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Are you trying to learn how to deliver massive tax value to your clients? Then look no further. Retirement Tax Services Podcast, Financial Professional’s Edition is a show hosted by Steven Jarvis, CPA. Steven aims to bridge the gap between tax professionals, financial advisors and their mutual clients in their quest for reducing tax expenses in retirement.
Having an in-house CPA is a valuable situation for advisors to be in, but the partnership has to be set up in the right way. In this episode, tax professional Chris Smith and financial advisor Michael Henley join the show to share their different sides of the experience. They have some really helpful insight into professional collaboration, building relationships, and creating strategies that massively benefit clients.
Listen in as Michael discusses why tax planning has always been important to him as an advisor, while Chris shares how he incorporates tax planning with tax preparation. You will get great insight into how to find the right partnership and how to ensure the dynamic between CPA and advisor is benefitting the client. Michael and Chris also offer tips and ideas for how to add value through tax planning as a team.
Steven and his guests share more tax-planning insights in today’s Retirement Tax Services Podcast. Feedback, unusual tax-planning stories, and suggestions for future guests can be sent to email@example.com.
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We’re not overpaying. No, we’re not overpaying. We’re not overpaying anymore. The tax code’s complicated, boring, and overrated. You don’t want that, you want a pro. One thing that you should know: this is a radio show. It’s not tax advice, don’t take it that way.
Steven Jarvis: Hello everyone, and welcome to the next episode of the Retirement Tax Services Podcast, financial professionals’ edition. I am your host, Stephen Jarvis, CPA, and in this show, I teach financial advisors how to deliver massive value through tax planning.
Really excited to try something new on the show today. I have two guests with me; a financial advisor and a tax professional. So, the odds are in my favor of this going very much in my direction.
But really excited to welcome to the show, Michael Henley, and Chris Smith. Guys, welcome. Thanks for being here.
Chris Smith: Thanks for having us.
Michael Henley: Thanks, Steven.
Steven Jarvis: And really, for Michael, it’s welcome back. You’ve been on the show recently to share kind of your experience as a financial advisor and talk about why tax planning has always been important to you, and I’m really excited to have you back on, and then to have Chris here with you to talk about how you have incorporated the tax preparation along with tax planning.
So, Chris, you’re new to the show, why don’t you give the audience just a little bit of a background of who you are and what your relationship to Michael is here.
Chris Smith: Yeah, so my name’s Chris Smith. I am a CPA and graduated with an accounting degree, and started doing tax returns the very inception of my career. Did not really dabble into the ANA field and did tax all the way from internship through today.
I was previously with two firms, was on the precipice of signing as a partner at a prior firm, and had the fantastic opportunity of joining a Brandywine Oaks team and starting a tax practice to kind of partner up with the private wealth side.
Steven Jarvis: That’s awesome. So, we want to cover several different things. So, I’ll let you guys kind of add in whatever you’d like, but I think where I’d like to start is, Chris, on your side, I get to fight lots of stereotypes about CPAs. I’m sure you get to do the same thing.
But to some extent, I can relate to some of the truths that tax preparers feel around kind of their perception of the financial planning world. Kind of this misconception that it’s all insurance sales and commission stuff, and why would I touch that with a 20-foot pole?
But here you are, a fellow CPA who said, “I’m going to embrace the dark side, I’ll go over and join with this financial advisor.” So, talk a little bit about what led you to being excited? Because clearly, you’re excited about what you’re doing now. What got you to be excited about this opportunity?
Chris Smith: I think you have to find the right financial advisor to partner with. I couldn’t just throw a dart and choose any financial advisor to sort of partner up with and feel comfortable that they’re doing the right things for their clients.
So, first and foremost, you have to be able to feel comfortable with the plan that they’re initiating for all of their clients, and that you want to be a part of it. Their tax planning strategies were coming to me already complete when they were referring clients to me when I was previously not here.
