The dawn of a new year brings a fresh opportunity to help clients make tax-optimized decisions. Here are six tips and tricks to help tax professionals manage, enhance and expand their practice this tax season.
IRS Tax Tools
Reliable resources to answer common tax questions are worth their weight in gold. Two such tools are the IRS Tax Map and the IRS Interactive Tax Assistant tool. The Tax Map provides tax law information integrated with related tax forms, instructions and publications. While both resources are slow to the point of timing out, they are reliable and worthy of a spot in a tax professional’s toolbox.
AICPA Marginal Tax Rate Calculator
Helpful tools are available to enhance the work you already perform. The AICPA provides a Marginal Tax Rate Calculator to show clients and new staff members the effect of deductions and tax credits on the actual tax rate: http://www.360financialliteracy.org/Calculators/Marginal-Tax-Rate-Calculator. Whether clients are in the 15% or 39.6% tax bracket, it helps to show them their effective tax rate on tax decisions. This calculator is one of several provided by the AICPA at http://www.360financialliteracy.org.
Electronic Fund Transfer
The fastest way for a client to receive their refund is to combine e-file with Direct Deposit. About eight in 10 taxpayers use direct deposit. This is likely because the IRS issues nine out of 10 refunds in less than 21 days. If money is to flow the other direction because your clients owe taxes, the best way to make the payment is with IRS Direct Pay. This free service can transfer money using the client’s checking/savings account, debit/credit card, or Electronic Funds Withdrawal. Refer to the “Payments” tab at www.irs.gov for further guidance on transferring money electronically.
If a client owes money to the IRS and cannot make the entire payment, they should pay as much as possible to reduce interest and penalties for late payments. They may file Form 9465, Installment Agreement Request, with their tax return requesting to pay in installments. They may also use the Online Payment Agreement tool to request more time to pay. You may file this for them if you have power of attorney.
Affordable Care Act
Provisions of the Affordable Care Act can cost clients in the form of additional taxes and penalties without the “minimum essential coverage.” The fee increases each year until it is near the price of the cheapest available health plan. One such provision is the Individual Shared Responsibility Provision. In 2015, the fee was $325 for an uninsured adult and $162.50 for an uninsured child (up to $975 for a family) or 2% of the person’s taxable income, whichever is greater. In 2016, the fee is $695 per adult and $347.50 per child (up to $2,085 for a family), or 2.5% of household income above the tax return filing threshold for filing status, whichever is greater. Your client may pay 1/12 of the total fee for each full month in which a family member went without coverage or an exemption. See Individual mandate for more details on the fee. The IRS cannot enforce the Individual Shared Responsibility Provision with liens or the typical methods of IRS collections. The only way for the IRS to collect an unpaid fee for not having health insurance is to withhold it from a possible refund after the tax return is filed.
The easiest way to qualify for an exemption is to go to HealthCare.Gov and sign up for a marketplace account which automatically determines if a client qualifies for exemptions. One such exemption is the hardship exemption which can be used to enroll in the catastrophic plan. A catastrophic plan features lower premiums.
Applying for an exemption should not be left to the last minute. Clients must file the form and then wait for confirmation in order to report the exemption. In addition, many exemptions require specific documentation to verify eligibility. Obtaining the necessary documentation also takes time which will delay any refund.
One final tax practice management tip is rather than pay $50 per return to request a copy of a return from the IRS by using Form 4506, Request for Copy of Tax Return is to request a Tax Return Transcript free of charge using Form 4506-T. There is an automated self-help service at IRS.gov. Click on “Get a Tax Transcript” or call 1-800-908-9946.
Publishing CPA Magazine since 2002, T. Steel Rose began his career with Price Waterhouse leading to the start of Rose & Cash, CPAs. He was a VP for Solomon Software, now owned by Microsoft, and launched CPA Software News in 1991.