Transcript

Steven Jarvis:

Hello everyone and welcome to the next episode of the Retirement Tax Services Podcast, Financial Professionals’ Edition. I am your host Steven Jarvis CPA, and in this show, I teach financial advisors how to deliver massive value to their clients through tax planning. With me on the show today, as my guest, I have Jamie bossy, a CFP with Aspire Wealth Partners and a published author when it comes to financial literacy. So Jamie, welcome to the show!

Jamie Bosse:

Thanks so much for having me, Steven. I’m glad to be here!

SJ:

Really excited to have you here. And we’ll talk more about the books you’ve written because it’s “books” – plural, and I’ve actually… I’ve got the first one on my shelf already and I love it. It’s great! And we actually got connected because you recently did an interview on the Kitces Financial Advisor Success Podcast, and really talked a lot about the things you do around financial literacy. So we’re really excited that you took the time to do this.

JB:

Thanks for having me. And I do have to say that your intro music is amazing! (laughs)

SJ:

Thank you. I have to admit that I…while I’m glad that people are excited about it, my brother who’s the host of his own podcast is the one who came up with the parody lyrics. And so there’s just a little part of me that doesn’t want to give him the credit for it, but he is the one that came up with the lyrics. So we do like we do like the… it has ruined the actual song for me a little bit too, because now that the tax lyrics are going through my head,

JB:

(laughs) I bet, yeah!

SJ:

But we’ll segue to taxes on that since that’s why people listen in, but just for a little context about what we’re going to talk about today. So Jamie and your role, you work with a lot of clients who aren’t just in the ‘I’m about to retire’ category. And so there’s some things that you work with clients on, that are not as frequent on topics on our show. And so that’s… that’s really why I wanted to have you on so that we could talk about some of the things you do around tax planning with your clients that really fall more in this solo preneur or new entrepreneur kind of place in their life.

JB:

Great! Yeah. I mean, I do have some retired clients, but I would say the bulk of my client base is more kind of the age forties and under. So they tend to be either up-and-comers in the professional space and more and more of them tend to be going out on their own and starting their own thing because they’ve, you know, worked in corporate America for 15, 20 years and now, you know, they’re ready to try something on their own.

SJ:

Yeah, I mean, being able to start your own business has always been a very American thing to do, but we’ve certainly seen an uptick in that in the last couple of years through the pandemic and other things that have gone on. You have a lot of people – even though the people you’re serving are commonly under 40 – there’s people older than that as well that are seeing this as an opportunity to go start their own business. And, you know, we define retirement tax as that six or seven figure bill the IRS is going to ask you to pay over the course of your retirement. And so really the earlier we can get started doing something about that, the better off we’re going to be. So you do a lot of things from the standpoint of financial literacy and as we were getting ready for the show, there were a couple of things that you talked about that are things that you have to kind of educate your clients on as they venture into this new realm of owning a business. So can you talk about what some of those common themes are that you’re finding yourself educating people on?

Helping Business Owning Clients Become Financially Literate [3:35]

JB:

Yeah, I’d be happy to. So when we find that people that are, you know, ready to start their own thing and go out on their own, you know, they’re great at their craft, they’ve mastered their trade., you know, they’re doing awesome in the business sense. But particularly on the tax side they’re not necessarily proficient in what they’re going to come up against on the tax part of the equation. So, you know, one thing that throws people off guard is the self-employment tax because when you work for an employer, you don’t even have to think about that, right? You know, they withhold it for you. They take care of their share on their end. So it’s just not something that you think about right away. For those of you out there that might not know what I’m talking about, you know, the self-employment taxes, that social security and Medicare piece, uh, that 15.3%, uh, that is employee and employer paid. So, you know, when you go out on your own, you are essentially the employer and the employee. So when we’re thinking about the tax piece and setting aside some of their income for taxes, we also factor that, you know, 15.3% into the equation.

SJ:

Yeah. This is a really good example of areas where we can provide a lot of value to our clients just by helping them understand what it actually is. they’re paying in taxes, or if they haven’t made that venture into self-employment even just understanding that there are those payroll taxes coming out of their gross pay. Similar to the fact that we talk a lot on the show about how taxpayers focus on, “did I get a refund or not as opposed to how much tax did I pay?”

