NATP Press Release: Mid-Year Tax Planning is a Great Way to Decrease Taxes

On July 18^th, the NATP (National Association of Tax Professionals) issued a press release reminding tax preparers that mid-year tax planning can decrease taxes later. This is a great example of how tax professionals can help clients year-round and not just during tax season. Once you convince your clients that the money you save them in taxes more than pays your bill, they’ll recognize the true value of tax planning. The NATP suggests using the following ten points to illustrate how you can cut a client’s taxes just by planning early.

1) Overpayment or underpayment of taxes. If your client received a big refund last year that’s an indication that they continually overpay the government and could adjust their withholdings in order to get that money back into their income to invest, if they choose, and earn interest year-round. The opposite could also be true; you client may not be paying enough in taxes now and will be required to pay a penalty later. Reviewing their current tax situation will allow them to make the necessary adjustments to save money in the end.

2) Saving for retirement – IRAs, 401(k)s, profit-sharing, pensions, employer-sponsored plans, etc. Many choose retirement plans when they first get a job and forget about them until it comes time to retire. In recent years there have been many changes to retirement savings plans, and it’s always helpful to review those with your clients in order to determine whether or not a different plan may be more beneficial to their needs. This would also be a good time to plug Individual Retirement Accounts (IRA’s) that allow clients to save money in a tax-sheltered environment for their retirement.

3) Medical savings accounts and health savings accounts. Not all health plans are created equal. Review your client’s current health plan and compare it with all their options. Explain the pros and cons of high premium medical insurance plan verses a high-deductible plan combined with an Archer medical savings account (MSA) or health savings account (HSA). They may be surprised at how they could save money by switching plans while experiencing tax benefits. This is also a good time to explain how they can use flexible spending accounts through their employer to reduce their taxable income.

4) Estimated tax payments. It’s always good to review estimated tax payments in order to make necessary adjustments mid-year in order to avoid overpayment or underpayment penalties at year-end. “This is especially important for taxpayers who have self-employment income on the side,” says NATP member Nick Popolo, EA, of Birch Tax Service in Staten Island , NY . “When they receive 1099s at the end of the year, they often lose their entire refund or wind up owing money. A mid-year review would avoid an unpleasant surprise for the taxpayer.”

5) Take advantage of deduction bunching. Making your client aware of the thresholds required to claim itemized deductions can help them take advantage of this tax benefit. Most clients are focused on saving money and may be spreading out their expenditures over time in order to cut initial costs; you can explain how certain expenditures should be limited to one year in order to save in taxes. This will enable your client to better manage their spending in order to experience the tax savings. This applies to several expenditures, especially to medical expenses, property tax payments, and charitable donations.

6) Getting married? Or divorced? Not that your client should call you before making any of these life-changing decisions, but it’s important that they realize how these significant events have equally significant tax implications. Couples with dual incomes can save money by getting married in January, while couples sharing one income may experience more tax benefits if they get married at year’s end. And clients planning to divorce should be encouraged to do estate planning before the divorce is final. This is the time when financial advice is crucial to a client and can result is significant tax savings.

7) Beneficiary designations, Powers of Attorney, wills, estate planning. Encourage clients to have comprehensive estate planning performed by a competent and knowledgeable individual. This often determines whether or not an estate plan can be carried out as intended by the estate owner.

Buying or selling stocks, bonds, real estate, or other investments. Remind your client that tax rules apply to all these transactions, and when they consult with you on their intentions mid-year, you can help them make financial decisions that will save them in taxes and make them more money in the end.

9) Financial planning is important when you have children and teens. Clients should begin planning for their children’s savings as early as possible. Coverdell Education Savings Accounts (ESAs) and Section 529 plans are two ways to begin tax-deferred savings for a child’s education. Explain all a client’s options so they can make the decisions that will save them the most money while decreasing taxable income.

10) Self-employed taxpayers and those with small businesses have many ways to plan for tax savings. This is where you prove yourself invaluable to a client. Recent changes allow for more flexibility with carrybacks, carryforwards, employee benefit plans, expense deductions, etc. As with most tax-related expenditures, it’s important that your client know what documents to save in order to enjoy various tax benefits.

Tax planning is a year-round process that requires a fine-tuning of all financial decisions to benefit a client. Once clients recognize how much you can save them in the end, they won’t be as concerned about your final bill. Encourage your clients to plan with you now and save later. For more information or to print the official release for your clients, visit www.natptax.com.

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