Read The Transcript Below:

Steven (00:51):

Hello everyone, and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals edition. I’m your host, Steven Jarvis, CPA, and with me today I have a fellow professional who has prepared tax returns but spends most of his time doing financial planning. So Jacob, welcome to the show. Why don’t you introduce yourself, give us a little bit of background and then we’ll dive into this world of tax preparation.

Jacob (01:14):

Love to, thanks for having me. Of course, and good to be with you again. I started as a options trading associate for a few years and then moved into the investment advisory business, which I’ve been doing for the last 17 years, and moved from kind of a brokerage specialist and investment advisory, kind of pushing different products into the RIA model, which started about six years ago and then as of September of last year, moved into an individual practice. So started my own business and I’ve been doing that ever since. So that’s kind of what got me through the investment advisory stack ranks and got me to where I am now. When I came on board and started talking with my new clients that were considering hiring me as I was starting with zero clients, one thing came up a lot, which was what kind of tax planning is going to come up? What do you offer in the way of tax planning? In the past, I’d been leaning on a CPA or a couple that had been part of a large firm that I came from, and there wasn’t a whole lot in the way of tax advice that we were able to provide there, but at least we had a CPA that could jump on a call and answer specific investment questions that were, as it pertains to taxes and maybe some one-off tax questions, but at least there was someone there to field those things and maybe also look through a couple of returns and see if anything was missed. But I didn’t have that acumen, didn’t have that skillset at all. So started to look for areas of opportunity there and started a small path down a direction that opened up into a broad range of things as taxes typically do.

Steven (02:40):

I appreciate the background and the history. Everyone has a little bit different kind of upbringing when it comes to financial planning, but what I find the more advisors I talk to is that at some point the value of taxes gets recognized and then it just becomes a question of what’s the advisor going to do about it. I like how you highlighted that in there, that question you getting of:”Hey, what do you offer in terms of tax planning?” And I see a variety of approaches from advisors. Unfortunately, there’s still a lot who just assume it’s the CPA’s responsibility and they don’t take a very proactive approach. I also see that group of advisors who really loves the alphabet soup and just says, Hey, what designation can I get? How many letters can I add behind my name? And maybe that will do the trick. I have designations as well. I’m not categorically opposed to them, but what I’m a much bigger fan of and ultimately the route you ended up taking, this is why I was excited to have this conversation is getting the hands on experience actually picking up real tax returns and seeing how these things work. So Jacob, talk about side hustle probably doesn’t give it quite enough justice, but you’ve taken a little bit different of a path than most financial advisors to really get in the weeds on taxes.

Jacob (03:48):

It was almost a requirement and I thought when I started down this path that it would be kind of a limited number of things that I just needed to offer before. And that’s really one of the first things that’s told you when you come into the financial services world, whether it’s an options trader, investment advisor or otherwise, it’s don’t talk about taxes. If you don’t have the acumen, you’re not a tax professional, you’re going to get yourself in trouble. It’s not going to serve your client well. And over time, that’s really changed that we’re intertwined. Things that you choose inside your portfolio are going to affect your taxes. You’re ultimately going to have to account for that. What’s that process look like. And I got into this situation where I ran into this at the tax desk, which made me, every time I run into a situation like this, I’m kind reminded of this whole neutral zone that we run into, which is I think is what your podcast seeks to open up the communication about is what is tax advice, what is investment advice, what is financial advice? How are we talking between the two of us? Because at a certain point, if you are just coming into the industry or been in the industry for decades and you’re afraid to start to broach the topic of taxes or get to a point where you say, Hey, am I really providing tax advice? Is this tax guidance and backing away from that, it’s not really serving clients that well. And one example of that out of probably 20 that I’ve run across is maybe I got a distribution for this year. Hey, congratulations. I’m glad that you’re retiring. And I had a police officer that came into the tax office and sat down and was like, I’ve been a police officer for 20 years. I’m 50 as of last year, and so I’m going to start taking distributions out. So it’s like, great, congratulations. And he had his 1099 there in front of him and it was coded as a one for early distribution under 59 and a half. He’s like, yeah, well the good thing about this is that I don’t have a penalty. I know it’s going to be taxable as income to me, but I know that there’s no penalty. There’s an exception that applies to that. I’m like, okay, well it’s coded as a one. And he’s like, well, they told me that you would be able to figure it out. Okay. So then it turns into chats with the back office and chats with the enrolled agents around the office and it’s like I got a range of different answers. One was, hey, if they had coded it as a two, then we have something we can do with it, which is they know that there’s an exception that applies. And go back to the client, I’m really sorry that your investment advisor put it as a one. If they had put it as a two, then we’d have a little more flexibility, which then of course there at the tax office necessitates a call to the investment advisor, Hey, why did you code this as a one? If there’s an exception that we talked about, why didn’t you code it as a two? And it’s like, well, your tax advisor is there, he’s the one that’s going to fix this back and forth. So any number of things like that where it’s like I can make a number of recommendations on my side, your tax advisor can make a number of recommendations on their side, different frameworks, different points of view, different time horizons. There needs to be some kind of a cohesive way to actually put rubber to road and make this actually apply and tie these things together for a cohesive plan. So anyway, that was what got me started there.

