By Cheryl Evans, CPA

It's late fall. Your clients are thinking about the upcoming holiday season. You haven't heard from them since last spring, when you provided financial advice for them as they prepared last year's tax return. Your name will not even cross their minds until they receive their W-2 forms at the end of January. Should you be concerned? Should your clients be concerned?

Maybe it's time for an end-of-year check-in with your clients. With your help, it's possible that your clients can make small changes now that will make a big difference in their tax return next year. An end-of-year meeting also will likely garner you increased income, and your clients will appreciate your proactive approach, particularly when they learn that there is very little they can do after December 31 to reduce their taxes for the current year.

How you can help

Your clients probably don't understand the impact that the latest tax law changes can have on their finances. It's also likely they don't understand how certain life events that have occurred during the year can significantly affect their tax situation. Read on to learn some ways that you can help your clients save money come tax time in the spring.

Deferring income and accelerate deductions

The most basic type of tax planning involves deferring the receipt of taxable income until the following year and accelerating deductions into the current year. Here are some suggestions that you can make to your clients to help them defer their income until next year:

• Request to receive year-end bonuses after January 1 of next year.
• Defer withdrawals from retirement accounts until next year.
• If clients are self-employed, consider waiting to bill some clients so that their payment will not be received until next year.

Suggest these ideas to your clients to accelerate tax deductions into this year's return.

• Pay estimated state and local taxes by December 31 of this year.
• Make charitable contributions planned for next year by the end of this year.
• Make an extra mortgage payment in December of this year.
• Pay next year's real estate taxes by December 31 of this year.
• If stock was sold during the year for a gain, sell stock that is expected to sell at a loss in order to help offset the capital gain.

Tax law changes

By fall, the odds are good that tax laws for the current tax year have been finalized. Make sure that you review the most recent tax acts to see whether individual tax law changes will affect your clients. Take advantage of the Internal Revenue Service Web site (www.irs.gov), which provides links to tax legislation and articles that address tax changes. Consider taking a course on tax legislation. Many training courses are available online.

It's smart to assume that most of your clients don't know about the new tax laws or that they know only about the tax law information that has made headlines in the news media. As you know, this information can be misleading.

For example, everyone heard about the $1,000 child tax credit when it was first put into tax law. All parents rejoiced, assuming that they would be eligible. Some parents were disappointed to learn that they were not eligible, however, because they did not claim their child as a dependent or because their child was over 17 years old. Others learned that the child tax credit phased out if their income was above a set amount.

Even if there is no new tax legislation for this year, you can still offer tax advice to your clients. Tax rates and tax brackets change every year, and the maximum amount of income subject to self-employment tax also increases each year. In addition, earlier tax acts might have incorporated new deductions or credits that were not available until the following tax year. Or perhaps some items that are claimed this year will phase in or phase out next year. For example, unless another tax law change occurs, taxpayers will be allowed to deduct sales tax as an itemized deduction for 2005, but not for 2006.

Life changes

Many of your clients might be unaware that some changes that occur in their lives since they last met with you could have significant tax implications. When you meet with your client, help them understand the tax implications of these life events:

• Birth of a child
• Marriage of the client or his/her dependent
• Divorce
• Death of the client or his/her spouse
• Dependent(s) who graduated from college and became employed full-time
• Start or closure of a business
• Purchase of a house, RV, or boat
• Sale of an inherited property
• Early withdrawal of funds from a retirement account
• Loss of job (includes receipt of unemployment wages, severance pay, and sale of stock options)
• Retirement of the client or his/her spouse

Touch base

One of the best ways to touch base with each of your clients before the end of the calendar year is with a simple letter. Create a cordial letter that thanks your clients for their business and reminds them of the following details:

• A description of the financial advisory services that you can provide
• A list of personal events that may warrant year-end planning, such as marriage, divorce, a large stock sale, or starting a business
• Tax law changes that could affect them

For a more attention-grabbing letter, make sure that you include personalized information for each client — something that only you would know because you are knowledgeable about his or her financial situation. For example, providing a detailed description of the child tax credit and all of the tax credit's eligibility requirements might unnecessarily confuse your client. But if you describe how much money the child tax credit could save your client on their next year's tax return, you can capture their attention and give them an incentive to seek your financial advice again.

Enhance your correspondence by providing numbers that show the financial benefits of year-end tax planning. Use spreadsheet software to create a worksheet with one column that summarizes most of the previous year's tax data, providing more detail for tax return line items that will change for the next year. Add a second column that shows what your client's tax liability would be if nothing changed other than the tax laws. Copy this worksheet and paste it into the body of your end-of-year letter, or print the worksheet and include it in the same envelope as your letter.

Your clients probably won't remember to minimize their taxable income for the year unless you remind them and suggest opportunities that they should consider. This fall, send them a letter that shows how a meeting with you now can save them money next spring.

About the author   Cheryl Evans has been a CPA for 21 years. She has her own practice in Washington State and specializes in individual income tax. Cheryl also designed and programmed parts of SCS/Compute's Tax Machine software for professionals and Microsoft TaxSaver software for individuals.