And now, that we’re partnered up together, we’re still doing the same things, except we’re more on the same page. I already had kind of an expectation as to what I was going to get from their side in terms of planning and what they do throughout the year.
So, now, that I’ve already got that expectation, we can kind of synergize together and get everything together in a more efficient manner now that I’m in the office.
Michael Henley: I would just add to that; Chris being in the office is critical because honestly, having clients in the office and being able to pull Chris into a meeting and say, “Hey, we’re about to sell this rental property” and trying to calculate depreciation is not something I do in my free time.
So, I just to go pull Chris in, “Hey, run this for me. What’s the tax consequences?” You know, just something that clients find, I mean, absolutely powerful because they’re able to put the pieces together and they’re no longer in the middle between their financial planner and their tax preparer, which is often kind of a difficult position for clients.
Steven Jarvis: Yeah, it does seem to be the case that a lot of advisors, even the ones who will embrace tax plan to a certain extent, they’ll do their part and then kind of just leave it with the client of, “Hey, but check with your tax preparer,” and then they’re just kind of crossing their fingers almost that the client goes and asks somebody else.
Which almost never happens. And also, and Chris, you can probably relate to this; as a tax preparer, if it’s the client coming to me and trying to play the game of telephone of “Here’s what I think my advisor told me,” it usually comes across as, “And they said you have to do this on a tax return.”
And I’m thinking, they don’t get to tell me what to do on a tax return. That’s a totally different dynamic than two professionals working together.
And so, for people listening, even if you are not going to take it to the level of having this in-house, there’s so much that you can learn from this dynamic that Chris and Michael are talking about as far as how the client wins from this. I love that you immediately went there, Michael, of this is how it benefits the client.
But Michael, maybe talk a little bit more about what led up to this decision. I mean, you’re clearly already seeing the benefits of it, but what got you to this point where you said, “You know what, I want this person on staff?”
Michael Henley: Yeah, so I would say well, I’ll first start with kind why starting a tax business in the first place — we would spend a lot of our time reviewing client tax returns just for accuracy and making sure the strategies that we implemented in the prior year actually were reported correctly.
More often than not, we’re kind of fixing errors that CPAs were making. So, that was often just challenging A, the client’s in a difficult spot, they have to go back to the accountant and say, “This was missed” or what have you.
B, sometimes the clients would get charged for that mistake. I mean, it would be this kind of, who should be covering this? We found the error, the CPA made the error.
But I would say specific to Chris, a couple things, number one; working with hundreds of CPAs throughout my career, we often identify the ones that are kind of forward-thinking, that are really kind of cutting-edge as it relates to tax policy, tax law changes, kind of what’s up and coming, if you will.
We also, in my experience, just identified there weren’t many CPAs that were A, forward-thinking, B, attention to detail, and I would say C, have that entrepreneurial, I want to grow, I want to start my own tax business. That was something that was great when it comes to Chris, because I think you had gone through the process already, if I’m not mistaken?
Chris Smith: I had thought about it throughout my career on a few different occasions and for whatever reason, one another, family issues and things like that just didn’t quite sync up at the time. But it was a perfect opportunity, perfect timing, and it just worked out.
Michael Henley: And prior, I would just say from a percentage standpoint, we probably had about 15% of our clients with you before. It wasn’t a small number. So, we were basically pretty actively referring kind of a larger relationship to Chris in the first place as a prior firm.
So, kind of coming in the door, he had a good number of kind of mutual clients that we already co-managed together, but then kind of the process of having to kind acquire, buy the clients that we didn’t have, which it’s a lovely process.
Steven Jarvis: Yeah. So, let’s back up for just a second here, because this wasn’t like one day you decided, hey, my firm really needs tax preparation in-house, let’s go start searching for someone.
You had already spent years making sure you had strong relationships with CPAs, probably not because your end goal was let’s hire one of them, but just again, you knew that’s what was going to benefit the client.