Steven (06:52):

Yeah, that’s a great specific example of, and there’s lots of these in the tax world of something that probably seems simple to the financial planner, to the investment advisor of, oh, great, you’re going to start taking distribution. It’s no big deal. Your tax person’s going to figure it out. But those tax forms mean very specific things. And as the tax professional, if you’ve never sat down and prepared a tax return, if you’ve never been on that side of things of saying, okay, great, my name’s going on this along with the client to the IRS, you just don’t have the same perspective because if that comes to me conceptually, I get that, okay, there’s this exception and there shouldn’t be a penalty. But my options to that point are either, like you said, reach out to the investment advisor and get them to issue an updated 1099, which I’ve had very little success doing. Most people don’t want to reissue tax forms. Alternatively, I can report it in a way that doesn’t match the 1099 knowing that I’m going to prompt a letter from the IRS so that I’m then going to have to help this client navigate, or we end up reporting it accurate to the form, but ultimately incorrectly and the client ends up getting extra penalties, which also is not a good outcome. And as I laid those options out, none of those are ideal. None of those require no work. In fact, all of them require additional work. And so just having that additional perspective, that’s part of the reason we started retirement tax services. That’s why I spend so much time working with advisors to try to educate on these things because some of this is if we were to spend just a little bit of time upfront, we prevent a ton of headache and challenges and we create a better client experience is really what happens at the end of the day.

Jacob (08:23):

Yeah, I agree. And to that end, going back now, that tax season is coming gone, and we’re preparing for that coming up soon. But now that I’m mostly focused on the investment side actually, and maybe coincidentally called the operations team at my custodian last week and said, what control do we have on this? I was thinking of all the different products that are offered out there. You’ve got charitable gift annuities and exceptions like the one I just outlined and all these things coming up. It’s like, Hey, I looked at the IRA distribution form for my clients that are thinking of doing things this year or making changes or all these different things. How do we go about getting these coded? Is there a special form for that? Because when I look at the form, it only has three options. Well, it turns out that it’s a policy of each individual custodian to basically choose which ones they’re going to offer, and they don’t offer all the codes. So even though that you have a number of different exceptions or hey, correct the 1099 because we need something that’s more in line with what’s actually going on here, it may or may not even be an option for you. So there’s continued ambiguity about how this is structured, how it’s actually reported, what flexibility you actually do have. So the story continues, I guess, or the question continues.

Steven (09:34):

Yeah, that’s really helpful insight. Jacob, we obviously had some conversations before we recorded the podcast. I think I skipped over some important details for our listeners. And you alluded to it there that this last tax filing season, you actually went out and got basically signed up to prepare tax returns in addition to the investment advising that you’re doing. So talk a little bit about what led to that decision and then just the logistics of making that a reality.

Jacob (09:58):

