Tax season is around the corner. Starting now with a few easy steps can relieve much of the pressure later. The following are three tips to consider:
1. Ease tax season workload compression
Push some work into the balance of the year. Clients who had unusual transactions that will need to be reported on their 2023 tax returns can provide the information now. Call your clients and find out what transactions were consummated that would need reporting. Rather than call everyone, call the likely clients. You could also send an email and/or postal mail letter asking clients with unusual transactions to contact you now. You definitely will be working on these transactions. Do it now when you have less pressure. Also, giving clients a heads-up on what they could expect to pay next April 15 will likewise reduce later stress and also your time explaining when it could be done now.
Some transactions that could be worked on now are:
- Section 1231 transactions and 1245 and 1250 recaptures;
- Sale of a business or starting or closing a business;
- Sale of a residence or vacation home;
- Losses on rental property or partnership and LLC interests with negative basis;
- Changes in partners, members or S shareholders that took place during the year;
- Section 754 basis step-up of purchased or inherited assets;
- Payment of personally guaranteed debt of a dissolved S corporation or C corporation;
- Section 1244 losses, 1202 gains or 1031 or Opportunity Zone rollovers;
- ESOP substitute stock dispositions;
- Purchase/sale price allocations of intangibles;
- Grantor trust flow-through amounts (reporting of a grantor trust get its own TIN);
- Termination during the year of the grantor's right to affect transactions that make the trust no longer a grantor trust;
- Transfers during the year of partnership and S corporation ownership interests;
- Modeling of potential for qualified business interest deduction, partnership, LLC and S corporation basis calculations;
- Allocation of estimated tax payments for a couple that divorced during the year;
- Review of divorce or separation agreements to ascertain tax treatment and possible basis adjustments;
- Receipt of employment severance or deferred compensation payments and possible Section 409A issues;
- Employees exercising incentive stock options or non-qualified stock options or receiving and/or selling restricted stock, donations of artwork or other assets with a value greater than $5,000, or gift transactions that need to be reported on a Form 709, including where business interests were transferred to family members and the valuation will be reported and basis will be needed and if valuation discounts were taken; and,
- Sale of very low basis property in an S corporation where the shareholder has a very high outside basis in their stock (such as when they purchased the stock of a C corporation and elected S status and the BIG period expired) to make sure the S corporation is liquidated in the year of sale so the basis can be applied, and disposition of S corporation stock where there was a built-in gain that will have to be reported.
2. Start scheduling your larger tax clients
Review your top 25 tax returns and try to schedule getting the information and then the preparer and reviewer so the return can be done expeditiously with coordination. Clients that will be extended could have the extensions worked on and filed before you get busy with tax returns; try to have the extensions done by mid-February. Clients with the returns that will be filed on time can be contacted by the end of January with an approximate date by which they should provide their information. Don't forget to make allowances for K-1s that are usually provided late.
3. Prepare an inventory of available staff who will be preparing and reviewing returns
Determine how many hours are available from each group. Then prepare an inventory of the approximate hours needed to prepare all of your tax returns that would be completed by April 15. Next review your resources and needs and see if there is some semblance of a match. If you cannot make it come out on paper in the calm of your office, how will you get through tax season with all the added pressures and distractions? Get the data, focus on it, and then plan.
These are some ideas to get you thinking about making tax season less stressful. It's not too early to start planning.
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