If you already have a CPA for your small business, then changing your accountants may seem impossible. However, with proper planning and communication, you will be able to change your accountant to someone who’s more reliable and trustworthy, like Sigma.

Many accountants want to avoid letting their clients go to someone else and therefore make the handover processes unnecessarily difficult, making you jump through hoops you should have to. If you want to transition smoothly from one CPA to another, read on to learn how you can switch accountants without hassle.

Before you begin your transition, ensure that all your outstanding dues and accounting fees are paid in full and you have notified your accountant via email or through an official accountant termination letter about the termination of their services with enough buffer in place (Usually 15 to 30 days prior to termination of services). If you have informed them and cleared your dues, they should have no problem helping you transition from them to some other accountant of your choice, like Sigma.

Any registered and qualified CPA legally cannot keep you from switching to their competitors. All CPAs and accountants have a duty to act ethically. This means that once they are notified of your intent to switch, they must supply all documentation and assist the new accountant by providing all information as requested and disclosing any information they may require to do their job well.

If your accountant fails to perform their duties or denies any help, you can raise a complaint with the regulatory and licensing body against them.

Before jumping to any conclusions, consider a few possibilities.

1. Have you informed your current accountant about who the new accountant is and share their contact details with them for a smooth handover?
2. Is your current accountant aware of the last date of service for your account with them? Have you sent them the notification in writing?

If you meet both of these conditions and still face problems with the handover, then approaching the professional body of accountants is your best bet.

A disengagement letter should be provided by your existing accountant to your new accountant. This document clarifies whether they retain responsibility for any tasks partly underway or are doing a complete handover and what the new accountant will be taking over.

Documents such as historical financial statements, accounting records, and previous tax returns must also be handed over to the new accountant as they are legally the client’s property.

Your new accountant will also be required to send a clearance letter to your existing accountant. This document is required to ensure they can take you on as a new client and that there’s no reason not to take you as their new client.

Usually, the handover process takes about two weeks. In the worst of cases, the whole handover process should take 4 to 6 weeks. In the event that the process hasn’t been completed during the timeline, speak to both parties and find out what’s holding up the process and how you can facilitate the process.

The relevant professional body can help you if there’s too much friction in the whole process.

Yes, in most cases, changing from one certified professional accountant to another should be a simple and straightforward process. However, some accountants who don’t play ethically tend to make this process extremely difficult and time-consuming.

If the professional relationship between you and your accountant needs to be fixed, then you should consider changing your accountant. If your business needs have changed or you’ve niched down to serve a particular segment of the industry, then it’s a good option to hire a specialist dental CPA or real estate CPA, depending on what industry you operate in.

If you feel the fees you’re paying don’t have the expected return on your investment consider changing your accountant. Poor service or lack of expertise is another good reason to change your accountant.

It would be best to allow some time for your accountant to adjust to the new role before jumping to conclusions.

We hope this article answered all your questions and helped you understand how you can change your accountant.

If you’re looking for a professional accountant to help you build generational wealth while taking over your bookkeeping and accounting headache, then look no further than Sigma. Our team of expert small business accountants has helped a number of American businesses achieve success through our tax management strategies, bookkeeping services, and general accounting services.

Please speak to us today to understand how we can help you grow your business by improving your revenue or reducing your costs.

As you doubtlessly know, Congress recently passed a massive new stimulus bill that was enacted into law on December 27, 2020. Most of the public’s attention has been focused on the bill’s authorization of additional stimulus checks and new PPP loans and other aid targeted to struggling businesses. But Form 1040 American taxpayers who are not in business are struggling as well. The stimulus bill contains a hodgepodge of eight new or extended tax breaks intended to help Form 1040 taxpayers. Are you looking for a Columbia Maryland CPA to help you make sense of these tax breaks? Read on to get our take on these new laws. None of these tax breaks are earthshaking by themselves, but together they add up to a nice tax present for COVID-19-weary Americans.

Medical expenses are deductible as a personal itemized deduction only if, and to the extent, they exceed a percentage of the taxpayer’s AGI. For several years, this AGI floor has fluctuated between 10 percent and 7.5 percent of AGI. The rate is 7.5 percent of AGI for 2020, and before the new law, it was scheduled to go up to 10 percent for 2021and later. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 makes the 7.5 percent of AGI floor permanent. This makes it a bit easier for taxpayers who itemize to deduct their medical expenses.

