Series: From Tax Preparer to Financial Planner: The Road Best Traveled
Part 3: Moving From Tax Planning to Holistic Financial Planning:
Expand Your Financial Planning Practice Through Your Client’s
Tax Return
Presented by:
Lyle K. Benson, Jr., CPA/PFS
Ted Sarenski, CPA/PFS
Susan Tillery, CPA/PFS
Introductions
Moderator
Lyle K. Benson, CPA/PFS
Founder,
L.K. Benson & Co.
Baltimore, Maryland
Featured Speakers
Ted Sarenski, CPA/PFS
President & CEO,
Blue Ocean Strategic Capital, LLC
Syracuse, NY
Susan Tillery, CPA/PFS
President / Co-Founder,
Paraklete® Financial, Inc.
Kennesaw, GA
Personal Financial Planning Section
2
Introduction
About the PFP Section & PFS Credential
• The AICPA PFP Section provides information, resources,
advocacy and guidance for CPAs who specialize in providing
estate, tax, retirement, risk management and investment
planning advice to individuals and their closely held entities
• The CPA/Personal Financial Specialist (PFS) credential
distinguishes CPAs as subject-matter experts who have
demonstrated their financial planning knowledge through
experience, education and testing
Personal Financial Planning Section
Introduction
About this Web seminar
This strategic session will help you use your client’s tax return to gain a
snapshot of their current financial situation and begin to develop a
closer relationship to cover all of their financial planning needs,
including tax, retirement, estate, investments and insurance. You will
learn:
Special considerations in 2012
How to best use your tax preparation practice to develop personal
financial planning ideas for your clients
The key issues to consider as you prepare, review, and discuss
individual tax returns with your clients
How to implement a checklist developed by leading CPA financial
planners to identify planning opportunities
Personal Financial Planning Section
AICPA Web Seminar Series:
From Tax Preparer to Financial Planner
Build your financial planning knowledge with this web
seminar series and discover the necessary steps to
transition from tax preparer to financial planner.
Register today at CPA2Biz.com/Webcasts. Discounts available for
PFP/PFS and Tax Section members.
Part 1 Part 2 Part 3 Part 4
Understanding Moving from
the value of
tax
financial
compliance to
planning
tax planning
for individuals
Personal Financial Planning Section
Moving from
tax planner to
holistic
financial
planner
Implementing
a PFP practice
Post-Tax Season Opportunities
Tax season as a springboard for financial planning
Using the tax return as a planning tool
Structuring a financial planning practice
Benefits of providing PFP services
• Deepen existing client relationships
• Higher-value work
• Expanded services add to your firm’s bottom line
Personal Financial Planning Section
6
Why use tax returns to develop personal
financial planning
Overall picture of client’s financial situation
Uncover opportunities for planning that client has
overlooked
Details of cash flow/income situation
Use in conjunction with client’s personal balance
sheet
Personal Financial Planning Section
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Special considerations in
2012
Personal Financial Planning Section
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2013 Tax Changes (if no action is taken)
Income Tax
• Bush tax cuts expire: increase in ordinary income, capital gains,
and qualified dividend rates
• 3.8% Medicare surtax on net investment income of high-income
individuals (MAGI > $200k single, $250k MFJ, $125k MFS)
• 0.9% increase in Medicare payroll tax for high earners
• Marriage penalty relief expires
Estate Tax
• $5 million exemption reverts back to $1 million
• Increase in estate tax rate from 35% to 55%
Gift Tax
• $5 million exemption reverts back to $1 million
Personal Financial Planning Section
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Comparison of 2012 vs. 2013 Tax Rates
Ordinary Income
Long-Term Capital Gains
2012
2013 & Beyond
2012
2013 & Beyond
10%
15%
0%
10%
15%
15%
15%
25%
28%
20% (23.8% if
surtax applies)
28%
31%
33%
36%
35%
39.6%
Personal Financial Planning Section
Political Environment
Uncertainty = Flexibility
Election Year
• Unlikely that we’ll have any certainty until last quarter
• Start planning now, gathering data, preparing projections,
drafting estate documents, etc.
