Oct 10, 2018

Tax Planning and Tax Reform – Why CPAs Matter

Jim DeLucciaBy Jim DeLuccia, PICPA communications manager

Most individuals saw an increase in take-home pay earlier this year due to changes in the IRS tax withholding tables brought on by the Tax Cuts and Jobs Act of 2017. At the PICPA, we have heard anecdotes from some members that many of their clients needed to adjust their withholding to prevent a larger than anticipated tax bill this upcoming tax filing season. With this in mind, I did some digging.

First, I found a report from the Government Accountability Office indicating that millions more Americans will owe money when they file their 2018 returns than when they did with their 2017 returns. Then, Richard Furlong, senior stakeholder liaison with the IRS, reminded me that the agency has been promoting its “Paycheck Checkup” campaign for months to raise public awareness and to show the agency’s concern that individuals are not having enough money withheld.

I wanted to find out more about what our PICPA members are experiencing. With the help of PICPA’s CPA Image Enhancement Committee, we developed a quick poll from Sept. 17 to Oct. 1 that asked tax practitioners to comment on their experiences with clients and the new withholding tables. The poll was sent to any member who had taxation selected as an area of interest. Seventy-one percent of respondents were either sole practitioners or members working in smaller firms (two to five CPAs on staff).

Poll Results Chart 1: How clients notified to review withholding

One important reveal from this poll is that more than 70 percent of respondents said that they reviewed the withholding for their clients – either because they proactively reached out to offer this service or they were contacted by their clients for help. This was a clear value-add for those who choose to use a CPA, but it also illustrates the role of a CPA as more than a tax preparer, but rather a professional who helps clients with tax planning.

Poll Results Chart 2: Were withholding adjustments needed?

We learned that 75 percent of clients consulted needed their withholding adjusted, and of that number, 84 percent needed to increase the amount being withheld. Among the clients whose withholding was adjusted, 41 percent were surprised, while 37 percent trust their CPA to handle their affairs and are not generally engaged in tax planning.

Poll Results Chart 3: How was withholding changed?

The PICPA published CPA Now blogs from Chris Humes, CPA, and Jen Cryder, CPA, this past spring and summer describing the importance of checking your withholding and how to use the IRS withholding calculator. PICPA member David Zalles, CPA, also worked with a Philadelphia Inquirer reporter on stories published in August and February on the need for taxpayers to review their withholding and the complexity involved in making the proper adjustments.

More than half of the poll respondents’ clients were unaware of the IRS’s withholding calculator. Only 12 percent of practitioners used the tool, while 47 percent of respondents preferred using their own software. Of the practitioners who preferred using their own software programs to make projections, some indicated that the calculator was not user friendly. They were of the opinion that it was more appropriate for wage earners and those with simple tax scenarios. Respondents also indicated that the withholding tables themselves do not incorporate the intricacies of the new tax law, such as the important changes in itemized deductions. According to Gail Hauseman, CPA, of Berkshire CPAs in Wyomissing, Pa., “One size doesn’t fit all. Everyone should review their withholding so they know it works for their situation.”

Clearly, the poll demonstrates that tax planning goes above and beyond general tax filing. CPAs who engage in tax planning gather an understanding of the individual circumstances of each taxpayer client for carefully planned tax solutions. And this proactive tax planning approach can make a big difference in what is owed every April.

The PICPA will be using this poll data to promote the importance of using a CPA for both tax planning and tax filing. The PICPA will develop more polls like this one throughout the year to help illustrate CPAs’ position as financial thought leaders.

PICPA members: Be sure that your areas of interest are accurate so you can play a role in subsequent efforts.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.