Here’s an easy question: Do you need more 2020 tax deductions? If yes, continue on.

Next easy question: Do you need a replacement business vehicle?

If yes, you can simultaneously solve or mitigate both the first problem (needing more deductions) and the second problem (needing a replacement vehicle), but you need to get your vehicle in service on or before December 31, 2020.

To ensure compliance with the “placed in service” rule, drive the vehicle at least one business mile on or before December 31, 2020. In other words, you want to both own and drive the vehicle to ensure that it qualifies for the big deductions.

Now that you have the basics, let’s get to the tax deductions.

Let’s say that on or before December 31, 2020, you or your corporation buys and places in service a new or used SUV or crossover vehicle that the manufacturer classifies as a truck and that has a gross vehicle weight rating (GVWR) of 6,001 pounds or more. This newly purchased vehicle gives you four big benefits:

1. The ability to elect bonus depreciation of 100 percent (thanks to the Tax Cuts and Jobs Act)
2. The ability to select Section 179 expensing of up to $25,900
3. MACRS depreciation using the five-year table
4. No luxury limits on vehicle depreciation deductions

Example. On or before December 31, 2020, you buy and place in service a qualifying used $50,000 SUV for which you can claim 90 percent business use. Your business cost is $45,000 (90 percent x $50,000). Your maximum write-off for 2020 is $45,000.

If you or your corporation buys and places in service a qualifying pickup truck (new or used) on or before December 31, 2020, then this newly purchased vehicle gives you four big benefits:

1. Bonus depreciation of up to 100 percent
2. Section 179 expensing of up to $1,040,000
3. MACRS depreciation using the five-year table
4. No luxury limits on vehicle depreciation deductions

To qualify for full Section 179 expensing, the pickup truck must have

• a GVWR of more than 6,000 pounds, and
• a cargo area (commonly called a “bed”) of at least six feet in interior length that is not easily accessible from the passenger compartment.

Short bed. If the pickup truck passes the more-than-6,000-pound-GVWR test but fails the bed-length test, tax law classifies it as an SUV. That’s not bad. The vehicle is still eligible for either expensing of up to the $25,900 SUV expensing limit or 100 percent bonus depreciation.

The TCJA made it much easier to find big deductions on your new or used vehicle purchase:

• If your new or used vehicle has a GVWR greater than 6,000 pounds, then you can write off 100 percent of your business cost with bonus depreciation if you both buy it and place it in service on or before December 31, 2020.
• If your new or used vehicle has a GVWR of 6,000 pounds or less, then with a purchase price of $58,100 or more, you can write off up to $18,100 in 2020 if you buy it and place it in service on or before December 31, 2020.

Example. You place in service a business SUV with a GVWR of 6,500 pounds and with a business cost of $100,000. You can immediately write off $100,000 using bonus depreciation. If this vehicle were depreciation limited because it failed the weight test, your maximum first-year write-off would be $18,100.

Don’t forget to drive your new vehicle for at least one business mile on or before December 31, 2020, to ensure it meets the “placed in service” requirement.

If you are thinking of getting married or divorced, you need to consider December 31, 2020, in your tax planning.

Here’s another planning question: Do you give money to family or friends (other than your children, who are subject to the kiddie tax)? If so, you need to consider the zero-taxes planning strategy.

And now, consider your children who are under age 18. Have you paid them for the work they’ve done for your business? Have you paid them the right way?

Here are five strategies to consider as we come to the end of 2020.

1. Put Your Children on Your Payroll

If you have a child under the age of 18 and you operate your business as a Schedule C sole proprietor or as a spousal partnership, you absolutely need to consider having that child on your payroll. Why?

• First, neither you nor your child would pay payroll taxes on the child’s income.
• Second, with a traditional IRA, the child can avoid all federal income taxes on up to $18,400 in income.

If you operate your business as a corporation, you can still benefit by employing the child even though both your corporation and your child suffer payroll taxes

2. Get Divorced after December 31

The marriage rule works like this: you are considered married for the entire year if you are married on December 31.