President Obama’s budget proposal
• Reinstatement of personal exemption phaseouts and itemized
deduction phaseouts
• Attack on itemized deductions: mortgage interest, charitable
contributions, miscellaneous itemized deductions
• Above-line-deductions: health care, retirement plan
contributions, education expenses
Other (retirement contributions attack, Bachus
desire to require 5 year payout of IRAs through
highway bill rumored to be back)
Personal Financial Planning Section
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Estate & Gift Tax Planning
2012 Estate/gift tax exemption linked at $5,120,000
President’s Proposal:
•
•
•
•
•
•
•
•
Estate/GST $3.5 million exemption
Gift tax $1 million exemption
Rates jump from 35% to 45%
Retain portability
Disregard valuation discounts
Limit GRAT to 10-year term (zeroed out GRAT goes away)
Limit GST to 90 years – dynasty trusts no longer viable
Grantor trust benefits go away
Republican Proposals:
• Status quo - keep $5 million+ exemption for estate and gift
If nothing passes:
• $1 million exemption and 55% rate
Personal Financial Planning Section
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Estate & Gift Tax Planning
Clients who can benefit most from planning
• Elderly or ill, those who live in a state where state estate tax is
decoupled from fed, clients who have asset protection needs,
non-married same sex couples and wealthy
Impediment towards getting your clients to take
action
• Complexity (setting up trusts, etc.), cost of advisors, appraisals,
etc., disbelief that changes are going to take place, uncertainty
• Advisors need to help their clients understand the detriments to
not planning ahead and taking action when necessary (run
projections and show them the impact)
Personal Financial Planning Section
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Estate & Gift Tax Planning
Start now! Use up exemption in 2012
• Some techniques take months to implement (GRATs, IDGTs),
etc.)
• Need to start now to educate clients, draft documents, prepare
valuations, etc.
Income generation through CRUTs
Opportunities with low interest rates (GRAT)
Asset efficiency implications of gifting
Drafting to gift but not gift
Personal Financial Planning Section
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Estate & Gift Tax Planning
Beware of large outright gifts
• They are not protected from creditors claims and the remainder
is not kept in the family
Reasons to gift now:
•
•
•
•
•
•
Save estate tax (federal and state)
Asset protection (if via trust)
Grandfather for GST
Grandfather for grantor trust changes
Lock in discounts
Remove appreciation from estate
Cash flow planning and running of projections is
essential before taking action (create plan to ensure
client is comfortable before triggering)
Personal Financial Planning Section
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Income Acceleration and Planning
Added dynamics of President’s proposal
• Requires min 30% effective rate for those with income over $1
million annually
Harvesting gains
• Last quarter of the year
• Not affected by 30-day wash sale rules
• Monitor elections for deemed sales
Comp and benefit issues
• Exercise stock options
• Pay bonuses before year-end
• Deferred compensation elections
(Don’t necessarily forego deferral accounts, particularly when there are
matching provisions. Educate your clients and consider the political landscape.)
Roth conversions
Personal Financial Planning Section
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Income Acceleration and Planning
Cash basis taxpayers
• Accelerate billings
Other income acceleration ideas
• Accrue bond interest in 2012 versus 2013
• Accelerate installment payments
Other planning
• Re-allocation of portfolio based on tax changes (qualified plan
versus non-qualified plans, etc.)
• AGI planning between 2012 and 2013 to effectively manage the
new 3.8 percent Medicare tax in 2013
Personal Financial Planning Section
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Itemized Deduction Planning
President’s proposal will limit itemized deductions
to 28% -- and reinstate phaseouts
Accelerate itemized deductions in 2012
• Set up donor advised funds and fund future year’s charitable
contributions in 2012
• Accelerate miscellaneous itemized deductions by prepaying
expenses to get above the 2% limit
Interest rates at historically low levels
• Look at the clients Form 1098 and mortgage statement
• Discuss their refinancing strategy
• Evaluate all of the client’s debt
Alternative minimum tax situation
• Consider prepaying real estate taxes and personal property
taxes
Personal Financial Planning Section
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Expand your financial
planning practice through
your client’s tax return
Personal Financial Planning Section
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Regulation 7216
How does this impact you if you are a tax
preparer?
Obtain written consent from clients
• Disclosure of tax return information (general,
specific, foreign)
• Disclosure of use of tax return information
Criminal penalty for “knowingly and recklessly”
disclosing or using tax return information
More information at aicpa.org/pfp/advocacy
Personal Financial Planning Section
20
Dependents
Children
• Education planning
• Gifting
• Income shifting – remember kiddie tax rules
• Gift Tax Returns
Elderly parents
• Estate planning
• Dependency rules
• Future financial commitment
Personal Financial Planning Section
21
Income – understand the sources
Wages, self employment income, partnership
income, etc.
