Year End Tax Letter to Clients

[Yardley CPA]

With tax season fast approaching, I'm wondering how many of you send a year-end letter to your clients? I normally send a letter to clients that provides a summary of significant tax changes that have occurred for the year, information they will need to complete their returns, my contact information and holiday wishes. I assume others do this as well and would be interested in seeing sample letters if anyone is willing to share theirs?

[MAMalody]

I have not done that. I would also be interested in samples, dates or ideas. Please send to [email protected].

[jklcpa]

If anyone doesn't mind posting their letters publicly, pdfs can be attached to posts on this forum by clicking on "more reply options" in the lower right of the reply box and then toward the bottom of the advanced reply screen, there is a place to browse your files to find the one to be attached to a post here.

Copy and paste from Word documents into the reply screen will also work.

[Guest Taxed]

Just started editing my year end letter. Here is a template from 2013 season. My 2014 season letter will go out by middle of Dec.

2013 Tax Letter Draft.pdf

[MsTabbyKats]

Just started editing my year end letter. Here is a template from 2013 season. My 2014 season letter will go out by middle of Dec.

Nice letter!

[Guest Taxed]

Thanks. I modified it from another template i had. I try to keep it short 1 page (front and back).

The questionnaire that is customized has the bulk of the data that I need.

[Yardley CPA]

Just started editing my year end letter. Here is a template from 2013 season. My 2014 season letter will go out by middle of Dec.

Great letter, Taxed.

[mcb39]

That is a nice letter. Generally, my end of year letter is not detailed, but I can see the advantages of some of that data. I usually just write "a letter" and inform them that if they want an Organizer to let me know. It can be either e-mailed or mailed. Actually, last year with all the hubbub of finishing off the new office, new computer, etc.; I never got the letter out. Had several clients comment to the effect that they wondered if I was still in business. SO, whether they read the letter or not, apparently it is important for them to receive it. Will not be that lax this year. Gives me a chance to use up some of the fluorescent colored paper that one of my clients gave me a few years ago. It looks festive. I have saved drafts from several years, but don't want the letters to be repetitive so only use the drafts to help me cover the bases.

[Guest Taxed]

You hit the nail on the head! If our clients don't hear from us at least once, then they may think we are no longer preparing tax returns especially if we do not have a store front. The year end mailing is a big postal expense, but it is worth it to not lose clients to competitors. I do not advertise in newspaper or radio so I save there.

[MAMalody]

Just started editing my year end letter. Here is a template from 2013 season. My 2014 season letter will go out by middle of Dec.

Good letter.

[JohnH]

A suggestion about mailing costs and process.

Email a pdf of the letter to all clients for whom you have an email address. Mention in the letter they can respond with a request for a hard copy if they want it, and if they have any questions.

Emailing the letter serves three purposes:

1) It saves postage, envelope stuffing, etc.

2) It enables them to ask you questions, give you information, and get the conversation started before the rush hits. For those of you who book appointments far in advance, it can also be a way to handle that task. And all done without that time-wasting process of telephone calls (unless YOU DECIDE that a phone conversation is actually necessary).

3) It helps get clients into the mode of communicating with you in the most efficient manner. That can pay off immensely in March & April.

[Yardley CPA]

A suggestion about mailing costs and process.

Email a pdf of the letter to all clients for whom you have an email address. Mention in the letter they can respond with a request for a hard copy if they want it, and if they have any questions.

Emailing the letter serves three purposes:

1) It saves postage, envelope stuffing, etc.

2) It enables them to ask you questions, give you information, and get the conversation started before the rush hits. For those of you who book appointments far in advance, it can also be a way to handle that task. And all done without that time-wasting process of telephone calls (unless YOU DECIDE that a phone conversation is actually necessary).

3) It helps get clients into the mode of communicating with you in the most efficient manner. That can pay off immensely in March & April.

John H...I completely agree with your thoughts about emailing. I also send a calendar (in this case, for year 2014) to each client along with a year-end tax matters news letter. So for me, I have to use the good ole USPS.

[JohnH]

You could always send an email with the news letter, noting that the hard copy and calendar would also be coming via snail mail. That way you accomplish # 2 and # 3 even though you skipped #1. I think #2 and #3 are the real focus of the exercise anyhow.

[Guest Taxed]

If I look at my clients roughly half (the younger folks) have e-mail address that they shared with me and they routinely e-mail me questions. The other half do not want to use e-mail for any tax matter. They still prefer snail mail and call me on the phone with questions.