JB:

Right…(laughs)

SJ:

Ask your clients who are W2 employees, how much they get paid. And most of them are going to tell you what their take-home pay is, or if their salary, they might be able to say, “Hey, here’s how much I make on an annual basis”, but what they’re really focused on and where they’ll notice changes is in their take-home pay. They’re not really thinking about, “Here’s where I started and here’s all these different types of taxes that I’m getting charged”. And so even though going to self-employment the self-employment tax – only half that’s actually new because we all pay payroll taxes on our wages – they’re not realizing, “Hey, there’s things coming out of here that now I’m responsible for both sides of.”

JB:

Yeah. Same thing on, you know, the 401k and retirement plan savings, you know, before your employer was taking care of all that for you, you could just set it up automatically. And now, you know, you’re responsible for that as the owner of the business.

SJ:

Yeah, this is maybe a little bit of a tangent so I’ll put you on the spot just a little bit. Do you ever have clients who struggle to kind of change their mindset going from working for a company to being self-employed of, “Oh, wait, there isn’t a 401k or there’s not health insurance” and that being a deterrent for them? Do you ever have to have that conversation of, “Well, you know, yes, it’s getting paid for and so here’s how you need to factor that into how you evaluate the… the cost or benefit here. It shouldn’t be a deterrent. We just need to understand what’s going on.”

JB:

Umhmm. Yeah, ‘d say most people – when they’re, you know, taking this leap – it’s more of a safety issue, right? So the… you know, the employer is a safe place to be. The 401k is easy there. And when you go out on your own, you can still, you know, make the same amount of income or more and save the same amount or more. But it’s just a matter of not knowing how to do it. So, you know, “Okay, so now I’m a business owner and you know, there’s 401ks, but you know, what’s a SEP IRA. What’s a simple IRA? What are these other options that I have now that I haven’t been exposed to before?”

SJ:

And so, as you work with… as clients come to you and say, “Hey, Jamie, I want to start my own company. Here’s what I’m going to do…” What’s that conversation sound like? I mean, how do you… because there’s a big list of things that might impact them. I’m guessing you don’t block out four hours and sit down and go through a bullet point list and explain every single one of these. How do you kind of navigate that to try to inform them, but not overwhelm them?

Making The Switch From Being An Employee To A Business Owner [6:57]

And so, as you work with… as clients come to you and say, “Hey, Jamie, I want to start my own company. Here’s what I’m going to do…” What’s that conversation sound like? I mean, how do you… because there’s a big list of things that might impact them. I’m guessing you don’t block out four hours and sit down and go through a bullet point list and explain every single one of these. How do you kind of navigate that to try to inform them, but not overwhelm them?

JB:

Yeah. I think a lot of the conversation generates or comes out because of the goals that they have, right? So they’re talking about “this is something I’ve thought about for a long time.” You know, it’s usually not something that happens out of the blue. So, you know, we’ve known that they wanted to go down this path or we’ve had small conversations along the way about what this might look like or what that might mean, you know, for their cashflow situation. If they are to take a cut and pay for a few years or as they start, you know, have the expenses up front to start this business. But we cover, you know, a lot of topics on mainly, you know, the cashflow side, figuring out how are you going to make this work just day to day. So how do you afford your lifestyle, If you know, you’re not making the income you’re making now. And it takes a while to ramp up to the same level of earnings? And then, you know, the tax piece becomes a big one. So we talked about, you know, the self-employment tax, but there’s also, you know, the rest of the tax throughout the year. If you’re going to have to be making estimated payments or not, um, that you may or may not have been used to in the past and kind of business planning. Right? So if you, like, for instance, if you’re a financial planner, if you’re in our industry and then you go out on your own, you’re not necessarily just a financial planner anymore. You know, you’re not just working with clients on financial plans. You know, you’re now a business owner who has to, you know, run a business, maybe hire employees, you know, maybe be an HR person, things like that. So just trying to have conversations around, you know, kind of the big picture – what all is going to be changing now with this new venture.