Maximizing deferral opportunities
• 401(k), 457, 403(b)
Retirement plans from former employers
Consolidate IRAs from multiple sources
Social Security benefits
• SS maximization strategies
Does a Roth conversion still make sense?
Personal Financial Planning Section
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Interest - Schedule B
Source/alternatives/assets managed
• Taxable
• Tax exempt
Critical to understand their investment strategies
Bank accounts – FDIC limits
Cash levels – emergency fund
• Is there too much in cash?
Personal Financial Planning Section
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Dividends - Schedule B
Source
• funds
• stocks
Performance
Consider alternatives to these investments
How are assets titled? (estate planning issues)
How are assets custodied?
Tax efficiency of investments
Impact of market downturn
Too much concentration in one stock?
Review tax impact and potential changes to tax law
Personal Financial Planning Section
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Schedule D
Capital loss carryovers
Trading activity – fees / expenses
• Portfolio churning?
Loss harvesting – part of ongoing wealth
management
Coordinated with tax plan?
Core of investment strategy
Personal Financial Planning Section
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Emergency Economic Stabilization Act of
2008
Brokers and custodians must track and report cost
basis information
End result – simplifies cost basis reporting but adds
complexity:
• Proactive decisions must be made on accounting methods to be
used and custodian should be notified prior to settlement of
transaction (otherwise, default method will be used)
• Firms that track portfolios need to ensure firm system matches
system of custodian
• For tax reporting purposes, 1099-B trumps all other data
How to handle new clients
Personal Financial Planning Section
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Schedule C
How does business fit into overall planning?
Succession planning
Retirement plans
Determine income shifting opportunities among
family members
Risk management - discuss range of options to
structure the business
• Compare to LLC, corporation, etc.
Home office
Hobby loss rules
Personal Financial Planning Section
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Schedule E
LLCs, Subchapter S and Partnership Income?
• Passive losses?
• Self-employment income
Valuation issues
IRS attack on family entities
Investment partnerships
• Hedge funds
• Venture capital
• Other alternative investments
Any potential tax liabilities arising from negative
basis?
Personal Financial Planning Section
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Schedule E
Real estate
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•
•
•
•
•
•
Risk management
Multiple owners
Form of ownership
Estate planning
Passive activity loss rules
Vacation home rules
Like-kind exchanges
Personal Financial Planning Section
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Schedule E
Trusts (1041)
• How are assets being managed?
• Trustee adequacy
• What is the purpose of the trust arrangement?
• Is investment strategy appropriate?
Is trust income being reported properly?
Distributing income or retaining?
Personal Financial Planning Section
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Retirement Plans/Distributions
Required Minimum Distributions being taken?
Net Unrealized Appreciation (NUA) from 401(k)
Beneficiary elections
Where should client be taking money from?
Has a Roth Conversion been considered?
Cash flow needs – sustainable withdrawal rate
(spending as a % of assets)
Personal Financial Planning Section
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Retirement Plan Choices: Simple, SEP,
IRA, Solo 401(k)
Maximizing opportunity
Investment choice
What is the best choice for deferral opportunities?
Consider qualified plan/defined benefit plan
Consider hiring spouse
Regular vs. Roth contributions
Personal Financial Planning Section
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Itemized Deductions
Charitable contributions
• Appreciated securities
• Timing of Deductions
• CRUT, Charitable Lead Trust
• Private foundation
• Donor Advised Funds
• IRA distribution – direct to charity
• Contribution carryovers
• IRS documentation rules
Understand your client’s charitable intent
Personal Financial Planning Section
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State Taxes
Growing importance
Residency rules
• Statutory
• Domiciliary
Multiple state residency
• Planning opportunities and pitfalls
Potential tax liability in other states
Timing of payments and AMT
Personal Financial Planning Section
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Medical Expenses
Long term care insurance
Health insurance
• Self employed?
• What is current coverage?
- Potential health issues
- COBRA if job loss
Medicare rules
Eldercare issues
Impact of Obama Health Care Act
Corporate medical reimbursement plan
Health Savings Accounts
Personal Financial Planning Section
35
Miscellaneous Deductions
Investment fees
• Reasonable or excessive?