And so, you had put the time in, you’d put the work in to have these really quality relationships, so there’s professional collaboration and it obviously, it ended up where you’re at today with this tax prep in-house, but I’m sure there’s a lot of intentional efforts over multiple years to build those relationships along the way.
Michael Henley: That’s exactly right. So, I would say that for years, prior to actually kind of kicking this off, we collaborated very often, some of the largest clients and some of the most sophisticated strategy we’ve done, quite frankly, were with your prior firm. So, absolutely.
Steven Jarvis: So, as this has come in-house and now, you’re more formally on the same team, I’d love to hear from each of you like what are some things that maybe you’ve been surprised by or learned along the way of just kind of the differences in how the business models work?
Chris Smith: I think timing, if anything. With the SALT cap limitations years ago, fourth quarter became a little bit less urgent and pressing as it used to be. While you still have obviously, business clients who would need to get expenses in, and there’s some yearend deadlines around that — the volume of tax estimates that needed to get out the door before December 31st drastically decreased.
So, coming on board here, they’re doing a lot more of their meetings at yearend to do different investment strategies and moving around different parts. They needed updated tax estimates.
Well, if you want to provide a holistic plan all at the same time, or at least in a somewhat timely fashion, so that was a little bit of a surprise to me beginning of December that we were hurriedly rushing and getting all these planning opportunities done at the end of the year.
Whereas, from a tax perspective, the rush has kind of subsided a little bit over the years, but welcome to the challenge and that was a fun December last year.
Michael Henley: So, your Thanksgiving will never be the same again for Chris? I’m just kidding. So, there was a lot tax withholding, tax projections, Roth conversions, et cetera, et cetera.
But yeah, I just think the timing of it, absolutely, yearend is certainly something that we kind of ramp up surge meetings in the fall. But I would say in terms of business models, it’s interesting. I mean, we charge clients a separate fee for the tax service, not an issue. We kind of speak to that.
And we say, “Look, what you’re getting is collaboration and communication. What you’re not getting right now is any of that.” So, it’s just something that there hasn’t been much pushback for the most part. You have your clients who have a $300 CPA, kind their accountant in their garage. But I would say that for the most part, the true professionals — clients still have an issue.
I think it’s interesting; a number of clients signed up in the first week or two, didn’t ask the fee at all. They said basically, if we can simplify our lives, by all means, you’re hired, please do it. Please accept us as a new client.
Some of these clients are retired DuPont engineers, Turbo taxers for life. They have nothing to do with it. They want nothing to do with paying a CPA, but what it is, it simplifies things for their surviving spouse very often, which is just invaluable.
Steven Jarvis: Yeah, you mentioned a couple of really interesting things in there that I’ve seen over the last year and a half or so that I’ve been collaborating directly with financial advisors, is that for most clients, it really doesn’t become a fee question if the value’s clear. That’s true of any business model.
But when you separate it from, “Oh, well, hey, you can get your tax return prepared for X amount of dollars” to, “We’re going to make this simpler, we’re going to keep this all connected, we’re going to hit the easy button for you” is a conversation that I have quite often with especially the DIYers.
“Well, why would I pay you when I can do it with myself?” And I say, “You know what, you’re probably doing a great job of doing it yourself.” And a lot of times I have their prior tax return and I can even say, “Hey, I can even see that you’re doing a great job, but here’s the things that we’re just going to make simpler.”
For financial advisors who are doing tax planning, that’s the first step. But having these really just, well put together relationships, whether it’s formally in-house like you guys have, or even if it’s a third party, but building that really intentional relationship.
Michael Henley: I totally agree. I think quite frankly, when it comes to corresponding with the IRS in the state of Pennsylvania, Delaware or whatever it is, that the burden that’s relieved from the clients not having to think twice and they get a notice from the IRS of a mismatch or something — guess what? They don’t have to think twice about it. We can forward it right to Chris.
I don’t have to think about it. It was always kind of stressful for me as a practitioner because you kind of as a financial planner get in the weeds with taxes, but you’re not a CPA. So, you can kind of go up to the wall, if you will, but you can’t get beyond that.
