There are several methods of communicating changes to clients. A firm can send out
newsletters (via mail or be eco-friendlier and more cost effective by emailing the
newsletters). A firm can post updates to a blog on their website. If it is a huge change for
a specific client, a phone call or direct email would suffice.
Circumstances that warrant communication with clients:
1. If their books are showing a significant increase or decrease in profit - may want
to notify them and suggest either paying in for estimated tax liability.
2. The 2017 Tax Cuts & Jobs Act lowering the corporate tax rate to 21%. Let your
current corporate clients know and notify any clients that were on the fence
about incorporating their business.
3. Also related to the 2017 TCJA - the standard deduction just about doubled across
the board. I would notify the clients that typically itemize. If they no longer qualify
to itemize, then it is not worth them putting in the work or providing us with all
the receipts if they no longer qualify.
4. I would communicate the 100% bonus depreciation deduction with business
clients. They may want to take that into consideration when purchasing capital
assets within that year.
A tax change not worth notifying is the small increase in the standard deduction per year
due to inflation. It does not have a significant impact on tax liability.
With the frequent tax changes that occur every year, it is important to inform your
clients to ensure they are aware of the changes and make the best practices to ensure
they comply and reach the best outcomes regarding the changes. If I was to inform my
client of tax changes, I would either use a formal letter/email or a meeting. Using letters
is a great way to thoroughly explain a tax change to a client, but email is even more up to
date and something most clients use. Otherwise, I would use a face-to-face meeting to
ensure I could thoroughly explain the details to them and if they had any questions they
could ask then and there. I could also provide them with any additional documents they
may need to further understand the changes.
For example, if my client owned their own business and a tax change occurred regarding
how they can deduct expenses and such, I would want to inform them so that they do
not incur to many expenses or incur expenses they anticipated deducting but no longer
can. It also depends on what type of entity they own, whether it is a c Corp or s Corp,
the tax changes may affect them differently and it is important to make them aware.
For this year, some tax changes that were made it the standard deduction and the
different tax bracket percentages. Therefore, if a client was planning on deducting certain
expenses because the deduction was greater than the standard deduction, they may
want to change their mind and switch the standard deduction which is increasing to
$13,850 for single filers and $27,7000 for married couples starting in 2023 (Ramsey
Solutions, 2023). Therefore, if the deductions they were anticipating on claiming did not
exceed the standard deduction amount, they may want to refrain from deducting those
expenses. On the other hand, if the tax bracket percentages increased, they may
anticipate incurring more deductible expenses so that they don't have to pay so much in
their tax liability. I would communicate this via email/letter or meeting to ensure they
thoroughly grasp the tax changes and consequences.
References:
Ramsey Solutions. (2023). Tax Season 2023: What You Need to Know (and Looking Ahead
to 2024). https://www.ramseysolutions.com/taxes/tax-season-what-you-need-to-
know#:~:text=401(k)%20and%20IRA%20Contribution,plan%20contribution%20limits%20for
%202023%3A&text=If%20you%20contribute%20to%20a,year%20(up%20from%20%2420%2
C500).
Sawyers, R., & Gill, S. (2020). Federal Tax Research (12th ed.). Cengage Learning US.
https://mbsdirect.vitalsource.com/books/9780357366448