SJ:

Yeah. That’s definitely a big shift if you’ve been a W2 employee and now you’re going to have self-employment income. Because as a W2 employee, your taxes are withheld. You don’t really have to think about them during the year. You just kind of assume that HR or payroll is taking care of that. And in your mind, the only important tax date is April 15th. When you go to being a business owner, now all of a sudden we’ve got multiple tax dates we need to think about during the year. And honestly, they don’t even all make sense because they’re not evenly spaced. There actually isn’t even one in each quarter because we’ve got estimated tax payment due in April and then June and then September and then January. So for 2021 that Q4 estimated payments, not due until January 18th of all days. And so… so there’s a lot of new things to learn there. And then on top of that, I try to really encourage clients and then advisors who are working with business clients to make sure that they are helping them to make online estimated payments. And that might seem like a simple thing, but as we see all these headlines about how backlogged the IRS is. A lot of that is actually on the paper side. And there’s almost no reason anymore to file anything paper or to send checks to the IRS. I mean, you probably shouldn’t be using checks in general, but that’s a whole different topic, but these are little…

JB:

Yeah.

SJ:

…these are little things that you can do with clients to make this experience that much better for them and to keep delivering that value time and time again.

JB:

Yeah, for sure. And with the estimated payment side of things too, you know, when I work with clients who are running their own business or kind of gig workers, you know, I recommend they have a separate savings account and just for the tax piece, you know, that way the money’s always there when they need it for making these estimated payments online quarterly, or, you know, their tax bills at the end of the year when you file. Cause it seems like, you know, that’s one thing that can really surprise people and make them have a situation at the end of the year.

SJ:

Yeah, if you’ve always been a W2 employee and you’re used to getting a small refund each year, and then you switched to doing some sort of gig work or start your own company and you’re not that intentional – like you’re talking about setting that aside and savings – that can be a real nasty surprise at the end of the year. And the IRS has a pay as you go system. And so the IRS is also going to ding you for not having made those payments on a quarterly basis. They’re going to charge you penalties. And unlike withholdings that the IRS will basically, if you have taxes withheld from your W2 or 10 99, the IRS doesn’t really care when that happened. They’ll treat it as it happened throughout the year. But for estimated payments, they treat it as received when they actually received it. So you can’t just say, “Okay, I’m going to leave this in my savings account. I’ll pay all my taxes at the end of the year.” I mean, you can, but you’re going to get charged penalties.

JB:

Right. Yeah. And a lot of clients tend to focus in on the federal tax that might be due. So they zone in on, you know, I think I’m in around the 24% tax bracket. So I’ll just withhold 24% of taxes. But what they’re not thinking of is then that, you know, the 5% state tax rate that they live in, if their state has a tax and then plus that self-employment tax of the 15.3. So in reality, they should be withholding maybe 40% of their pay in a… in a tax savings account, but they’re not thinking of those other pieces.

SJ:

Yeah. And we definitely do that on this show at times of – our conversation focuses on the federal income tax, but that’s hardly the only tax that we all pay. And, uh, yeah, you’re exactly right. There’s those other pieces in there that we need to make sure we’re considering or we’re in for some nasty surprises at the end of the year.

JB:

Yep. For sure. And just the pro tip on the… the savings account. If you do set up a separate savings account for the tax payments, I’d recommend using a higher interest online bank, like Ally bank or Marcus, where if you do have cash kind of sitting on the sidelines for tax payments, that it starts earning a little bit of interest for you, at least.

SJ:

Definitely. Yeah. I like that. So when you look at working with your clients that have a business, does kind of your calendar of when you’re meeting with them or what you’re talking about during the year, does that look different than just a retired client? I mean, what’s, what’s your process for checking in with them, for getting in front of them and to make sure that you’re proactive with those business owner clients?

How To Proactively Engage With Business Owner Clients [12:18]

JB:

Yeah. Great question. So kind of our general schedule for meetings with clients, you know, in the… in the first part of the year, we try to assess net worth and see how it’s changed from year to year and then check in on the cashflow to see if anything’s different from the year before and in my client base – which is typically, you know, the age forties and under – a lot of things do change a lot cashflow wise. So, you know, they’ve had another child or one moved out of daycare and went into school. So they’ve gotta raise a lot of money, you know, there’s just things that change quite a bit. But for clients who have, you know, their own business, we have to check in on that every meeting, whereas normally our, you know, tax planning meeting might be toward the end of the year with clients, you know, with a business owner client, you should be, we need to be checking in on that every time we meet. And then a lot of times we’re helping to remind them of making their estimated payments on time, just so they don’t forget.