So, I think to some extent, just a big relief from our standpoint. We used to have to kind of bother a random CPA in the network. Often, it was you actually basically asked like an advanced, an AMT question. Some kind of unique situation where didn’t come up very often.
You always kind of feel bad, you’re using their time, you don’t have a good resource. So, I would say that from just a resource perspective, it’s huge. You get an advanced tax question not to have to wonder who do I ask that, where do I go?
Steven Jarvis: Well, and going back to something you said before, Chris, you talked about coming on board of you had already seen the work that the financial planning that Michael was doing. You could tell that he was doing a high-level of service for his clients.
And as I talk to advisors about building relationships with CPAs, one of the things that we focus on, is essentially, find ways that you can show, you can tell a tax preparer about how you serve your clients because that’s more than anything.
If you can clearly show “Here’s how I deliver value to my clients,” that’s how you get mutual respect from peers, from other professionals in your network. It’s not how fancy the lunch can you buy them or how low is your golf score. It’s give them the opportunity to see here are the things that I am doing for my clients and that’s what’s going to elevate these relationships all day long.
Chris Smith: It’s all about providing value and value that they appreciate, and they can tangibly see. So, watching what they did in terms of just witnessing Roth conversions with purpose, everybody’s maxing out their HSAs, they’re advising them to do so … there are many, many clients that I’ve seen over the years who just don’t get that aspect.
And when your client walks in the door already having checked all those boxes and done everything, and maybe not converted too much but converted just the right amount to maximize a bracket, you don’t see that all the time.
So, once I started seeing that repetitively over all the different clients that they have here, it just naturally felt like, okay, these guys know what they’re doing, they’re on the right page with every client. So, it just made me feel comfortable.
Michael Henley: I was going to mention state residency is something else recently has come up a lot where clients say, “Hey, I’m going to move from maybe Massachusetts, from New Hampshire, can you run them side by side?”
And that’s something that even with Holistiplan, some of the more software’s that’s kind of advanced — I mean honestly, quite frankly, you can’t really do it without true tax software kind of showing everything from the client’s exact capital gain situation.
Because some states don’t tax capital gain or tax dividends. So, that sort of thing, I think just, it’s so powerful for you to be able to kind of one-stop shop, hey, client asks any financial question, you can get them an educated answer quickly and efficiently.
Chris Smith: Yeah, there’s nothing that’s really going to be as good as having the full-blown tax software and being able to save as a new copy, and run a whole new scenario in an actual tax return.
And the power of these higher ends tax software packages, you could do that and it makes that job that much easier even though it’s still a complex issue and you still have to run a few different scenarios.
Steven Jarvis: Yeah, we love using Holistiplan. We use it on pretty much every client, but we definitely get to that point where whether it’s state issues or sale or partnerships or whatever it might be, where you definitely just want to run the actual tax return because you’re going to get a level of precision that you’re not going to get from a planning tool.
Chris, what I was going to say before is that I really liked how you highlighted … when you’re talking about the things that Michael’s firm was doing really well, that that got you excited, really, you were covering what a lot of people are going to think of as kind of some of the basics.
But they get missed so often of, are you maxing out an HSA? Are you maxing out an employer plan? Some of these things that I know maybe they don’t sound as exciting, but as a tax preparer, nothing is a bigger red flag for me — well, pretty high on the list of red flags of advisors.
If I have a client coming to me asking about some complex strategy that their advisor told them about, but they’re not maxing out their 401k or they haven’t contributed to a Roth, or they could still contribute $5,000 more to an HSA.
I say, okay, time out before we get lost in the headlines of these flashy ideas, like are we doing the basic things? And to your point, Chris, when I see those consistently, then I’m excited.
Then it’s like, yeah, let’s talk about those complex things because I know we’re covering the basics. I know that an advisor’s not proposing that … because they were just really trying to close a sale, they’ve done everything else and now, they’re moving on to the more exciting things.
