Edition 41 Archives - Think Outside the Tax Box

Edition 41

By Eva Rosenberg, EA CTC

10 Reasons Your Clients Should Get a Tax Divorce

As a married individual, you can select a tax filing status as either married filing jointly or married filing separately, and in some cases neither of these statuses achieve what is possible for two single taxpayers each filing their own tax return. In many cases it can seem you are getting penalized for being married in the U.S.

You may get frustrated that you seem to keep getting hit with “wealth taxes or penalties.” Of course, you may not refer to it that way. But when you see things like the Alternative Minimum Tax, The Net Investment Income Tax, the Additional Medicare Tax, and a whole variety of other taxes that are higher for married filers than they are for two single people…you may be tempted to think about a divorce.

And “live in sin”?

No matter your personal beliefs there are at least 10 tax attributes that cost married filers more than two single people. In some instances, children are in the mix, as they relate to specific credits. Some of these situations only apply to wealthy couples. Some only apply to those earning $50,000 or less or seniors.

These attributes, commonly known as the so-called “marriage penalty” refer to situations where it may pay to file as two single individuals rather than as a married couple. However to qualify, you cannot legally be married as of December 31.

To learn more about these penalties and find out how to work around them, continue reading.


Retirement Tax Planning – Having a Rough Year? Turn Lemons into Lemonade by Using Business Losses to Offset Roth IRA Conversions

A ROTH conversion can be a very powerful tool for your retirement. While you don’t receive a tax break for deposits to your ROTH account, qualified withdrawals from the account are tax-free, even earnings. This is an excellent way to avoid tax increases. Let’s say your taxes rise due to increases in tax rates, or because you earn more, which catapults you to a higher tax bracket, ROTH IRA conversions can save you a ton of money in taxes over the long term. The disadvantage, of course, is that tax is due on the amount you convert based on the value at conversion. But many times, such as when you are in a temporarily low tax bracket, have large deductions during the year, or in a year with business losses, can provide optimal opportunities to convert with little to no tax expense. Looking for more strategic times to convert? Keep reading to learn more.

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Client Alert


In Part One of this series, we looked at strategies to reduce adjusted gross income (AGI). But the planning doesn’t stop there. We call deductions that reduce AGI “above the line” deductions. But wait, the tax saving opportunities don’t stop with AGI. Even with the higher standard deductions courtesy of the Tax Cuts and Jobs Act (TCJA), there are many opportunities for taxpayers of modest means to find “below the line” tax savings. Let’s explore the many ways you can reduce your taxable income and whether you maximize your tax benefits even more with tax credits. Keep in mind that a tax deduction reduces your taxable income A tax credit reduces your tax dollar for dollar and, in some cases, the credits are refundable, meaning you can get additional tax benefits even after reducing your taxable income to zero . Read on for some tax planning tips reducing taxable income and maximizing credits that may work for you.

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How to Avoid the Top 4 Mistakes in Selling Tax Planning to Current Clients

After two years of “The Tax Season That Never Ends,” tax pros everywhere are looking for ways to leverage their services and improve profit margins in their firms. But many are missing out on their biggest opportunity to dramatically increase profits: selling tax planning to existing clients. As technology has advanced and firms have adopted more automation, tax pros can do much more work in less time. This is a problem when you are in the business of selling billable hours. Additionally, as the Tax Code has grown in complexity, we often find that taxpayers don’t fully understand the value of our expertise and knowledge – they simply see the same prepared form year after year. This makes it difficult to continue increasing prices beyond the market rate for tax prep. As a result, many tax preparers have embraced value pricing for tax planning services. The market demand for strategic planning has increased and as small business owners embrace do-it-yourself accounting software, it is easy to offer this missing expert advice needed to assist the business owner in reducing tax expense. Accountants have found success in breaking through pricing barriers and reducing the risk of scope creep in their experiments with value pricing. Yet most are fearful of bringing this offer to existing clients and start offering higher priced planning only to new customers. Many judge that existing clients will be upset the pros haven’t offered this work in the past, assuming taxpayers will be unhappy missing out on value they could have created long ago. Still others worry merely raising rates will mean losing customers. Despite discovering that new customers really like price certainty and value the strategic work, tax pros are still reluctant to upsell existing relationships, thereby, offering different processes to lists of “new” and “old.” Yet considering it costs five times more to gain a new client than to approach an existing client, many accountants are leaving profits on the table. According to research by Bain and Company, increasing your client retention rate increases profits by 25 percent to 95 percent. And statistics show that keeping and selling more services to a current client is less expensive compared to securing a new client. Still, fear blocks many from making this transition, creating more loyal, profitable, and happy clients. Here are the four biggest mistakes I see tax professionals make by not offering advisory services to clients.

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