Yeah, so basically again, moving into independent practice and having clients ask me, what are you going to be offering in the way of tax planning because we had that in the past, is that something that we’re going to be able to do together in the future? I started putting categories together for the things that I could offer, and as a firm, we offer holistic plan as a software package that we get to use. So subscription to that had never used it before. In fact, the CPAs that at my previous firm had used that. It was part of our platform there for service delivery and deliverables. So that was my limited exposure to that is some of the deliverables that were spit out of that software package, but had access to it, started playing with it and uploaded my own tax return. And there was a number of different assumptions that were built into that and then some suggestions at the end of it. And they were all great. I mean, they were all actionable. They were measurable. I mean, the value was definitely there, there were things I hadn’t seen before. I could see the benefit to clients. For example, when I look at your returns, it looks like most of your dividends were ordinary instead of qualified. So the ratio of that could be changed with some portfolio changes. I’m like, oh, that’s my job. That’s something that I should definitely be doing. How do you even go about doing that? I mean, how would that even happen? So I started looking online for some tax analysis, some tax classes, some just whatever I could find. And I mean just Googling that gets you to an H&R block site for learning to do taxes, which is an income tax course. And so I was like, well, yeah, I mean, I was looking through the bullet points on the things that it would teach you, filing requirements, dividends and interest and just the kind of blocking and tackling. And I thought, well, that would be exactly what I need as a starting off point. And so I had the time I was building up my business from zero clients, and so I was like, well, I’ll do this up my game, build my acumen, learn the things that I need to being able to actually justify that I have some way to answer some of these tax questions. And went through an online learning and self-paced training class that they had there. And about halfway through the instructor said, I think you’ve got some skill here. Do you have any background in this arena? And if that’s the case, would you think about filing taxes? I was like, well, I mean, yeah, I guess I would think about it. I’d be happy to continue this quest. Can you talk more about it? And so the more I talked about it, the more I understood that I would learn quite a bit from being at the tax desk things that there was no way they could teach me on any kind of webinar and they would open up all the classes. I’d learned this in the middle of that process, that H&R block is a pretty one of the largest actually adult education platforms in the US. And so it opened up their full catalog of things I could learn up to and including an enrolled agent credential. And so I thought, well, if this lines up with learning and giving me the skillset that I need to better serve clients both this year and moving forward, then I’ll do it. So signed up, did about a hundred returns last year, and it’s going to be doing it again this year. And what I wouldn’t have anticipated that it turned into this, but it served me well and my clients too.

Commercial (12:54):

Hey there, advisors, this is Jamie Shilanski. You might recognize my voice from my Worlds to Conquer episode over at The Perfect RIAs podcast. I get a lot of questions from a financial advisors about what type of continuing education should they attend, how should they dedicate themselves to professional development this year and what conferences are really worth going to. Well, I’m going to let you in on a little secret. The one conference I will not miss is the Retirement Tax Services Summit this September. It is going to be held in Phoenix, Arizona, and this is the most sensational conference I go to and not because of all the fanfare involved in being in Phoenix, but instead about collaborating with like-minded individuals. And these are people that have legal expert tax planning advice. These are people that do qualified accounts, big retirements. They are creating five and 10 year tax plans. They have guest speakers that talk about hyper-efficiency and the things that you need to know to keep you on the cutting edge of being a financial advisor. It is certainly where I will be. You don’t want to miss this conference, so make sure that you jump over to retirementtaxservices.com and register to attend this summit. I know it’s where I’ll be this September.

Steven (14:03):

I probably should have reached out to H&R block ahead of this to try to get some referral deal with them because I’m not actually affiliated with H&R Block, but I have heard good things from other people in addition to what you’ve said about the learning they have, the platforms they have. But I really want to highlight that piece you said in there that where you realized that there just wasn’t, you weren’t ever going to learn as much through a course as you would through actually doing it because I a hundred percent echo that you can learn theory all day, but it is not the same as sitting down with someone and having to go through their 10 90 nines and explain to them why what’s reported on the 10 99 is not the same as what they’re telling you and how we can try to reconcile those or not just, it’s never going to be quite the same as getting your hands in there and getting that firsthand experience of where does this go in this software and what buttons do I have to click and what fields do I have to fill out? And there might be advisors listening, thinking, but that’s somebody else’s problem. And that is certainly an option to look at it that way and that’s the way most of the industry looks at it, but most taxpayers are not having good experiences around taxes and you can be a part of making that better.

