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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.
Scott Bishop is the Executive Director of Wealth Solutions with Avidian Wealth Solutions, a Houston-based RIA. Specializing in guiding clients through the process of identifying their personal financial planning goals, Scott joins the show today to discuss the importance of proactive planning for your clients to ensure you’re completely prepared—even as updates are constantly being made to taxation rules.
Listen in as he explains the right time to take action with your finances, as well as how to give the best advice to your clients with confidence. You will learn how to effectively communicate your expectations of everyone involved in the tax planning process, how to make sure the proper processes are being implemented, and the importance of understanding your clients’ goals and objectives.
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, Steven Jarvis, CPA. And in this show, I teach financial advisors how to deliver massive value to their clients through tax planning. My guest on the show with me today is a fellow CPA who also happens to be a CFP, Scott Bishop, the Executive Director of Wealth Solutions at Avidian Wealth Solutions. Scott, welcome to the show.
Scott Bishop: Nice to be here, Steven.
Steven Jarvis: Yeah, you and I had a chance to connect virtually several months ago because you put out a lot of great content around taxes, and I was really excited to be able to connect with you and bring you on the show to talk about what this looks like in your practice and how you work with your clients. Really appreciate the time.
Really where I’d like to start is we’re going to cover several different topics, but you had mentioned to me that every year you put out a newsletter for your clients covering things to think about, things for the upcoming year and that you had to wait a little bit longer this year, because there are maybe some questions out there about what Congress is going to do, which that still hasn’t been finalized as we record this podcast. Maybe talk a little bit about some of the things that go into that newsletter and then your thought process around issuing that content when you still know it can all change sometimes soon.
Scott Bishop: Well, it’s interesting because a lot of people say, “Scott, how can you talk about things?” I was writing about the Build Back Better potential plan when I was comparing the Trump tax plan to the Biden tax plan. And then as we started getting into the Build Back Better plan, I had several articles that I kept updated throughout the year as to both the things that could impact policy, tax and even financial planning. As we know the Build Back Better had significant changes to retirement planning, IRAs, Roth IRAs, taxation, tax brackets, possible distribution from extra large IRAs and Roth IRAs. And all those things were really important, including a lot of the tax changes related to estate planning, like getting rid of grafts, getting rid of grantor trust, reducing the estate tax exemption. All of those things were percolating all year.
And so usually starting in around 2014, I started writing two articles at year end because I thought they were very helpful for clients because my belief was a lot of people start tax planning at the first quarter of the following year. They sit down with their CPA, they go, here’s my stuff. And they ask their CPA, how can I save money in taxes? And my belief is the time to do it is the year before, no later than the fourth quarter. I usually tell people to try to find time to sit down with their CPAs after October 15th, where they have a little breather after they’ve filed the business and then the personal tax returns. Usually around October, I put out two articles, which you can find on my website. One is called the Year End Tax Planning Checklist and the other one’s called Year End Tax and Financial Planning Ideas.
One is specifically for taxes and it for breaks it down by individuals, for families, for business owners, for all kinds of different things. And these are things you need to make sure you bring up with your tax and financial planning team. And it also has several links to various underlying articles if people aren’t familiar with some of those topics.
The other one is the Year End Tax and Financial Planning Ideas because some of the things with tax are also geared towards financial planning. Things like, should I convert an IRA to a Roth IRA? Should I fully fund my plan? Within my plan should I pick pre-tax or post-tax? Have I made the gifting I need to make for the year? Is it time to possibly make gifts of different entities or partnerships? It’s all those types of things that can make a significant difference in your planning by using lifetimes exemptions or annual exclusion exemptions, but because the Build Back Better was going to be so possibly dynamically changing to what was going on I actually didn’t get those out until the end of the year. I did get them out in December when we had a little bit of assurances that the Build Back Better plan would not pass in 2021. And just because it was a little bit late, I actually changed it, which I’ve done a couple times before into New Year’s Resolution.
I took those checklists and said, “Hey, did you make any financial resolutions? Did you do these? Here are some things to think about if it’s time to get your financial plan in order.” And those are some of the things I did marketing around year end that really had significant ties towards, what should you do before year end to tie up some loose ends on your tax and financial plan?
Steven Jarvis: Well, certainly appreciate all the time that you spend on that because that’s nice that there are clients who can sit down with their CPA and talk about proactive tax planning, but a lot of people don’t have access to great tax planning, unfortunately. Love your commitment to that. But even in December, sure, we might have been more confident that the changes weren’t going to be made to effect 2021, but still you just sent out this whole checklist of things to think about. And Congress is still talking about the Build Back Better plan, it could still all change next week, next month. They could change between when we record this and when I air it. And so what gives you the confidence to go ahead and put things out there even though you know it could all change here soon?
