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Rough waters: Tax pros' financial advice for the next six months

As the coronavirus pandemic grinds on, clients’ questions about their personal finances are starting to get frantic. What to tell them? According to the tax practitioners we spoke with, it depends on your circumstances, patience, and in some cases, a lot of hope from everybody involved.

First off: Advisors or not?
“I am very careful when discussing finances with clients, as I am not a financial advisor,” said Twila Midwood, an Enrolled Agent at Advanced Tax Centre, in Rockledge, Florida. “I caution my clients as such and let them know that I can only discuss their finances as it relates to either tax planning or, for business clients, their income/expense statements for business clients.”

Yet, “For many, we’re their only money counselor,” said Kerry Freeman, an EA at Freeman Income Tax Service in Anthem, Arizona. “We’re the only people they see yearly, and they share everything with us.”
Tapping nest eggs
“A lot of mortgage refinancing has started, and I’m getting many questions about deductible fees and interest after the 2017 changes,” Freeman said. “I also have to remind those on unemployment about withholding so they don’t put themselves in a bigger tax liability hole. There are those who only see today’s needs and are willing to let what comes, come later: often a tax debt with the IRS.” Individual taxpayers are asking about hardship distributions from 401(k)s and how to plan repayment or tax-payment strategies.

Ditto on the retirement account questions for Jeffrey Gentner, an EA in Amherst, New York. “Fortunately, a vast majority of my clients are professionals or retired. They haven’t been affected during the past six months like others who’ve been laid off,” he said.
A sign reminding people to social distance stands at Louis Armstrong Park in New Orleans, Louisiana, U.S., on Wednesday, July 15, 2020. Many places that suffered most in the first wave of coronavirus infections including Louisiana are seeing case counts climb again after months of declines. Photographer: Sophia Germer/Bloomberg
This year, as in many before, Freeman’s firm reached out to clients with direct calls. “This year, many more are replying back with questions,” he said.

“Small businesses are asking about [Paycheck Protection Program] loans and [Economic Injury Disaster Loans] and how to spend their cash flow on equipment or savings,” Freeman said. “I also have those small businesses that often do work well in advance and are not paid till the completion of the service. One such client assisted in corporate meeting events — all now cancelled for 2020, and most of 2021 have all been canceled. Working that far ahead causes a feast-or-famine work environment. We’re talking about how to change these billing models and get some funding up front.”

“Still lots of questions regarding the PPP and EIDL loans,” said Terri Ryman, an EA at Southwest Tax & Accounting in Elkhart, Kansas. “I’ve helped clients get these loans, and in some cases, they’re a real life-saver.”
Not knowing the basics
Most people don’t have the means for investments or even the funds to cover a $400 emergency,” Freeman said. “I remember a client who had a $1 million plus W-2 [wages] from their employer and who still had a car repossessed and took a cancellation of debt that same year for $5,000. Taxpayer education on finance and money-handling is way below a standard [that] we should accept.”
Creative advice
Mary Kay Foss, a CPA in Walnut Creek, California, says she also isn’t considered a money counsellor by prep clients.

“I did give some advice to hard-up clients this filing season. For a client whose 2019 successful business was a bust in 2020 due to shelter-in-place, I suggested that she withdraw enough funds from her SEP to make a 2019 SEP contribution by Oct. 15,” Foss said. “She needed the deduction and qualified to treat the withdrawal as a coronavirus-related distribution that she could pay back over three years. I hate to recommend early distributions from a retirement plan, but this was a case where I felt her business could come back and she could return the money before the three years elapsed.”
Patience and lemonade
“On my mom-and-pop rental clients, I’m preparing this year’s return and telling them they can pay me next year or whenever,” said Bill Nemeth, executive director of the Georgia Association of Enrolled Agents. “Their renters stopped paying rent beginning with the April payments. I’m advising the taxpayers to request extended terms on their mortgages and insurance."

“I called my car insurer and asked for a COVID break,” Nemeth added, “and got [a] 15 percent reduction for the next three months just by asking.”
Accentuate the positive
“We anticipate that equity markets will stay somewhat volatile and, of course, the election may result in a change in our tax system. We’re not telling wealthy clients to invest any differently, but that perhaps they should prepare themselves for what might be a higher tax situation for them at the federal level,” said Bruce Primeau, a CPA and president at Summit Wealth Advocates, in Prior Lake, Minnesota. “Holding onto a bit more cash than usual may not be a bad idea, at least until we get into 2021.”

New IRS policy allows taxpayers with existing installment agreements to roll over any 2019 balance due to reinstate their installment agreements, Nemeth added. “Smart business,” he said, “since the IRS will collect more money while utilizing fewer resources.”