Jacob (15:16):

 And I can say that just having conversations with clients after that experience, it makes folks relax in a conversation about, we talked to some about their investments, and then you say, Hey, you’re really getting into tax zone, so the pushback, go back and talk to your tax professional as opposed to, well, you know what? Yeah, I actually filed some returns last year, so I’ve been exactly where you’re at. I know where you’re thinking about. It’s like, oh, good. Well finally, we can at least talk about it. Maybe you’re not going to help me fill out each individual spot on my 1040, but at least they’re open to having a conversation about what tax planning is as opposed to just stopping all of that. It really allows you to broaden out the conversation, number one, which is great just to keep the conversation going. As an advisor, that’s what you want. And number two, it’s increasingly becoming, I mean, I’ve heard people make an argument that if you’re not providing some level of tax advice, number one, it’s when you look at a lot of websites that are out there, there’s some promises that there is some tax planning built into what the offering is, and then there’s been some polls out there as well based on what you were promised and as opposed to what you’re actually being provided, does your firm offer tax advice? Are you receiving tax advice? The number is about what’s actually being delivered are pretty low. Again, the argument has actually been, I’ve heard it recently that it’s hard to say that you’re a fiduciary if you’re not willing to dip your toe into more tax planning, especially for getting into income planning for baby boomers and people that if they do things right and broaden out their perspective from a tax viewpoint as opposed to one year at a time to 10 years down the road or 20 years down the road, you could save hundreds of thousands of dollars for some clients. I mean, it’s almost getting to a point where it’s hard to justify not providing more tax advice.

Steven (17:00):

Yeah there’s certainly a lot of elements to this. And then further exacerbating all of that is the fact that the supply of qualified accountants out there is going down. I was just looking at a report today as we’re recording this that talked about something like three or 400,000 accountants that have left the industry over the last, I can’t remember if it was four or five years, but it’s dramatic somewhere around the 20% mark that it’s people retiring, it’s fewer people getting into the industry. And so clients are more and more expecting that someone is going to help them with taxes and there’s fewer and fewer options for them to go get that help outside of their financial advisor. And so yeah, the need is growing while the supply is diminishing, and at some point that’s got to shift. And so people who are willing to individually help address that for their clients are going to have a huge advantage. And as I talk to different advisors, Jacob, I would love it if I could just mandate that every advisor have to go prepare a certain number of tax returns just so they can see how it works. It does a little bit depend on where you’re at kind of in this growth cycle. I think it really perceptive on your part that you said, Hey, I’m early on this. I’m building my book of business. I’ve got the time. Let me go do this. There might be advisors listening who are thinking, Hey, I’ve got an established book of business. I don’t want to make that sacrifice. And maybe for them going full on, let’s go prepare taxes at H&R Block isn’t the right answer, but I think you really hit it on the headlines. Expect this. You’ve got to find some way to provide that service, whether that’s someone on your team or something that you’re going to do or your clients are gradually going to get more and more dissatisfied with the lack of it.

Jacob (18:32):

Agreed.

Steven (18:33):

Jacob, as you went through that process, what was something that surprised you? So

Jacob (18:37):

I guess part of it is just being in a retail environment, especially after Covid. I think everyone feels a bit timid, whether it’s about not wearing masks or wearing masks and things like that, but there’s a bit of a communication. I wouldn’t call that a slowdown, but it feels a little timid as far as communication. I think we’ve all gotten used to meeting by video and coming in and laying all of your paperwork in front of someone and just opening up essentially a stranger. I hadn’t worked with any of these folks before. It’s like it takes a lot of trust and a lot of just basically talking through people that could be complicated and timid situation. It requires some kid gloves. So I was expecting a more rigid, just kind of plug away kind of a process. It’s a lot more nuanced and communication. It’s a soft skill to be able to work through something as sensitive as that, especially in person.

Steven (19:32):

Yeah, that’s interesting insight you share there because I mean, I definitely make fun of H&R block at times on this podcast, and it’s no malice against the company as a whole. It’s really individual experiences. I’ve heard people relay to me. But really what happens more often than not, and I think you’re really describing that there is, you have people who feel unprepared to go in and have that conversation. So you have somebody who comes in with their documents that even the police officer you described who he knows that somebody explained to ’em how it should work, but he doesn’t know how to read that off of his tax form. And so you have these taxpayers who come into this office sitting across the desk from a tax professional feeling really unprepared, which again is an area for financial advisors to really help their clients have a better experience that if you’re working with clients on anything that has a tax impact, which spoiler alert you are, everything money related has a tax impact, you should also be empowering them with the information they need to have a good tax experience. You mentioned to Lista plan, they have a way to automate a year in tax planning letter. There are great ways to do that, whether you have the software or not. I’m a huge advocate for having that year-end tax planning letter that year-end recap for the client of: Here’s the things we did together and what they should look like on your tax return”; because that small step can completely change your client’s experience when they walk into their tax professional’s office, whether it’s HR Block or anyone else.