Since the questionnaire is dozen pages, some people complained that they don't like printing it etc. So I decided what the heck, I will mail it to all my clients, this way they have no reason to complain.

I think it is a function of the age group that you are dealing with. As JohnH posted once, the younger generation is perfectly happy using text msg. smartphones etc. but their parents are another story (JohnH the gadget man is the exception).

[BulldogTom]

I always do two mailings. Right after Thanksgiving, we send every client a CHRISTmas card with a business card inside. On New Years day we send our letter with a summary of tax law changes, office hours and new office procedures. If the Christmas card comes back, we know our client potentially moved, and we give them a phone call.

Tom

Hollister, CA

[JohnH]

I must have an unusual set of old geezer clients like myself. There are exceptions of course, but most of those in the 50-70 year group are perfectly comfortable using email to communicate. The younger ones (in their 30'a and 40's) tend more toward texting.

[Catherine]

I have three newsletters per year that I send - mid-year, fall, winter. I buy them, personalized to my business, from Tax News and Tips in CA. They do a *great* job and my clients love them.

End of year my clients also get a Christmas/holiday postcard (VistaPrint has some really nice ones -- and they're practically around the corner from me so their "slowest" shipping speed still gets to me fast).

Anything that comes back from those two - client gets emailed or called.

The big letter - "welcome to tax season" plus engagement letter and 3-pg checklist organizer - goes out first full week of January.

Some of those checklists come back with annotations, numbers, circles and arrows, notes, and more -- other clients come in with the unopened envelope.

[Yardley CPA]

I have three newsletters per year that I send - mid-year, fall, winter. I buy them, personalized to my business, from Tax News and Tips in CA. They do a *great* job and my clients love them.

Catherine...my Newsletter subscription is through Tenenz and it is also personalized to with my business information, with a mid-year, fall and winter mailing. My clients are always mentioning the good information they provide.

I'll have to look at Tax News and Tips in CA and compare what they offer.

[Catherine]

http://www.taxnewsandtips.com/ is the web site, Yardley CPA.

The guy who wrote it for years is retiring and for a while it looked like they were going to go away. But one of his long-time clients has partnered with him and they will work together for the next 3 years until the new guy is up to speed. It's written first-person and very well done. We'll see how it goes for next year!

PM me and I can send you a copy of the fall and year-end current newsletters; I always have a few extras kicking around.

[mcb39]

Catherine...my Newsletter subscription is through Tenenz and it is also personalized to with my business information, with a mid-year, fall and winter mailing. My clients are always mentioning the good information they provide.

I'll have to look at Tax News and Tips in CA and compare what they offer.

I also use Tenenz.

[michaelmars]

Here is my 2012 letter:

Dear Client:

Dramatic tax increases scheduled to go into effect in 2013 make 2012 tax planning imperative. The

following taxes may be impacted:

• Not only are the Bush Administration tax cuts set to expire, but a new 3.8 percent surtax on investment income and a possible reinstated claw-back of itemized deductions could raise the tax rate on ordinary income to as high as an effective 44.6 percent for some taxpayers.

• Similarly, the tax rate on long-term capital gains could increase from 15 percent to 20 percent and the rate on qualified dividends from 15 percent to an effective 44.6 percent.

• Finally, if Congress doesn't take action, the federal estate tax rate will increase from 35 percent to

55 percent and the exclusion amount will drop from $5,120,000 to $1,000,000.

This letter will suggest some ways to avoid or minimize the adverse effects of these changes. Planning

for these likely tax changes is a major undertaking and many clients are beginning the process now rather than waiting for the fall elections. This is prudent because the additional time will allow you to become comfortable with the gifting process and provide time to custom design trusts for your family.

Gain Harvesting

For many taxpayers it will make sense to harvest capital gains in 2012 to take advantage of the current

lower rates. You would sell appreciated capital assets and immediately reinvest in the same or similar

assets. You would then hold the new assets until you would otherwise have sold them, so there would be no change in your investment strategy.

Deciding whether to use the strategy is not as simple as it might appear on the surface, however, because the lower tax rates must generally be weighed against a loss of tax deferral. By harvesting the gains in 2012 you would be paying a lower tax rate, but recognizing the gains earlier. The greater the differential in tax rates and the shorter the time before the second sale the more favorable gain harvesting would be.

