Year-end tax planning advice and a grammar quiz

Tax practitioners haven’t had it easy, with pandemic-related delays and legislative changes in the middle of tax season making their jobs more difficult. Year-end planning can’t eliminate all the uncertainty, but it can help. April Walker, CPA, CGMA, lead manager on the AICPA’s Tax Practice & Ethics team and host of the Tax Section Odyssey podcast, shares advice for practitioners as the calendar year winds down.

Also, get a “your”/”you’re” refresher, a preview of a recently published grammar quiz, and updates on news related to the IRS and the PCAOB.

What you’ll learn from this episode:

• Some changes tax practitioners should be ready for related to 2021 tax returns.
• What Walker means when she says “hope springs eternal.”
• Advice for practitioners related to year-end tax planning.
• One example of a word pair that commonly confuses us in speaking and writing.
• News updates on a user fee for estate tax closing letters and a recent PCAOB proposal related to auditing oversight.

Play the episode below or read the edited transcript:

To comment on this podcast episode or to suggest an idea for another episode, contact Neil Amato, a JofA senior editor, at Neil.Amato@aicpa-cima.com.

Transcript:                                                            

Neil Amato: Welcome back to the Journal of Accountancy podcast. This is senior editor Neil Amato. Coming up on this episode, we have a discussion about year-end tax planning, mention of a quiz on words that sometimes trip us up, and more, right after this word from our sponsor.

Amato: Joining me now on the podcast is a repeat guest, the host of another podcast that you may be interested in, and also a CPA who holds the CGMA designation. That multitalented person is April Walker, lead manager on the Tax Practice & Ethics team at the AICPA. She’s here to talk about year-end tax planning and maybe even offer some grammar thoughts. Who knows? April is the host of the Tax Odyssey podcast, which is published every two weeks on all your favorite podcast platforms or by searching “Tax Odyssey podcast.”

April, welcome back. A recent article in Kiplinger’s said, “There are plenty of tax law changes and updates for the 2021 tax year that smart taxpayers should know about.” The article is more consumer-focused than practitioner-focused, but for our practitioners listening, how will the changes affect them?

April Walker: First of all, thank you, Neil, for having me again. You are too kind.

I wanted to talk a little bit about the changes for 2021. There are certainly are a lot of changes as mentioned in that article, and possibly even more to come if you’re following the tax legislation story, which is an exciting story depending on where you might land on it.

One thing that might be obvious to our listeners that is always a good reminder is that clients don’t like surprises come April 15. So, most appreciate time spent with them now — between now, October, November, December — to avoid those unexpected results [later]. Unfortunately, tax planning time happens right after the Oct. 15 filing deadline, which I’m sure a lot of you are dealing with as you’re listening to this. It doesn’t leave a lot of time for rest and recharge. Just know that unexpected is not always pleasant.

Amato: In that article, some of the changes mentioned are adjusted amounts, and those are items that any really tax software updates would pull in. But as of now, what are the items, provisions, changes that will be treated differently than they were for 2020 returns?

Walker: That’s a great question, and a couple of items come to mind. One of those is, for your clients that might qualify for the child tax credit, maybe they have been receiving advanced payment towards that credit, or maybe you help them with deciding to opt out. But there were definitely changes to the credit, which, in that advanced credit, might affect their 2021 tax return. There was also pretty substantial changes to the child and dependent care credit. For those clients that have children and that qualify for those types of credit, they definitely could probably take a look at their 2021 tax situation. It would be a good idea.

Another thing that comes to mind is that required minimum distributions from retirement accounts are back for 2021. I’m sure you remember they were paused for 2020, but they are back for 2021, so that’s definitely another area where planning can be very helpful. Especially for those who are in their first year of being required to take that distribution. There’s some planning opportunities there. Another thing to note that’s different in 2021 than for 2020 is unemployment compensation. There is no exclusion. That $10,200 exclusion that you got per person in 2020, that is no longer available in 2021. That definitely might sneak up on those who were continuing to receive unemployment in 2021.

One last item to mention, it’s a small one, but, every dollar counts is what I feel like. The charitable deduction for non-itemizers was extended and modified. For 2020, it was $300 for a filing status, and for 2021 it is $300 for a single/head of household, but it is $600 for joint filers. If your client has gotten out of the habit of making or tracking their charitable contributions with the changes that came with the Tax Cuts and Jobs Act, they may need a reminder of this. And speaking of clients who may have reasons to be more charitable, the suspension of the adjusted gross income limit on cash donations was extended, so clients again can offset up to 100% of their income for 2021 with charitable contributions.