Other expenses
2% AGI
Planning opportunities to avoid loss of
deductions
• How to shift?
• “Bunching” deductions into one year
• Allocating deductions among Schedule A,
Schedule C and Schedule E
Personal Financial Planning Section
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Interest Expense
Mortgage interest expense rules
• Planning opportunities
• Limitations (new $1.1 million rule)
• Refinancing opportunities – current rate
environment
Investment interest expenses – carryover rules
Other interest – tracking use of funds
Margin interest
Personal Financial Planning Section
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Partnership Tax Returns
Current partnership agreement
Valuation
Buy/Sell
Retirement plans
Employee benefit plans
Partners
Profit allocation
• Pro-rata
• Special allocations
• Guaranteed payments
Multi-state operations
Personal Financial Planning Section
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Corporate Tax Returns
Total assets
Compensation of officers – reasonable?
Rents – who owns the property?
Pension and profit sharing
Employee benefit plans
Shareholder agreement
Partners
Succession plan
Deferred compensation agreements
Multi-state operations
S-Corp vs. C Corp
S-Corp – adequate basis for losses?
Personal Financial Planning Section
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Gift Tax Returns
Number of donees
Previously filed 709
Split gifts
529 plans – special rules
Valuation discounts
Basis and date
Generation skipping
Exemption availability
Life insurance trusts
Gifting Strategy
Personal Financial Planning Section
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Alternative Minimum Tax
Impact on overall planning
Current/proposed changes
Stock options
• Planning opportunities for ISO exercise
AMT credit carryover – potential loss of credit
Personal Financial Planning Section
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Checklist to use in your practice
How to utilize this checklist
Personal Financial Planning Section
42
Summary
You can learn a lot about someone through his or her
tax return. Many financial planning opportunities can
be uncovered with a thorough review of your client’s
tax return.
Personal Financial Planning Section
43
Q&A
Personal Financial Planning Section
44
PFP Section Resources
Additional materials
• Roadmap to Developing and Managing a CPA Personal
Financial Planning Practice (aicpa.org/PFP/pathway)
• Checklist: Analysis of a Tax Return for Personal Financial
Planning (aicpa.org/PFP/pathway)
• PFP Practice Center (aicpa.org/PFP/practicecenter)
• Forefield Advisor (aicpa.org/PFP/forefield)
AICPA Advanced Personal Financial Planning
Conference (cpa2biz.com/PFP)
• 2-day sessions for those in earlier stages of PFP
o Implementing PFP Services: Step by Step Plans for Success
o CPA/PFS Review Class
For the full calendar of upcoming PFP Section
events, visit www.aicpa.org/PFP and click on CPE &
Events
Personal Financial Planning Section
45 45
CPA/PFS Program At-A-Glance
PFS exam review
• Self-study, web review and live review options available to
purchase at cpa2biz.com
PFS exam registration
• Learn more & register at aicpa.org/PFSexam
• Summer and winter exam window each year
PFS education
• In-depth self-study courses available to purchase at
cpa2biz.com
2012 PFS exam sponsorship program
• Summer deadline: June 18, 2012
• Winter deadline: December 26, 2012
For more information, visit www.aicpa.org/PFP/PFS
Personal Financial Planning Section
AICPA Web Seminar Series:
From Tax Preparer to Financial Planner
Build your financial planning knowledge with this web
seminar series and discover the necessary steps to
transition from tax preparer to financial planner.
Register today at CPA2Biz.com/Webcasts. Discounts available for
PFP/PFS and Tax Section members.
Part 1 Part 2 Part 3 Part 4
Understanding Moving from
the value of
tax
financial
compliance to
planning
tax planning
for individuals
Personal Financial Planning Section
Moving from
tax planner to
holistic
financial
planner
Implementing
a PFP practice
Thank You
Lyle K. Benson, Jr. CPA/PFS
L.K. Benson & Company, P.C.
lyle@lkbenson.com
Phone:(410) 494-6680
www.lkbenson.com
Ted Sarenski, CPA/PFS
Blue Ocean Strategic Capital, LLC
tjs@boscllc.com
Phone: (315) 471-2672
http://boscllc.com
Susan Tillery, CPA/PFS
Paraklete® Financial, Inc.
stillery@parakletefinancial.com
Phone: (678) 290-3930
http://parakletefinancial.com
Personal Financial Planning Section
48