely to happen before you send out the engagement letter. If the client could have provided the information at least one month prior to the due date but historically has failed to do so, reconsider whether to maintain an ongoing client relationship. If the firm will continue to provide services to these clients, consider providing incentives for early submission of client information. Ideas on how to incentivize clients can be found in How to deal with last-minute clients and Unresponsive clients pose a professional liability risk.
Provide procrastinator clients with a firm deadline by which all information must be received and state that if information is not received by the designated date, the client may be unable to timely file their return and may be penalized. Also note that the client is solely responsible for the impact of any missed elections required by the original filing deadline and any late payment or late filing penalties.
- Make sure new clients have been onboarded. Many professional liability claims originate from some type of miscommunication or misunderstanding. Onboarding new clients can help both them and you get up to speed on how the engagement will be handled. For ideas, see Help reduce risk with formal client onboarding.
By addressing these key areas, you can help your clients stay organized, informed and prepared for the upcoming tax season. Providing clear guidance on critical tax changes, filing requirements related to offshore activity and proactive planning for unique client situations can help ease the pressure as deadlines approach. Additionally, helping ensure that all clients – especially new ones – are onboarded effectively can help reduce the potential for miscommunications and misunderstandings. Taking these preparatory steps not only helps lead to a smoother busy season but also lays the foundation for strong, long-term client relationships – and maybe a few nights off over the next few months.
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Disclaimer
This information is produced and presented by CNA, which is solely responsible for its content. Continental Casualty Company, a member of the CNA group of insurance companies, is the underwriter of the AICPA Professional Liability Insurance Program.
The purpose of this article is to provide information, rather than advice or opinion. It is accurate to the best of the authors’ knowledge as of the date of the article. Accordingly, this article should not be viewed as a substitute for the guidance and recommendations of a retained professional. In addition, CNA does not endorse any coverages, systems, processes or protocols addressed herein unless they are produced or created by CNA.
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