SJ:

Yeah, that makes a lot of sense. Anything else that you want to highlight as far as things you do with your business clients. There’s a couple of other things we wanted to chat about that you’ve seen coming up lately, but anything else business-related?

JB:

But you know, just making sure that they’re still, you know, saving for retirement in some capacity. So, you know, talking through the options of retirement plans and you know, what percentage of their income should be going there. Cause I think that’s just something that, you know, can derail your overall financial plan if they’re not continuing to save into retirement after they’ve made this jump.

SJ:

Yeah that if they’re going from an environment where they had a 401k or something that made it really easy to just, here’s what percent of my paycheck goes in there that that doesn’t get lost in the transition when now it maybe just takes an extra step. It’s still that same habit, that same intentionality, but maybe we… the logistics is a little bit different.

JB:

Right. And then it might be different, you know, at the beginning of starting this business to, you know, next year to the next year, to the next year, but at least checking in on that and making sure that they are allocating some of their income to retirement.

SJ:

Yeah, yeah, I like that. Okay. So then in getting ready for the show, we had talked about a couple of different things that you’re seeing come up that you’re working with clients on. And one of them that I’ve talked a little bit about on the podcast, but I think is important for us to be highlighting for clients who might be impacted, are the child tax credit prepayments.

Demystifying Child Tax Credit Prepayments [14:23]

JB:

Yeah, they’re causing a lot of confusion. You know, I have a lot of clients who make high-income, so they’re, you know, above 300,000, but they’re still below that 400,000 to qualify for credits at all. And you know, they’ve been getting payments and they’re like, wait, I thought I was phased out. It says, married filing jointly… making over 150,000, aren’t going to get these payments. Uh, so what they don’t realize is there’s multiple pieces to this, right? So not only, you know, different credit levels for different ages of children, but also, you know, there’s kind of that baseline of the 2000 credit that started in the past for each kid. And that qualifies if you’re in 400,000 and under of income and starts to phase out in that higher range, but then these extra payments that are happening now on top of that, you know, the up to 3,600 for kids under age five and up to 3000 for kids age 6 to 17, you know, those are the ones that have the lower phaseouts. So I think it’s just really confusing for people because they just assumed they, you know, they might’ve heard about it. And then they say, “Oh, well I never… I don’t qualify for that.” Well then all of a sudden on July 15th, they do get a payment. So, you know, they’re like, well, what do I do now? So, you know, we try to educate people to say, okay, you know, this payment has multi-facets to it. And it’s actually fast forwarding the credit that you would file on your tax return normally. So any credit you take now is going to impact your taxes later. So whereas you… if you didn’t have that credit coming in as a payment from the IRS now you might have a bigger return when you file or you might just owe less. But now that it’s getting fast-forwarded, you might owe more than you think at the end of the year.

SJ:

Yeah. There’s definitely a lot of things that made this really kind of unique situation, and I think, really confusing for a lot of people because we had other stimulus checks that came out to certain taxpayers in the last year and a half, and this is being treated completely differently. I mean, so really any clients we have that have kids at home, we should be asking about this to see… to see if they know if they’ve been getting those prepayments because the IRS is going to ask for those back if you didn’t actually qualify for it. Because the… the additional caveat to it is that those prepayments are based on your last year’s income. And so if your income went up a lot in 2021, compared to 2020, you might be getting payments that you aren’t actually eligible for. And the IRS is going to ask for all of that back. And to your point, it might just be that if you don’t understand how this works, you’re going to get less of a refund this year than you normally expect. Because if we just take an example of… if you just have one kid that’s 15, last year you would’ve gotten a $2,000 credit. This year, you’re gonna get a $3,000 credit if you’re in the right income ranges. But they’re not just prepaying the extra thousand dollars difference. They’re repaying half of the total credit. So now they’ve prepaid you $1,500 instead of having a $2,000 credit at tax time to help lower how much you might have to pay in or increase the amount of your refund. You’ve only got $1,500. So it’s helping manage expectations. You know, the dollar amounts we’re talking here for a lot of clients, it’s not going to make or break their year, but this is really about helping manage those expectations, helping them have a good experience and knowing what to expect, not have any surprises,

JB:

Right. Yeah. Because in general with taxes, I feel like people who aren’t working with a tax preparer or a financial advisor, tend to not know what’s causing what to happen. You know? So, like, at the end of the year, they’re like, oh man, we owe $2000 this year and we’ve never owed before what happened. And they just can’t figure out where it’s coming from.