In some cases, the correct decision will be clear without doing any analysis. If you are currently in the 0% long-term capital gains bracket, 2012 gain harvesting would always be favorable because it would give you a free basis step up. Gain harvesting would also be more favorable if you planned to sell the stock in 2013 or 2014 anyway. The time value of the tax deferral would be small compared with the future tax savings.

At the other extreme, if you are currently in the 15% long-term capital gain bracket and plan to die with an asset and pass it on to heirs with a stepped-up basis, there is no reason to recognize the gain now. You would be incurring tax now without any offsetting future benefit. Nor would it make sense to harvest losses to create additional capital loss carryovers. These loss carryovers would be better employed to offset capital gains in the future when rates are expected to be higher.

If you do not fall into one of these categories, you will have to do a quantitative analysis to determine

whether 2012 gain harvesting would work for you. The decision could be thought of as buying a future tax savings by recognizing gain in 2012. By analyzing the decision in this way, you could measure a return on the 2012 investment over time. If this return on investment exceeded your opportunity cost of capital, gain harvesting would make sense. Please contact us to find out which of your assets should be harvested in 2012.

Planning for the 3.8 Percent Medicare Surtax

For tax years beginning January 1, 2013, the tax law imposes a 3.8 percent surtax on certain passive

investment income of individuals, trusts and estates. For individuals, the amount subject to the tax is the lesser of (1) net investment income (Nil) or (2) the excess of a taxpayer's modified adjusted gross income (MAGI) over an applicable threshold amount.

Net investment income includes dividends, rents, interest, passive activity income, capital gains, annuities and royalties. Specifically excluded from the definition of net investment income are self-employment income, income from an active trade or business, gain on the sale of an active interest in a partnership or S corporation, IRA or qualified plan distributions and income from charitable remainder trusts. MAGI is generally the amount you report on the last line of page 1, Form 1040.

The applicable threshold amounts are shown below.

Married taxpayers filing jointly $250,000

Married taxpayers filing separately $125,000

All other individual taxpayers $200.000

A simple example will illustrate how the tax is calculated.

Example: AI and Barb, married taxpayers filing separately, have $300,000 of salary income and

$100,000 of NIL The amount subject to the surtax is the lesser of (1) Nil ($100,000) or (2) the excess of their MAGI ($400,000) over the threshold amount ($400,000 -$250,000 = $150,000). Because Nil is the smaller amount, it is the base on which the tax is calculated. Thus, the amount subject to the tax is

$100,000 and the surtax payable is $3,800 (.038 x $100,000).

Fortunately, there are a number of effective strategies that can be used to reduce MAGI and or Nil and

reduce the base on which the surtax is paid. These include (1) Roth IRA conversions, (2) tax exempt

bonds, (3) tax-deferred annuities, (4) life insurance, (5) rental real estate, (6) oil and gas investments, (7) timing estate and trust distributions, (8) charitable remainder trusts, (9) installment sales and maximizing above-the-line deductions. We would be happy to explain how these strategies might save you large amounts of surtax.

Accelerating Ordinary Income into 2012

A final opportunity that should be noted is accelerating ordinary income into 2012. Perhaps the best way to do this would be to convert a traditional IRA to a Roth IRA in 2012, if a conversion otherwise made sense. Ordinary income could also be accelerated by selling bonds with accrued interest in 2012 or selling and repurchasing bonds trading at a premium. Finally, you might consider exercising non-qualified stock options in 2012.

Estate Tax Provisions

The estate tax exemption is currently $5,120,000 per person and will revert to $1,000,000 on January 1st, 2013 unless Congress acts. The President is suggesting a $3,500,000 exemption. The potential reduction in the estate tax exemption is resulting in many client making large gifts, in trust, for their family. In some instances the trusts are for the spouse, children and grandchildren and in others just for children and younger generations. Most experts would define the savings at 35%, 45% or 55% of the amount gifted over $1,000,000. On a $5,000,000 gift the savings would be $1,800,000 ($4,000,000*45%).

We are prepared to assist you in modeling scenarios to determine which strategies are right for you.

Please don't hesitate to call us to schedule an appointment to begin discussing your options.

Respectfully Submitted,

_____________________________

Respectfully Submitted,

_____________________________

[Guest Taxed]

Has IRS released the standard mileage rates for 2014? I don't seem to recall that