Amato: Those are good points. In the Journal of Accountancy‘s annual tax software survey, which ran in the September issue of the magazine and was mentioned earlier this month on the podcast, one of the write-in comments was, “It was a terrible busy season.” First, what do you think of that comment as it relates to the last tax year, and how might this next tax season maybe be less terrible?

Walker: That definitely echoes and coincides with what we’ve been hearing from practitioners really over the past, goodness, it’s almost going to be two years now. In my opinion, it comes from this continuing change in legislation, legislation that even happened during tax season, and then the fact that there’s really hardly been a break since the pandemic started in March of 2020. There was a delay of tax season for the 2019 returns in 2020 and then delay again. For those taxpayers who are in a disaster area, even more delay. It’s really just been, gosh, a mess, is really the technical term, I guess I would say.

But I’m an optimist. I refuse to be anything other than an optimist, so hope springs eternal. Next year will be better, if only because constant change may be becoming the new normal. We don’t like to think about it that way, but if you plan for constant change, it might not be so bad. So, possibly, let’s go with, it will be less terrible.

Amato: With the calendar year now just about three months from being over, is there any advice you pass on or any particular focus areas for tax practitioners?

Walker: Absolutely. One piece of advice that comes to my mind is to come up with a plan now for contacting your clients. For some, that might mean scheduling some time over the next couple of months as your last-minute stragglers, or you’re meeting with them to finalize their tax returns in the next couple of weeks. Or you might want to consider sending general communications to your clients. I will mention that my team, the Tax Practice & Ethics team, has a year-end planning letter template that will be available mid-October, that might be a way that you can prompt them to schedule time to discuss their financial situation and just any tax planning that might need to happen.

My last piece of advice is, take a deep breath. Make sure you’ve scheduled time to recharge your batteries. That may sound counterintuitive with my other advice, but certainly with all the whirlwind happening around us, the saying that you can’t pour from an empty cup is definitely true.

Amato: Normally, this would be the time in the podcast where I just thank the guest and move on. I will thank April for being on, and I’ll also say if you want to stay up to date on tax news and trends and filter out some of the noise that’s out there these days, check out the Tax Odyssey podcast. But the reason I’m not technically “hanging up” on her is she may not talk much grammar on the Tax Odyssey podcast, but she does have some thoughts on word pairs that trip us up that really just helps us lead in nicely to the next segment.

Walker: Yeah, although I am a tax nerd, I like to think of myself as that I’m also a grammar nerd. My biggest pet peeve is the mixing up of “your” and “you’re.”

Amato: It’s definitely a common one, definitely a popular one among us grammar nerds, so to speak, who just cringe when we see those things written incorrectly. It’s Pam Nelson’s quiz on journalofaccountancy.com. Pam is a standout copy editor, and I will talk about that more in our next segment. April, thanks very much.

Walker: You’re so welcome.

Amato: That first word in April’s closing phrase was “You’re.” That one, and the possessive “your,” well, those are not a word pair in a recent JofA quiz, for which we will post a link in the show notes for this episode. The quiz gives the reader two options in each question. The choices are words that commonly trip us up in speaking and writing. Now, I’m not going to give away any of the answers, but I will tell you going in, make sure you know the difference between “flaunt” and “flout.” That’s all the hint you’re getting.

In other news, the IRS issued final regulations recently related to fees associated with estate tax closing letters. The IRS is instituting a user fee of $67 for issuing such letters. The final regulations adopt proposed regulations issued in late December 2020 with only minor changes.

An estate tax closing letter informs its authorized recipient of IRS acceptance of the estate tax return and provide some return information such as the amounts of the net estate tax, any state death tax credit or deduction, and then a generation-skipping transfer tax for which the estate is liable. Paul Bonner has more on that topic.

Also, the PCAOB issued a second supplementary request for comment on a proposal designed to enhance the lead auditor’s role in overseeing other auditors outside the firm that issues the auditor’s report. Ken Tysiac has that article, you can find those and other links on journalofaccountancy.com. We’ll also post them in the show notes for this episode. Thank you again for listening to the Journal of Accountancy podcast.