SJ:

Yeah. And unfortunately the resources around this that are just publicly available with people are not that great. The IRS has a portal that you’re supposed to be able to go in and see your status and make changes to it. But honestly, if it wasn’t for how much work I do with people around this, I probably wouldn’t have even registered for the portal myself because it was so frustrating to get through, but I had to get all the way through it just so I could talk to other people about what it looks like, but you have to upload your ID and I had to take like six different pictures of my ID before it accepted the picture of my ID and there’s just all these steps you have to go through that I would imagine that if you have clients who are impacted by this that try to go out and register for the portal, I would bet they gave up part way through ‘cause I almost did.

JB:

(laughs) Right. Yeah.

SJ:

Yeah. I mean, so there… there are things you could do between now and the end of the year to… to change that. But for the most part, what I’m recommending and what I’m trying to work with clients on is just be aware of what it means for your tax situation, as opposed to be trying to get dramatic about trying to turn it off if you’re receiving more than… than you should.

JB:

Right. I think that’s a good strategy.

SJ:

So Jamie, the other thing I always like to talk to advisors about when they come on the show is just kind of hearing about your experience kind of trying to balance that dynamic: working with the tax preparers in your client’s lives and either things that have made your life more challenging or things that you’ve found that have been more effective to make sure the client ultimately gets served effectively.

Jamie’s Experience Working With COIs  [19:12]

JB:

Yeah. I think when we can team up with a client’s CPA or tax preparer, you know, things go a lot more smoothly, right? So we can save them a lot of time on tax filing processes just by, you know, if the CPA says, :Hey, I’m missing a 1099 you know, that client doesn’t have to go fish it out wecan send it directly to the CPA and get things accomplished. You know, a lot of times people don’t remember how much, 5 29 contributions they made. So instead of them having to look it up, you know, we can send it directly to the CPA and get that done. And there’s just, you know, less mistakes and less surprises when we are working in concert with their tax team and less missed opportunities too, you know, when two sets of eyes are on it. So, you know, overall we’ve had a really good experience working with tax preparers on a team for clients, because we can be just in a really proactive position to put them in a good place throughout the year.

SJ:

What are the things that have helped you build those successful relationships? Because unfortunately not all advisors have great experiences working with tax preparers, but it sounds like you’ve at least got some relationships that are working really well for you. What do you think has contributed to that?

JB:

Yeah, I think it’s the communication piece. Just having the client know that we’re all on the same team and that we can work together. You know, so a lot of times, if we know when we’re meeting a new client, if they already have an existing CPA, we’ll have them introduce us to them. And then that way we can kind of open the lines of communication, we can brainstorm together, we can all be in one meeting if we need to be for whatever reason. But I think just having good communication between the client and the CPA, you know, helps a lot. We have had, uh, it’s not all rosy, you know,

SJ:

(laughs)

JB:

…we’ve had a bad experience or two working with a client’s tax preparer, mostly on the concept of fees. So if, you know, the tax preparer, you know, we, if we brainstorm a session and then, you know, they’re paying our financial planning fees and then they get a bill from the CPA for some kind of… from the hourly time that we spent and they didn’t anticipate that upfront, then that’s been kind of a bad experience.

SJ:

Your client getting a bill that they weren’t expecting. Yeah.

JB:

Right. So I think, but then that goes back to the communication piece of us…we, you know, we should have disclosed that and said, “Hey, we’re going to brainstorm with the CPA. Their hourly rate is this. So that’s what that’s gonna look like.” So we did learn some lessons, you know, on the…on the front end, working with other professionals.

SJ:

Yeah. It’s all about that transparency and setting those expectations. You know, I work with advisors who will pay that fee on behalf of their client. I work with advisors who say, you know what, this is a valuable service. And so this is something you’re going to need to pay for. But like you said, it’s… it’s really about that communication at the end of the day.

JB:

Right. For sure.