Scott Bishop: Because my belief is proactive tax planning and financial planning, it’s very hard to get the timing perfectly. When I was wondering what was going to be happening in terms of grantor trusts, which I don’t want to get into, but there’s some very powerful tax and estate planning tools and grantor trusts. We didn’t know how it was going to really be done, but if we wanted to make gifts to some defective or grantor trusts and be able to still have intra-family discounting, my goal was to get it done. And so if it didn’t end up passing my clients at least did proactive estate planning. If it ended up passing and they would’ve missed out on it, it was hugely beneficial.
I used a lot of these to try to light a fire under my clients to do the planning they should have done anyways, regardless of the planning, but I work with very good board certified to estate planning attorneys and they’re practicing CPAs so that anything we had put in place in the event that needed to be unwound, such as if we did some things that ended up being retroactive to January 1st 2021, they put in some safeguards to be able to unwind it to make sure my clients, as an example, wouldn’t pay gift tax.
Because the client’s 50 or 60 years old, they want to avoid estate tax, but they don’t want to have an oh-oh and end paying gift tax because of those changes. We did it very carefully and had long conversations with clients, but there were several clients that had been, “Oh, I’ll get to it when I get to it,” that at least saw this as a time, okay, if I was ever going to do it now is a good time to do it, to make sure I don’t lose some of these, what Congress was calling loopholes, what I call is taking full advantage of the tax planning and legislation that’s already out there.
Steven Jarvis: Scott, I love that approach you’re taking of using it to light a fire under clients. I’m right there with you on that. And really, I asked the question pretty confident in what your response would be because I’m right there with you, that you can’t wait and try to guess the time. Just like with investing, this isn’t about trying to get the timing perfectly right, it’s about having a plan and executing that plan. And so there is always going to be uncertainty in the tax code, always. It’s written in pencil, Congress can change it as many times as they want. And so if you’re waiting for the tax code to stabilize before you work with clients, it’s never going to happen.
Another area that was coming up with the Build Back Better plan, and still might be impacted, is the backdoor Roth contributions. And that was one where we worked with clients through the end of 2021 and now into 2022 to say, hey, listen, this is probably something you should be doing anyways to try to separate the cream from the coffee and make sure that you’re able to make that conversion to Roth without incurring the IRSs pro rata rule. There’s things in there that, great, if there’s pieces that you’re really concerned might change and in a specific client situation might blow the whole thing up, maybe wait on that particular thing. But in general, the advisors who are waiting on this, it’s more of an excuse than a real reason.
Scott Bishop: Real quick, anything with basis can be impacted so it’s not even just the backdoor Roth, because they weren’t going to allow you to convert an IRA with basis into a Roth IRA. It also had to do with after tax cash and 401k. For people that had already retired and left their plans at their employer, it behooves them to take a look at that and se, is now a time to take action before they eliminate that benefit? Because at the end of the day, because of Peter Thiel’s $5 billion IRA or Roth IRA, they’re trying to impact the normal people that may have 50 or $100,000 to put into a Roth IRA. You hate it when multi-billionaires take away a tool that’s very valuable for the modestly or moderately wealthy.
Steven Jarvis: I remember learning that in elementary school, it’s always the one person who ruins it for the rest of us. It’s the exception-
Scott Bishop: That’s right.
Steven Jarvis: … that ruins it. Scott, talk a little bit about, I mentioned as I introduced you that you’re a CPA as well as a CFP, but at this point while you have a focus on taxes, I don’t think you’re out there preparing taxes.
Scott Bishop: No.
Steven Jarvis: You’re really focused on the financial planning side. Talk about that balance for you personally, why you pursued the financial planning side, but you didn’t really let go of the emphasis on taxes. Where’s the value for you?
Scott Bishop: Well, for me, I always hate to be the bearer of bad news, the person that says, here’s what you owe in taxes. It was always more fun to do to tax planning, but in the world of being a CPA, in today’s world, most people, unless you’re a very good tax planning CPA, people want to pay you H&R Block costs, or they want to pay you the cost of Turbo Tax. They don’t truly want to pay you for your advice and they aren’t willing to give you the time or give you the data to do it many times.
When I was finishing my MBA many years ago, my thought was going into financial planning so I could proactively help people, but I did have to find a home in an independent world where I could actually offer the advice that I wanted to. But what that really allows me to do also is to partner up with some really good CPAs and really good tax attorneys, so that in my client base, we can have three brains working on a client situations from different disciplines that can talk the same language and come back to our client with a unified front as to what’s best for the client with three independent principles making sure that they’re giving the client the best advice.
