Tax season is always busy for preparers, but as part of the process, CPAs might identify planning considerations to address with clients after tax season is over. Although some of these are obvious to practitioners, they may not be on taxpayers’ radar.

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Cybersecurity Considerations

Many clients—even sophisticated, tech-savvy, wealthy individuals—use unprotected email addresses, store personal data on a work computer, and worse. During tax season, preparers should note the email addresses that a client is using. If a client is sending personal tax communications from a work email, make a notation to follow up after tax season and try to engage the client in discussing how they are handling their personal IT matters. If a client uses a work system for confidential personal data, that could be a mistake, even if the client owns the company. If the company is ever embroiled in a suit or claim, all that personal data may be discoverable. If the company is sold in the future, personal data might be embedded in system backups. If the client is an employee, even a high-ranking and powerful one, what happens to all their data if they are terminated? Will they be able to recover it? Does the client have adequate cybersecurity and backup measures in place for all their personal data? Many individuals should have the same level of protection for personal data that they do for their professional practice or business.

Corporate Transparency Act Requirements

By now, every CPA has heard about the Corporate Transparency Act (CTA) and hopefully updated their engagement letter to make it clear that they are not assuming any responsibility for CTA filings unless an express CTA engagement letter is signed. To avoid any ambiguity, especially given how new the CTA is and how many individuals do not yet understand their responsibilities under the CTA, tax professionals might add to tax return transmittal or other client communications a reminder that the firm is not assuming any CTA responsibility as a result of the tax compliance engagement. Some clients will assume that their tax preparer is handling the CTA filing as part of that process. Informing clients, even repetitively, is probably a good idea. Practitioners can identify clients with entity interests that may need to be reported through tax season. Any entity return that has less than $5 million of revenue or that might have fewer than 20 employees (or which is a close call for either) may be a reporting company. When Schedule E is prepared, Form 1040 entity interests will be identified. When trust Forms 1041 are prepared, trust ownership of entities might be identified.

Impending Exemption Reduction

Although every CPA knows that the gift, estate, and generation-skipping transfer (GST) exemption will be reduced by half after 2025, the urgency of acting in advance is critical; many individuals who should plan ahead may not appreciate the timing concerns. As tax season rolls forward, the months remaining in 2024 to begin that planning will wane. That is critical, as individuals may have to retitle assets (e.g., from joint to each spouse) before they can make a gift to an irrevocable trust to use the exemption. Those gifts should be made well before the later gift transfers to break a possible IRS step-transaction challenge to collapse the second transfer and the first, thereby undermining the transaction. The more time between the transfers, the better; the greater the control the recipient spouse exercises over the assets between the transfers, the better. Having the retitling of assets completed in 2024, a different tax year than a 2025 gift, might also be beneficial. Although it is impossible to predict which tax changes might occur in the future after the 2024 elections, so long as the planning is done well (e.g., assuring the individual has reasonable access to funds transferred), it may be safer to begin the estate planning process in earnest as soon as possible. CPAs might identify clients for whom estate tax planning might be appropriate, and follow up after tax season.

Planning for Aging

A client’s age can be discerned from tax records and health issues may be indicated by large medical expenses. Does the client have a financial power of attorney and health proxy? How old are they? Many individuals overlook basic common-sense planning—often until it is too late. Some studies suggest that only about half of adults have a financial power of attorney. Does the client have a revocable trust? Whether the decision is made to file a grantor Form 1041 or assign a Tax Identification Number to the revocable trust, planning for aging is vitally important. If appropriate, has the client worked with the preparer to integrate safeguards into the estate planning? For example, is there a plan to have someone independently monitor what agents under their power of attorney will be doing? Is that a role the CPA firm is willing to fill?

State Income Taxation

When filing Form 1041, consider the trust’s state and federal income tax considerations. Is the client accumulating income in the trust that is being taxed at a higher federal rate than the rate beneficiaries are in? Is the trust paying state income taxes in a high-tax state? If so, might it be feasible to move the trust to a lower tax state by changing the place of trust administration and perhaps the trustee? Many modern trusts provide the powers to make these types of administrative changes to a trust protector, so it might be relatively simple to do so. Some states will tax all of a trust’s income if the trust has any state-source income. In such situations, it may be possible to divide the trust into two trusts, one with only state source income and the other with none. Again, that step might be a simple one given the powers many trustees are given to divide trusts.

Digital Assets

Form 1040 includes a question: “At any time during 2023, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” Individuals who have done so may need to update their estate planning documents to add provisions to expressly address digital assets. Old documents might not have the requisite language. Which arrangements has the client made to safeguard their digital asset information? Have they communicated to the appropriate people (e.g., an agent under the financial power of attorney) how to access their stored digital assets information? Does the client understand the various options available to them, such as a physical offline (cold) wallet versus an online (hot) wallet?

Martin M. Shenkman, JD, CPA/PFS, AEP, is an attorney at Shenkman Law in New York City.