How To Find Jamie’s Books And What To Expect If You Pick Them Up [21:46]

SJ:

Well, Jamie, I really appreciate all your insight on these different topics. Before we get to action items talk a little bit more about these books you’ve written and where people can find them.

JB:

Uh…Thanks. Yeah. So I have three books published at the moment. Two of them are in a children’s book series called “Milton, the Money Savvy Pup”. And the first one is, “Milton the Money Savvy Pup Brings Home the Bacon.” And in this one, he’s learning, you know, some basic money concepts of, you know, identifying coins and their value, understanding that money is earned by working and learning that sometimes you have to wait and save to get what you really want. And the second book is called “Milton the Money Savvy Pup Makes Saving a Habit”. So he has a co-worker – he’s a corgi dog actually. So he has a coworker on a farm and they get their paychecks and his coworker does something different with her paycheck. So she gets paid and then puts some money in a jar for saving, money in a jar for giving, and then she can spend the rest. And so Milton learns… learns a new trick of saving for a rainy day and then also making room for charity. So they’re kind of fun kids books for general, kind of kindergarten through fourth grade level about some basic money concepts.

SJ:

Yeah. I’ve already got uh…:”Milton Brings Home the Bacon”. And it’s great for just having that conversation with kids. And although this podcast is meant for financial advisors, obviously you work with clients, your clients have kids or grandchildren. This is just a great way to have these conversations to get them, get them started. We’ll have to, we’ll have to see when Milton starts paying taxes.

JB:

(laughs) Yeah. Maybe next year. So yeah, the sooner you can start with this, you know, financial literacy conversations, the better and…and kids are really interested in money and want to learn more about it. So take advantage. And my third book is my most recent publication and it’s my first grown-up book. So it’s not… it’s not an adult book in that way, but it is called “Money Boss Mom, Helping Young Parents Be The Boss of Their Financial Future.” And it’s really a guide book for young parents on, you know, the things that you should be aware of. You know, now that other people are dependent on your income and your family is growing. So it’s meant to be really a nonlinear book where you can… you don’t have to read it, you know, page by page, you can say, “Okay, I’m a parent. Now I heard I need life insurance. What does that mean? What do I need?” And you can just, you know, read chapter four to figure that piece out. Or you’re like, “Well, now I need an estate plan. What do I need to know about that?” You know, read chapter five. So, it addresses some of the basic things that the parents come up against and landmines that they face in terms of cashflow, you know, insurance, risk management, those sort of things, but also give us great tips that are, that are good for anybody really on, you know, saving for retirement, investing, you know, kind of the longer term goals and things. So

SJ:

That’s great. Yeah. I appreciate you sharing all that. Yeah. So I… and your books are all available on Amazon?

JB:

They’re on Amazon and Ingramspark.

Action Items [24:43]

SJ:

Perfect. All right, well, let’s get some action items out there for our listeners and we’ll get this wrapped up. So I’ll let you go first. So I don’t steal all the good ideas, but as we think back through the things we’re talking about today, I mean, what’s… what’s an action item you can recommend to our listeners to take this and put it in practice.

JB:

Uh…I would say when you’re working with a client who is owning their own business or going out on their own, having that conversation about the self-employment tax and estimated payments is key because that tax piece can really mess people up. If they’re not ready for it.

SJ:

Yeah, it’s so critical for especially these big life changes that we have a system or a checklist that we’re making sure that we’re covering all of these different areas that might impact them. So just to kind of really tag right on that checklist and making sure we have a system for things: as you’re going through your fall or year end reviews with clients, make sure that you have tax planning on the agenda. If you think you have a client that tax plan is not applicable to please send me an email at advisors@rts.tax, I will help you see why tax does apply to them. But wherever they’re at in their life, whatever type of client you’re working with, make sure that you have something tax planning related, whether that’s estimated payments or this year’s Roth conversion or whatever it might be, have something on that agenda that’s tax planning related. And then, as always, I’m going to highly encourage that you are getting tax returns for all of your clients every single year. This is by far the best way to identify opportunities, as well as making sure that the things you’re doing with your clients are being reported correctly to the IRS. So Jamie, thanks so much for being here. I really appreciate your time.

JB:

Yeah, thanks so much for having me. It’s great talking to you, Steven.

SJ:

Thank you everyone for listening until next time. Good luck out there. And remember to tip your servers, not the IRS!