Blake Christian
Five things CPAs should consider before year end

Appropriate changes in these areas can help firms start strong in 2014.

December 9, 2013
by Blake Christian, CPA

CPA firms traditionally have very hectic December schedules due to the culmination of interim audit work along with year-end tax planning for clients and the firm. Still, this is the optimal period to position the firm for a prosperous 2014. Following are five suggested areas of focus through the end of the year.

Firm-level cash flow and tax planning

Partners should be incentivized (and, if necessary, threatened) to get bills out before year end, preferably via email with credit card payment options included. They also should reach out to clients with any significant receivables that are more than 60 days outstanding. Cash-basis taxpayers can be reminded about the advantages of tax deductibility of paying their fees by year end via cash or credit card—keeping in mind the impact of the alternative minimum tax (AMT) for amounts allocable to Schedule A, Miscellaneous Itemized Deductions. Detailed cash flow projections under varying December billing and collection scenarios should be modeled to evaluate year-end paydown of trade payables, etc., to manage taxable income of cash-basis firms and partners.

Firm-level strategic planning

December is an excellent time to review firm and partner successes and areas that need improvement. That information can then be factored into both partner compensation and 2014 goal setting.

With the economy having improved in recent years, firm leaders should focus on working expanded client service and practice development into 2014 partner goals. The downside of an improving economy is the expected increase in employee turnover as workers opt for other public accounting or private industry positions that offer better pay, better advancement opportunities, or improved work/life balance. As a result, focusing on retaining your star employees, beefing up recruiting efforts, and developing more creative ways to reach your targeted recruits will be critically important in the coming months.

Engagement letters

Updating and securing signed engagement letters for the coming year can reduce your firm’s legal exposure, improve client relationships, and help your personnel manage their client workloads. Key elements to an effective client engagement letter include, but are not limited to, detailing what you will do for the client and what you will not do for the client. Consult your attorney and your insurance carrier for further recommendations on engagement letters.

Client tax planning

In preparing for a client’s year-end planning, it is important to discuss any changes in the business or individual taxpayer’s circumstances during the year. For example, have there been any business entity or asset acquisitions or dispositions? Are there any federal, state, or city nexus changes in business operations? How about any marital status or dependent changes? And were any gifts given, or was an inheritance received?

A sampling of specific issues to evaluate:

  • Accounting method changes and elections, including bonus, Sec. 179, cost-segregation, and other depreciation elections and new repairs and maintenance regulations;
  • Accelerate disposition of devalued operating and investment assets;
  • Analyze tax basis in flowthrough entities to ensure that losses can be claimed;
  • Evaluate passive and nonpassive characterizations as well as activity classification grouping elections, particularly in light of the new 3.8% net investment income tax under Sec. 1411;
  • Evaluate AMT exposure and plan accordingly if AMT is unavoidable;
  • Review qualified plan eligibility and limits and consider if any new plans need to be established or modified before year end;
  • Review the Sec. 199 domestic production activity deduction;
  • Review year-end sales transactions for deferral opportunities;
  • Consider eligibility for the research and development credit;
  • Review federal, state, and local assets and hiring tax incentives ranging from the federal work opportunity tax credit, state enterprise zone incentives, and other employee hiring credit programs; and
  • Review state income sourcing rules for state tax minimization.

Improve process efficiencies

Every firm can streamline processes beginning with new client onboarding. Tax return preparation can be expedited by having clients input data via a web portal instead of filling out a tax organizer or mailing in original documents.

Firm intranets and other platforms used for knowledge sharing of tax, attest, and consulting/strategic planning information can improve efficiencies, as well as client and staff satisfaction. Such information can also be used for marketing and practice development purposes.

Finally, the revenue cycle can be accelerated by requiring retainers and payments at specific milestones vs. billing every 30 days and not collecting for 60 days or longer.

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Blake Christian, CPA, MBT, is a tax partner in the Long Beach, Calif., office of CPA firm HCVT LLP.