With October 15 now past, accountants and tax professionals are turning their attention to year-end tax planning with their clients. And there’s no shortage of topics and strategies to cover.

With the American economy still in the grips of a credit freeze and a “jobless recovery,” governments at all levels seem to be scrambling to revamp tax regimes. That’s making the tax-planning situation unusually complex and treacherous according to CPAs.

Roby Sawyers, CPA, Ph.D., an accounting professor at North Carolina State University, and a member of the AICPA Tax Executive Committee, thinks clients should be getting a sobering message this year.

“My primary advice,” Sawyers says, “has been: ‘Put your retirement money in Roth IRAs and Roth 401(k) plans.’ With the huge deficits facing the country, it is hard to see how tax rates are going to do anything but increase in the future.”

Jeff Porter, CPA, MST, at Porter & Associates in Huntington, W.Va., a two-term member of the Tax Executive Committee and leading CPE provider, says: “First and foremost, advisers need to be keeping their eyes on Washington.”

Porter notes that there are a number of proposals to extend expiring provisions such as the deduction for sales tax on new vehicle purchases, the first time homebuyer credit, the bonus depreciation and extending the exclusion for $2,400 for unemployment. “When planning for 2009 and 2010 it is important to watch for last-minute changes in the code,” Porter says.

Specifically, Porter notes:

• The deduction for sales tax on new vehicle purchases (up to $49,500) will provide several opportunities for clients and advisers. They can take the deduction as an addition to the standard deduction, as an additional itemized deduction along with the deduction for state and local income taxes or as part of the deduction for state and local sales taxes. (Note: §164(b)(6)(F) aims to avoid double dipping. You can’t take the vehicle sales tax deduction plus the state and local sales tax deduction because the vehicle sales tax will be part of the state and local sales taxes that are deducted under 164(b)(5).) Particular attention will need to be paid to the AMT as the vehicle sales tax will be allowed as a deduction for AMT unless claimed as a part of the deduction for state and local sales tax.  
• The 50-percent bonus depreciation and the higher limits on the Section 179 election will expire at the end of 2009. Advisers need to discuss with their clients the equipment purchased to date for 2009 and anticipated purchases in the near future and determine the need to accelerate those purchases into 2009.
• The deduction for higher education costs as an above-the-line deduction expires at the end of 2009. That change, along with the American Opportunity credit replacing the Hope Credit, requires advisers and their clients to consider the timing of tuition payments at the end of 2009.

In New York, at Citrin Cooperman & Co., Manny Diakogeorgios generally agrees and takes a slightly different approach to what CPAs should be talking with clients about:

• How to maximize contributions to retirement plans such as pensions and profit-sharing plans, 401(k)s and SEPs (Simplified Employee Pension plan) depending on your circumstances.
• How to take advantage of accelerated depreciation methods and the Section 179 expense deduction by accelerating the purchase of fixed assets in 2009 that would have normally been purchased in early 2010.
• Discuss whether the client is in the AMT bucket or not whenever possible.

Savvy CPAs know there are a few good practice-management reasons for talking early with clients about the new issues and complications of their tax situation. First, the conversation braces them for the extra services that may be required this year, softening the blow from a potential billings increase. And, second, it’s a chance for the accountant to make sure the client is gathering and preparing the needed documents, making filing season just that much easier.

I’m sure you have your own special issues and strategies you’ll be talking about with your clients during this pre-season busy season. Let me know by e-mailing me and we’ll share the best in upcoming AICPA Insiders.

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RELATED RESOURCES: The 2010 Cumulative Tax Guide.

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