And by not being a practicing CPA, it means that I can refer clients to CPAs that really know what they’re doing and can be a balancing act to make sure that my client knows they have true fiduciary recommendations because every single one of those professionals are looking out for their best interest.
Steven Jarvis: I really like that description, Scott. And I think it’s important to highlight for advisors listening that if they go out to your website, they go look at these articles you’re talking about, you clearly spend a lot of time on taxes. You have a very above average knowledge when it comes to this stuff, to put it lightly.
But it’s important that you highlight there that you still work with other professionals. This isn’t a matter of, hey, you want to be the expert on everything possible and the final say everything. Being able to identify for your clients, being able to help your clients see, here are areas that we should pursue and look at. But at the end of the day, you’re still partnering with those people who that’s what they spend all their time on, the attorneys and the CPAs, the other people in that client’s life to say, “Great, I’m your financial advisor. I might be the ring leader here, but we’re going to make sure we involve the right people to make sure this gets done correctly.”
One of the things I’m always telling advisors is, any of this planning is only valid if it gets reported to the IRS correctly. Best idea in the world goes out the window if it doesn’t end up on the right form.
Scott Bishop: And that the fact pattern is good, not bad fact patterns. We always know the IRS goes after bad fact patterns, but that’s why for my more complicated clients, we actually have something that I’ve put together in terms of how it works.
It’s called an outsourced family office, and a lot of people do it. But what we do is we put together an advisory board for our clients depending on their situation. It could include a financial advisor because, of course, those listening that is one very important part of the team. But it could include accountants that do bookkeeping, it could include tax accountants, it could include tax attorneys, estate planning attorneys, business brokers. It could even be business consultants that could help with succession plans and building up the next level of infrastructure for a business succession strategy. By doing this together, we come up with the framework for the client and then we help either use their existing advisory team or help compliment the existing advisors we have to make sure we truly have people around the table that all will be looking at the client to give the best advice.
And we try to stand as the quarterback of that team to make sure people aren’t just talking about things that need to get done, but actually get these things implemented. And how we summarize that, we have what we call our Executive Action Plan, that goes from here’s what a financial plan looks like to here’s the deliverables to say, what is this deliverable? Why is it important? What is the timeframe of it? Who’s responsible for it, and what are the steps in each of those areas? And that’s what my team actually makes sure it gets accomplished in our client relationship.
And we’re the ones that reach out to the attorney. We are the ones that reach out to the CPAs. We are the ones that reach out to these people to work for the clients if they’re willing to engage us in this family office concept to make sure it can happen without them having to hire all these people, to be full time for them. We try to find what we think are best in class people to help our clients that also have the personalities that may fit with our clients. Because we all know that not every doctor is the perfect fit for every patient, and the same could be said for anybody on this advisory team.
Steven Jarvis: Well, CPAs aren’t necessarily known for their social skills, but there are some good ones out there and it’s worth trying to find them to serve your clients. Scott, to put you on the spot just a little bit here, one of the things that we talk to our audience about quite often is the importance and the value of getting tax returns as part of your planning process and reviewing tax returns. Can you talk about how you see that in your process as far as, and I think, you’re highlighting here working so closely with other professionals, but where does that fit into that plan of getting information communicated to the tax professional, but as well as getting the actual return back into your process on the planning side?
Scott Bishop: One of the things that we have the unique ability to do on our team, because we have several CFPs and CPAs on our team, none of them are practicing though, is one of the things we do in our initial process with the client is we actually don’t engage them for a specific thing. We actually go through an engagement proposal process that gathers information, both qualitative and quantitative on their family, their assets, their objectives, their data, their tax returns, both business, personal, could incorporate things like gift tax returns, trust tax returns. And what we do is we look for the things, because we know how to look as CFP CPAs, we know how to go through those tax returns to see what’s important.
And what it really does is it allows us to get a pretty good game plan of what the client may be doing, what they may not be doing, and it really helps us work with the CPA and the tax team to make sure we see everything that’s needed. And that’s what we do is we actually will try either directly or indirectly, not with the client there, talk with the CPAs, talk with the tax attorneys to let them say, here are some things we’re seeing. Are the clients talking with you about that? Have you talked with them about things like a family limited partnership gifting? Have you talked with them about gifting away their unified credit or using annual exclusion gifts? Have you talked with them about maybe moving their life insurance out of their estate into irrevocable trust?
We’re able to do these types of things with their tax team so it doesn’t look like we’re trying to go in and submarine what they’ve been done. It’s a way to go in and say, I’ve talked with… Because if we assume that the CPA has not talked with the client about it, we don’t know that the CPA’s been banging their head against the wall for 10 years trying to get the client to do it and the client has not been willing to do it. We try to start off with a cooperative relationship versus an adversarial relationship. And if we start it the right way, by looking at these things and ask open-ended questions to the CPAs, it really allows a multidisciplinary approach to try to make sure we can serve that client better, knowing what the goals and objectives are.
