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By Eaton Vance Advisor Institute

How long do clients have to prevent a recurrence of an unpleasant income tax filing? The short answer is "the rest of the year." Therefore, if a taxpayer discovers underwithholding in May, there are only seven months to correct it before year-end.

Suppose your client's CPA discovers that he/she has underpaid federal income taxes by $50,000, not including penalties and interest, due to an unusual compensation structure. If compensation is expected to remain unchanged for the rest of the calendar year, then the same underpayment — and a subsequent penalty — could occur again next year.

To avoid a recurrence, ask your client if their employer could withhold more from each remaining paycheck this year. The extra withholding would happen over the time remaining in the calendar year instead of a full 12 months. If the tax discrepancy relates to investments rather than employment, consider asking your client questions, such as these, to increase his/her available response time.

  • "Do you need all of the investment income you currently receive in cash?"
  • "Could better asset location improve your after-tax investment experience?"
  • "Could your account benefit from more thoughtful and deliberate tax-loss harvesting?"

Your clients' responses to these tax-forward questions will help you determine the next best steps toward improving their tax experiences next year.

Bottom line: The sooner you can uncover and help solve tax issues, the better the outcome — for your client and your practice.