Chris Smith: If you can’t check those basic boxes, then why are you dabbling in something that’s overly complex and trying to recreate the wheel? You got to at least do the basics first, and then you can take the next step.
Steven Jarvis: Which is a great reminder for advisors in general, whether you’re looking to partnering with a CPA or just adding to your own tax planning kind of acumen, you can start simple.
To hold yourself out as being able to provide value through tax planning, you don’t have to be the expert on 1031 exchanges. Like that’s not where you have to start. Like start with these basic things, deliver massive value on those, and then slowly build what you do from there.
Michael Henley: Agreed. I would also add that from a new business standpoint for advisors listening, I think the tax prep business has been a differentiator I would say. And basically, just I would say every new client we brought into the RA, into the practice sign up as a tax client as well.
There’s not a new client we’ve brought in since Chris has joined that basically has not fully signed up with Chris kind of as a package deal. I think that in a lot of ways, you’re going to see more and more … we probably are 30, 40% now clients have converted, we’re probably going hit closer to two thirds after this fall and spring surge.
I just think it’s fascinating from a new business standpoint, how many clients have asked, “Wait, you actually can do my taxes?” And it’s meaningful to them if they don’t think twice about anything.
It’s just something that I’ve been kind of surprised how many new clients say, “So, you guys can handle that in-house? That’s not something that Merrill does, none of the other firms do it.” So, something I think is also a good differentiator.
Steven Jarvis: Yeah, we’ve been seeing a lot of that as we work with advisors through RTS. As they first sign on, they’ll let their clients know. Some percentage will want to convert over, but as they’re having new prospects come into the office, it’s a huge differentiator of how they see the value of signing up with that advisor.
And then their new clients are “Of course, I’m going to do this.” They’re already making a decision on working with the advisor and it’s just natural to just ride along with that; “Yep, of course, please take care of my taxes.”
Michael Henley: Yep, yep. Exactly.
Steven Jarvis: So, Michael, you had started to mention before and I think it was kind of a learning piece of this all for you. You mentioned buying some of the clients that came over Talk a little bit about that. That’s something that not a lot of people are familiar with.
Michael Henley: I would say that I wasn’t familiar with at all. I thought it was just insane. I was like, “Wait, so …” major Wall Street firm, we threw our clients, no problem. Called every single one of them, protocol list or what have you. Chris, you call them all, and we’re good to go, right? So, I guess, not so much.
Chris Smith: Yeah, I guess CPAs, I don’t know if we’re the dummies or the smart ones. It depends on what part of the food chain you’re on there. But when we all sign up to work for a CPA firm, just about every firm that I know of, you sign a non-compete.
And depending upon what those handcuffs are, kind of dictates what you’re going to pay to get your client back out. And fortunately, unfortunately, I built up a good client base over the years and that’s what the … I knew what the cost was going to be to leave, and that was always a piece of what was holding me back. That was one small piece each time I considered maybe breaking off and doing my own thing.
It’s a big hurdle to get by because not only do you need to buy your client base, you also need to buy everything to set up and get your tax off or running equipment office, staff. You need all of that. So, when you tack on a non-compete, it’s not so fun.
Michael Henley: So, I called Chris a year ago and said, “Hey, we have an office for you, we’re expanding next door. This is a home run, and basically, we’ll loan you the money to get things started. This is a win-win, off to the races.”
Steven Jarvis: Yeah, and there might be some attorneys listening or people with legal background who are saying to themselves, “Hey, well, are non-competes even enforceable?” I’m not an attorney, I don’t know, I’ve seen all the articles that claim they’re not.
But the reality is do you want to just pay for the clients and have a clean break and move on, or do you want to spend that money in legal fees trying to fight whether the non-compete’s enforceable.
Michael Henley: No appetite litigation, it’s not worth it. It was one of those things where I tend to agree but I just didn’t have the appetite for it.
Chris Smith: You get to handpick the clients that you want to bring along.
Michael Henley: That was nice. Yes. Yeah, for sure.
