End-of-Year Tax Planning with Your Pennsylvania Accounting Clients

Now is the time for Pennsylvania accountants and CPAs to reach out to their clients about the steps they can take to reduce their taxes for the year. Strategies differ between individuals and businesses, but both have opportunities to save. By reaching out to them ahead of time to develop an end-of-year tax strategy, you’ll be demonstrating that your clients’ financial success is top-of-mind for you, which will increase loyalty and referrals.

If your business clients are sharing their accounting information through a cloud-based accounting service that allows real-time access to their records, you are in an excellent position to evaluate their financial situation and make suggestions before the end of the year to minimize their tax burden. If you are not connected, reach out to them for key information so that you can strategize. Some fundamental questions to ask for determining best strategies include:

• Did the company have an up year or a down year?

• Does it expect to make more or less next year?

• Are taxes expected to rise, fall, or stay the same?

• Are major purchases or repairs planned for next year? 

The answers to these questions will help you determine the best actions to recommend. Your strategy must be to coordinate the many options for business deductions and credits to offset revenue, thus bringing down the tax bill, not just for this year but for future years. This takes some number-crunching and research.

Should your client delay some income by waiting until the end of the year to invoice, shifting the income to next year? Conversely, can your client pay certain expenses before the end of the year to offset this year’s income? If a major purchase is planned, the tax effect should be considered in timing the purchase, as well as depreciation.

What tax credits or deductions can your client leverage? WOTC? DAC? Small employer health insurance credit? How about business tax credits for solar panels or energy upgrades?

You may also consider if it’s time for your small business clients to change their entity type. Sole proprietorships (pass-through entities) are charged at the personal income tax rate. If the company has grown this year, a different entity, such as a C corporation, could provide a lower tax rate.

Another business suggestion for those clients whose accounting system is not connected to yours would be to make that connection in the new year. When they see how much you are able to save for them at the end of the year, they may realize how much more you could do for them if you had access throughout the year.

Your individual clients also have many opportunities to save on tax dollars at the end of the year. A lot depends on their income tax bracket, investment portfolio, family size, and age, but here are a few suggestions you can discuss with them:

• Contribute to an IRA or other retirement fund

• Contribute to a health savings account

• Spend the money in a flexible spending account

• Consider moving investments that distribute capital gains to a tax-advantaged account to limit taxes on distributions

• Offset capital gains with capital losses

• Consider energy-saving upgrades this year to claim associated tax credits

• Consider whether bunching some deductions into one year, such as charitable donations or medical expenses, may allow your client to itemize and save more money

• Donate required minimum distributions from IRA to qualified charitable distributions

• Take advantage of any deductions and credits associated with childcare or education

• Develop an ongoing plan to reduce or avoid net investment income tax and alternative minimum tax by strategic balancing of income and deductions

Don't let the end-of-year tax bill take you or your clients by surprise. Your clients will appreciate your planning which saves them money, and you’ll earn their unwavering trust and loyalty. When you take the opportunity to discuss with them long-term planning for the future, you will expand your services, as well, thus growing your business.