We're seeing reports that clients are reaching out to their tax professionals for help during the summer months when it's traditionally a slower time for the accounting industry. Why do you think that is?
Quite a few things are causing people to visit their tax advisers in what's typically not a busy client / tax professional communication time.
With all this tax legislation in a relatively short period, taxpayers are seeing a lot of the IRS during the year – much more than usual. We're seeing tax payments being processed in response to help people with COVID, refund payments going out due to late changes in unemployment benefit exclusion, and advanced child tax credit payments going out.
Clients have many questions about all of these, especially whether they should opt-out of those child tax credit advance payments. Tax advisors need to be very involved in dealing with these their clients to figure out what (and where) all of these payments are and how they are handled.
Additionally, many tax proposals from President Biden (that are not in the infrastructure bill) are still being debated by Congress. For example, increases to individual tax rates, increases and changes to capital gains taxes, and how estate taxes are handled. All of these discussions are causing taxpayers to call their advisors, wanting to know if there's something they can do in advance of those changes to prepare for them or perhaps avoid some of the tax impacts of those changes.
Are there any significant changes to existing legislation in the infrastructure bill?
The most significant change is probably concerning the Employee Retention Credit.
Legislation enacted at the beginning of this year extended the credit for six months from June 30, 2021, to December 31, 2021. The infrastructure bill shortened the period to September 30, 2021, which is rapidly approaching. This leaves tax professionals and their clients without much time to figure out how long they have to use this employee retention credit, especially since the IRS just came out with guidance.
The other big issue is cryptocurrency reporting. Many feel the cryptocurrency reporting provision is much too broad. It changes the definition of a broker when it comes to who is required to report.
There are quite a few other, more minor provisions.
How will the infrastructure bill affect cryptocurrency and crypto reporting requirements specifically?
The focus is on the definition of a broker. Many feel the infrastructure bill's new definition of a broker includes people who wouldn't have the necessary information to report.
The infrastructure bill includes in the definition of a broker more than exchanges facilitating transactions; it also includes people involved in cryptocurrency mining. There is a concern that this broad definition could catch people unaware of the reporting requirement. In addition, some of the people who would be defined as brokers under this expanded definition wouldn't necessarily have the information to do the required reporting to the IRS, creating a compliance problem.
It remains to be seen whether there will end up being an amendment to narrow that definition.
What should firms working with small businesses be doing to communicate the potential impact of the infrastructure bill to their clients?
The House hasn't passed the bill yet, though they have stated their intention to do so without amendments. It's timely enough, however, for professionals to start having discussions with clients.
Don't discuss just the infrastructure bill. Congress is also working on a much larger bill with quite a few potential tax increase provisions. Those changes are something the taxpayer should be aware of, and therefore the tax professionals should be alerting their clients to these possible changes.
There's also existing legislation that's already passed. Unlike the economic impact payments – where taxpayers kept overpayments – with the child tax credit, overpayments have to be repaid at tax time. People who are anticipating a certain refund next year, may find that they were already paid that expected refund, in the form of the advance child tax credits. That's a planning point that tax advisors will want to help their clients anticipate. Professionals should be helping clients decide whether they should accept these advance payments.
Do you think the enacted and proposed tax changes present an opportunity to reach out to their annual clients and engage them in conversation?
Very much so. I'm hearing anecdotally that tax practitioners are in contact with clients they don't typically hear from except at tax return preparation time.
Many tax professionals are probably still getting tax returns filed under extensions or by the September 15 or October 15 tax deadlines. If tax preparers can take this opportunity to be tax advisors, this creates a stronger client-professional relationship and provides a healthier tax return.
What would you recommend tax professionals they discuss with existing clients? With new or potential clients?
First, the infrastructure bill overall. Within the bill, I'd be discussing cryptocurrency reporting changes and the employee retention credit changes. Depending on the client, I'd also discuss retirement plan changes, the change in the superfund taxes, and interest rate stabilization.
Second, I would also raise all of these proposals in the second bill that's before Congress. The budget reconciliation bill includes increases in the individual and corporate tax rates, capital gains tax rate increases, and estate tax changes. The capital gains tax may be hard to plan for since it's being discussed as retrospective back to April. However, there might be planning opportunities for the other tax increases since they are planned to be prospective.
The final thing is the payments coming to taxpayers. This year, the advanced child tax credit payments, these economic impact payments and how to handle those, and whether to opt-out of the advanced child tax credits are all things that tax advisors will want to discuss with their clients.