Steven Jarvis: Yeah, I mean, my general philosophy is anytime we can play nice, why not play nice? So, now that you’re a year into this and looking at your next tax season, where do you guys see the kind of the next evolution of growth from the standpoint of how do you keep elevating the client experience?
Chris Smith: That’s a good question. So, actually, just this last week, we’re implementing some new software to deliver better tax package. The way we were delivering it before was still electronic mostly, but there’s a little bit more automation to it in terms of interface that the client will see, tax organizers are all going to be digitally sent, same for engagement letters.
They’ll be able to sign, pay, and receive and redownload their copies of tax returns throughout the year. And it’s all going to be located in one spot, one interface That’s new this year for us.
And I think just overall, improving the client interface and guiding them in terms of making it less and less painful and giving them less to-do items is the way to go and that’s what we’re striving to do every year.
Michael Henley: Yeah, and I would just add on our side, one thing is we’re looking at of course, is during our fall and spring surge, we’re going to probably look to reprice clients sometime in 2023 or early ‘24.
And one of the things we’re going to absolutely look at, is basically, which clients are using a tax business and which are not. Because quite frankly, it’s a huge time saver for us. The amount of time and resources we have to allocate for outside CPA, outside tax prep is significant, back and forth with drafts, back and forths on everything under the sun.
So, I just think from a repricing standpoint, we are going to communicate to clients that we are absolutely going to reprice clients differently if they use our tax business or not, just from a resource allocation standpoint, et cetera. So, I would say that … go ahead.
Steven Jarvis: Well, I was going to say now, the way you’re describing that, that almost sounds like you’re saying that for people who aren’t using your service, you would potentially charge them more.
Michael Henley: We would. I mean, nothing substantial, but we absolutely would. It’s more work for us. It’s no different than any professional service where you can do it in-house. It’s just cheaper, more efficient. It’s not going to be five basis points or something, but still …
Steven Jarvis: I just want to draw that out and make sure it’s really clear to the audience because I completely agree with you. The more I interact with advisors, and hear the difference in working collaboratively with RTS, which is closer to what you guys have of having it in-house, as opposed to having to chase down those third-party CPAs —the time it saves on the team and the frustration, the headaches and all of that.
I totally get where you’re coming from. It just might seem counterintuitive to some people to say, wait, they’re going to use few of your services but get charged more. But what you’re saying is that at the end of the day, using all of your services is where they’re getting the best value and where your team is able to most effectively and efficiently deliver that value.
Michael Henley: Exactly. That’s exactly right. I would say we’ve also looked at, Steven, perhaps nothing definite, but acquiring tax practices, and we can talk about that a little bit.
Chris Smith: Yeah, if the right opportunity comes along. There might be some retiring CPAs in the local area; “Our profession’s getting older.” Some firms don’t have an exit strategy, even some smaller practices could be could be the right opportunity for us. But it all depends on what kind of comes along.
Steven Jarvis: Yeah, I know that’s another one that gets talked about quite often, like as an idea by advisors and I’ve only met a handful who have done it and I’ve heard of ones that have gone really well and ones maybe not so much.
So, I’d love to have you guys back on once you’ve had a chance to go through that. I’d love to hear about your experiences as you go through that.
Michael Henley: Yeah, we’ll see how the brain damage goes. That’ll be interesting, of course. Like from—
Steven Jarvis: Michael, you talked about how this has been an improvement in the client experience. As a financial advisor, when you look at your team separate from the people actually doing the tax work, what’s been the difference for your team as far as how does that leverage what they can spend their time on or what they’re doing just day-to-day as far as having that really tight collaboration with the tax side?
Michael Henley: That’s a great question, Steven. I would say on the administrative team specifically, all of our administrative partners were spending a significant amount of time — I’m going to call it chasing down tax returns, because basically, the client would say, “I don’t have it, go to my CPA.”