Jacob (20:52):

Yeah, that’s amazing. Timid conversation. It’s a timid topic really. So being able to just make people feel comfortable and confident about, it’s not overly complicated necessarily. That’s what you have a specialist here to talk you through. This is helpful to people and yeah, I mean, just being able to have that opportunity was great. That’s what I learned the most about is that there’s so many varied experiences with taxes and investments and all the rest of it, but having a cohesive plan for all of it and being able to wrap it into one tight package was helpful to kind of put people at ease.

Steven (21:23):

For some reason. As you described that, it makes me think of when they make fun of people who go into mechanic shops and try to make the sounds that their car made, and we all can relate to that, but I think as financial professionals, we can easily gloss over the fact that that’s what it feels like for our clients when they go into a tax office. It feels like going in and trying to replicate the sound that your car was making, even though I’m sure that they understand that there’s money in their bank and that they earn a salary, they understand some money concepts, but asking somebody to go into a tax office and explain their tax situation to someone, it feels like trying to make that muffler sound.

Jacob (21:59):

Yeah. Yeah, I get that. So many different people too. I mean, just talking to, as an aside, just talking to a guy that had moved to the area from North Carolina and he was a chef at a breakfast spot, a brunch specific spot, and the company had treated him really well, paid for his move, and we’re paying him great, giving them healthcare 401k and all this kind of stuff, and he hadn’t filed last year, 2022 was a return and was just coming in for 2023. He’s like, I was driving by, I knew I should do it. So I thought I would just come in and do it. And I was like looking through everything and I said, the way that this is set up, they’re actually withholding the proper amount. If not a little bit over, you’re probably going to get a decent refund. You’re saving some in your 401k, you have healthcare. These are things, your situation looks great. So that surprised him. He’s like, so I probably don’t have, because my salary was bumped up quite a bit last year, so that’s why I didn’t want to come in here and have to pay a bunch of taxes. I was like, well, you need to account for it and look at it, and it looks like you’re doing things the right way. So come in, let’s have a look at it. Let’s get your things filed, and you might be surprised pleasantly. So…

Steven (23:07):

I think that really speaks to the fact that you had a background in financial planning already, because in my experience, most tax repairs are not taking the time to explain those kinds of things to clients. And so if you’re listening to this thinking, oh, well, my clients supposed go on to H&R block and Jacob will help them, that is not going to be the normal experience working with tax professionals at large. Typically, it’s someone trying to crank out 5, 6, 700 returns in a filing season and just trying to move through the paperwork. So anything you can do as an advisor to set up your client for success is going to go a long ways for the experience that they have.

Jacob (23:38):

Agreed. Just looking through some of these observations that come up on a list of plan report, less than 50% of dividend income came from qualified dividends. You may consider reviewing your portfolio to determine if this percentage can be increased to reduce your overall tax paid on dividends. 85% of your Social security earnings were taxable. I’ll truncate this. Taxable income appears to be low enough to have allowed you to recognize long-term capital gains at 0%. That’s one of 15. So if any of those pop up to a financial advisor as things that your clients would want to know, then these are things that reading over and been properly identifying items on a tax return, whether you’re filing them or not, can serve clients and be a key differentiator for a holistic practice. So anyway, just something to throw out there as an aside.

Steven (24:21):

And Jacob, I really appreciate your time and coming on and sharing that experience. We always like to make sure that we tie these episodes up with action items, and that’s a great way to segue into that. Whether you decide as an advisor to actually fully do tax prep, it’s probably really going to be dependent on where you’re at in your career. But regardless of where you’re at, picking up client tax returns and at least reviewing them, I think should be mandatory. There’s software that could help you do that. We have courses and resources around reviewing tax returns as well. But at the end of the day, what really counts is is you’re getting your hands on those tax returns that you’re getting tax returns from every client every single year. That’s what’s going to start making the difference in your own education and the value you’re providing to clients. So again, Jacob, really appreciate you coming on and sharing your experience. If people are interested in learning more about what you do and the business you’re running, how can they find you?

Jacob (25:10):

Savvy Wealth? I’m an independent advisor there. So Savvy Wealth, again, Jake DuBose, find me there if you’d like, or it’s jacob.dubose@savvyadvisors.com.

Steven (25:20):

Awesome. Thanks again, Jake. And to everyone listening, until next time, good luck out there. And remember to tip your server, not the IRS.