Although lawmakers have made many changes to eliminate the differences between married and single taxpayers, in most cases the joint return will work to your advantage.

Warning on alimony! The Tax Cuts and Jobs Act (TCJA) changed the tax treatment of alimony payments under divorce and separate maintenance agreements executed after December 31, 2018:

• Under the old rules, the payor deducts alimony payments and the recipient includes the payments in income.
• Under the new rules, which apply to all agreements executed after December 31, 2018, the payor gets no tax deduction and the recipient does not recognize income.

3. Stay Single to Increase Mortgage Deductions

Two single people can deduct more mortgage interest than a married couple.

If you own a home with someone other than a spouse, and you bought it on or before December 15, 2017, you individually can deduct mortgage interest on up to $1 million of a qualifying mortgage.

For example, if you and your unmarried partner live together and own the home together, the mortgage ceiling on deductions for the two of you is $2 million. If you get married, the ceiling drops to $1 million.

If you bought your house after December 15, 2017, then the reduced $750,000 mortgage limit from the TCJA applies. In that case, for two single people, the maximum deduction for mortgage interest is based on a ceiling of $1.5 million.

4. Get Married on or before December 31

Remember, if you are married on December 31, you are married for the entire year.

If you are thinking of getting married in 2020, you might want to rethink that plan for the same reasons that apply in a divorce (as described above). The IRS could make big savings available to you if you get married on or before December 31, 2020.

You have to run the numbers in your tax return both ways to know the tax benefits and detriments for your particular case. But a quick trip to the courthouse may save you thousands.

5. Make Use of the 0 Percent Tax Bracket

In the old days, you used this strategy with your college student. Today, this strategy does not work with the college student, because the kiddie tax now applies to students up to age 24.

But this strategy is a good one, so ask yourself this question: Do I give money to my parents or other loved ones to make their lives more comfortable?

If the answer is yes, is your loved one in the 0 percent capital gains tax bracket? The 0 percent capital gains tax bracket applies to a single person with less than $40,000 in taxable income and to a married couple with less than $80,000 in taxable income.

If the parent or other loved one is in the 0 percent capital gains tax bracket, you can get extra bang for your buck by giving this person appreciated stock rather than cash.

Example. You give Aunt Millie shares of stock with a fair market value of $20,000, for which you paid $2,000. Aunt Millie sells the stock and pays zero capital gains taxes. She now has $20,000 in after-tax cash to spend, which should take care of things for a while.

Had you sold the stock, you would have paid taxes of $4,284 in your tax bracket (23.8 percent times the $18,000 gain).

Of course, $5,000 of the $20,000 you gifted goes against your $11.4 million estate tax exemption if you are single. But if you’re married and you made the gift together, you each have a $15,000 gift-tax exclusion, for a total of $30,000, and you have no gift-tax concerns other than the requirement to file a gift-tax return that shows you split the gift.

Takeaways

If you have a child under the age of 18 and you operate your business as a Schedule C sole proprietor or as a spousal partnership, you absolutely need to consider having that child on your payroll. Why?

• First, neither you nor your child would pay payroll taxes on the child’s income.
• Second, with a traditional IRA, the child can avoid all federal income taxes on up to $18,400 in income.

If you operate your business as a corporation, you can still benefit by employing the child even though you and the child have to pay payroll taxes.

If you are getting divorced or married, make sure to consider the mortgage ceiling available to singles co-owning homes as well as the post-TCJA alimony rules. Keep December 31 front of mind. If you are married on that date, you are married for the year, and being married affects your taxes.

To know for sure what dollar effect marriage has, positive or negative, run the numbers through a tax return or have your tax professional do this for you.

The fifth strategy in this blog asked you to look at family and friends to whom you give money and explained how, in the right circumstances, you can give those recipients stock and have them take advantage of their zero capital gains tax bracket.

Sigma Accountant’s blog is intended for educational purposes and provides general information about tax accounting, business related topics. It is not intended to provide professional advice. By using this blog site, you understand that there is no CPA/client relationship between you and Sigma Accountants or its employees. The blog and website, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for competent counsel from a qualified adviser.