They go to the CPA, the CPA needs a form. So, the form has to get sent to the client. It would just literally this back … but they would spend months and months and months or it’d be extremely frustrating for us as financial planners be going to the next review, “Where’s the tax return?” I mean, it’s almost like going in blind.
So, from that standpoint, I would say that it’s a huge relief for them. They don’t have to chase down outside CPAs often go back and forth with drafts and what have you. I would say that when it comes to documentation, especially early on.
So, a lot of the clients obviously know our admin team, they don’t know Chris’s team just yet. So, very often, clients are comfortable coming to the office and basically providing documents, bringing all their social … all the tax statements right into the office here locally. They’re used to the office, they’re used to the admin team, no issue there.
So, I would say that by and large has been a big relief, pretty much from all the way around. I would say that from the admin team, the advisor standpoint, especially when we get a new client on board, have Chris review the return, “Hey, there’s all kinds of things we can fix, clean this up.” Just gives you more ammo to kind of go at any competition.
Steven Jarvis: Yeah, the value to the client is clearly number one, but I just like to highlight in there that this is a win for everybody involved. If those relationships are built, if there’s systems in place, this is a win for everyone involved.
Michael Henley: One of the biggest wins is I totally stopped studying for my CPA. I was like I’m going to get my CPA, great idea. Started with CPA … actually, started master’s in tax, then went down, then went to CPA, then I went to EA, and then I went to hire Chris.
So, basically, being relieved from that CPA exam, I’m quite feeling better about it.
Steven Jarvis: That’s quite the kind down sell there. You probably made the right choice.
Michael Henley: I like to think so.
Chris Smith: I think you could have passed the tax exam.
Michael Henley: Not the audit. But I would say also, tax law changes. I didn’t even mention that. But basically, obviously, keeping up … tax law changes is a constant thing. That’s almost a full-time job. The Inflation Act this week, there’s just so many damn changes.
Having Chris kind of on top of all that stuff, I don’t have to spend as much time on it. I still obsess over all the Michael Kitces and stuff and all that, but it gives me almost a relief that hey, I’m not going to miss something as it relates to delta unemployment last year.
You brought something up where delta unemployment wasn’t taxable or something in one year. It was released after the fact, and I just would never have thought about it, didn’t know that. But we were of course, going through real life situations that that had impact. So, it’s kind of those things as well.
Steven Jarvis: Yeah. And right wrong or otherwise, the consumers place a lot of credibility on a CPA designation. And so, you talk about tax law change — as we’re recording this where the Senate has passed the Inflation Act, we’ll see what the house does, but most likely, there’s going to be some kind of changes to the tax law.
And for most consumers, they just see tax law changes. They assume that it’s going to be big and scary and impact them directly even though it looks like it probably won’t impact a lot of people.
But just having that added, being able to say, “Hey listen, we talked to our CPA, and you’re fine be.” I don’t love that that’s how it works because I think that’s kind of a false sense of security at times. But the reality is consumers put a premium on that. They like knowing that who they’ve always envisioned as the tax professional is on the team.
Michael Henley: Yep, I a hundred percent agree.
Chris Smith: And I actually get excited about the tax law changes. So, whether they’re higher or lower.
Michael Henley: I lost my electric vehicle credit this week. That’s okay though.
Here’s a question I’m going to ask the two CPAs in the room; backdoor Roth, will it be around after this final version?
Chris Smith: I’m voting, yes.
Steven Jarvis: Oh, final version of this current law? Yeah, I think it’s six around, I think it makes it through this one. Will it be around in 5 years or 10 years? My crystal ball works as well as yours, but I think it makes it through this one.
Chris Smith: I think it’s here to stay for a while.
Steven Jarvis: Awesome. Since you mentioned that, I had somebody push back on Roth strategies, and Michael, I know you’re a huge fan of doing all things Roth. Basically, the pushback was, well, Congress could come back and change that and make that all taxable at some point.
I don’t control congress. I mean, in theory, yes, the tax code is written in pencil. They can change anything and everything they want to, but I can only operate based on what I know.
Michael Henley: Yeah. And I would point to every legislative, every proposal is going more towards Roth. Everything is going Rothificcation, Rothification, they’re making it more and more now. Catch up contributions are going to be Roth in the new SECURE Act.
And the other thing clients have to push back is what if tax rates go up in the future? I love Ed Slott’s response, “Well, what tax rate is lower than zero?” But there is none.
Chris Smith: There’s no way they’re calling that back. I can’t see that happening.
Michael Henley: I still worry about that. Down the road with my own Roth, I’m like, gosh, 30 years from now, if I’m still around, you know that tax that’s going to kill me on the spending.
Chris Smith: Yeah, that risk is probably a higher risk than the Roth becoming taxable directly.
Steven Jarvis: Well, before we get too far down the rabbit hole of speculating on what’s going to change in in the future on taxes because we can nerd out on this all day; we’d love to make sure that we’re taking all the stuff that we’re sharing and making it actionable for everyone who’s listening.
So, yeah, there’s probably some people listening to this podcast who are thinking, “Yes, someday I want to have taxes in-house.” I think for a lot of advisors, they want to elevate what they’re doing on tax planning, whether that means in-house or not.
So, as you think through what you’ve learned from partnering together, what are action items that you would recommend to advisors who are looking to move forward in what they’re doing for their clients on tax planning?
Michael Henley: One that come to mind that I’ll add is especially early on as you kind of venture down the tax planning path, if you will, attending CPA conferences is something I did early enough on. But kind of the AICPA conference in Vegas, for example, it’s a total CPA kind of geek out — it was great.
But attending like tax conferences, I just find as an advisor, you have a different perspective because you kind of expect it to be kind of in the weeds. And you’ll often find it’s a lot of practice management, a lot of things that are kind of very eye-opening. So, I think advisor attending tax conferences is one thing they could certainly do. What else?
Chris Smith: I’d say sort of like what you did, partner up with multiple CPA firms, kind of find who has a niche in what area around town. Not every CPA is going to be as experienced in rental property management, business ownership, high net worth individual trust.
You’re going to find that every CPA has a different niche and if you want to partner up with a tax planning advisor, make sure that you’re partnering up with the right ones and that are fitting the right clients.
Steven Jarvis: Yeah, I love that. Both great recommendations; focus on the education. I like the added kind of nuance to that of, look, even if you’re a financial advisor, never want to be a CPA. Still, there’s some great content out there, great conferences out there.
And then building those relationships is so critical. Often, it gets framed as just, well, potential referral source, center of influence, but there’s so much value to your client, to your business of building those relationships over time, being really intentional about that.
It kind of snuck in there a few times, so I’ll just bring it out as the action I recommend. You guys both talked about how often you’re reviewing tax returns and Michael, you made a comment about going in blind if you don’t have the tax return.
Advisor, you have to have tax returns. I feel like every time this topic comes up, I’m more definitive about that. It’s like a doctor who doesn’t want to check your pulse. Like you just have to have it.
So, get tax returns for every client every year. That shouldn’t be negotiable, that should be table stakes.
Chris Smith: Could not agree more.
Steven Jarvis: Yep. Well, guys, thanks so much for being here. I’ll look forward to having you back on the show at some point. We can talk about acquiring tax practices, but really, appreciate you all taking the time and coming and talking on the show.
Chris Smith: It’s been great, thanks, Steven.
Michael Henley: Thank you.
Steven Jarvis: For everyone listening, good luck out there, and until next time, remember to tip your server, not the IRS.
We’re not overpaying. No, we’re not overpaying. We’re not overpaying anymore. The tax code’s complicated, boring, and overrated. You don’t want that, you want a pro. One thing that you should know: this is a radio show. It’s not tax advice, don’t take it that way.
The information on this site is for education only and should not be considered tax advice. Retirement Tax Services is not affiliated with Shilanski & Associates, Jarvis Financial Services or any other financial services firms.
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