And one thing we do that helps the CPA, helps the tax attorney is using financial planning software. We project out not just taxes, but the financial plan, business growth, asset growth, to say here’s what the issues are now but if we don’t do anything right now, 10 years from now it can be a really big problem so we maybe want to address it now. And some of these things help the client truly see that these things aren’t just being done for tax purposes or for asset protection purposes, we help let them know that if we do these things, it better aligns them with their ultimate goals to save money and taxes, to save money and risk in all those types of things.
Steven Jarvis: I really like that you mention that 10 year timeline, because I think this really highlights why, even if you can go find the best CPA in the world, there’s still so much room for the advisor to take this tax planning focus. Because most tax professionals are focused on this year, maybe this year and next year, but it’s very short term focused, it’s very compliance focused, which those are important steps, but they’re not the end of the game. And so taking that, you mentioned as we were getting ready for the show that as you work with clients, the 10 year number wasn’t arbitrary, that you do a 10 year projection to say, hey, based on what we know now, here’s what this looks like over the next 10 years. Here’s landmines to look out for. And then I think, correct me if I’m wrong, but then you focus a little bit more on the next couple of years where there’s a little more certainty of what they can and can’t do-
Scott Bishop: Correct.
Steven Jarvis: … and then specifically what’s the action we need to take right now?
Scott Bishop: That’s exactly right, because people don’t want to think, what am I going to do in 2029? They want to know what am I going to do in 2022 and why am I going to do it? If you look at 10 years, they get the why. And then if you look at the next three years they get the I get it. And if you look at this year, they go, I have the checklist of what me and the team needs to do over the coming several months to 12 months.
Steven Jarvis: Yeah. Love that approach. That’s a really good balance between helping them see the why, which you have to take that long-term approach if you’re going to be able to do that. Because honestly, a lot of tax planning strategies that get the headlines, but even things that as commonly talked about as Roth, if you only look one year at a time, a lot of these tax plan strategies don’t really look that impactful or that powerful. You’re only really seeing the benefit of some of these things if you take that longer term view. But if we wait for 10 years to take action, we’ve missed our opportunity.
Scott Bishop: Well, people say, “Can you show me a financial plan that shows that I’ll have more money at the end of 30 years if I do more Roth conversions now?” I’m going to say, “Actually, I can’t show you that because you’re going to lose some money in taxes, but I could show you that if tax rates rise, if you want to have access to another bucket of money that’s tax free, or if you want to pass on money to your family, there won’t be a tax time bomb 10 years after you pass away that explodes in their face. There’s a lot of benefits to it. It breaks out some of the art in science, but I can’t show you why Roth IRAs will leave you more money.”
But at the end of the day, many financial advisors forget that, because it’s really about making sure you understand their goals and objections. Their goals hard to be able to mitigate some of the tax hits, pass more assets through children tax efficiently. Roth IRA is a good tool. If it’s to have the most value on a balance sheet, pre-tax, a Roth IRA is not the right tool, but that’s poor tax planning.
Steven Jarvis: I was recently working on an article talking about just that very thing of this misconception that a lot of taxpayers have that when they look at their million dollar IRA balance, they’re like, great I can withdraw a million dollars. No, no you can’t. That’s a whole different conversation.
So much value in that long-term approach, I really love that you take that. And I just really feel like it’s important to highlight that your approach working with those tax professionals, included in part of that is working with them, building that relationship even outside of the conversations with the clients so that you’re setting everyone up for success. That you’re not coming in March of 2022 and saying, “Oh, by the way, we did this thing in 2021, make sure it gets reported correctly.” You’re giving them a seat at the table, you’re collaborating with them, this is a proactive thing. Ultimately what this does is it allows the client to win. This is helping to try to remove the silos that we unfortunately put ourselves in at times as tax professionals versus financial planning professionals, and really looks at it as the single industry that it is, which is the client’s financial wellbeing.
Scott Bishop: And no advisor has to be defensive if we meet without the client and we have basically the ideas and we come at them with a united front, number one, no one has to be defensive, and number two, we aren’t confusing the client when we’re yelling at each other or we’re talking in legal or accountant speak and the client’s just rolling their eyes going, “Why am I here?”
Steven Jarvis: Yeah, yeah. That’s a really great point too, that without the client in the room, that natural reaction to be a little bit defensive and to try to prove that you’re the smartest in the room goes away for a lot of people. That we can just have a conversation as peers to get it sorted out and then bring the client in and say, here’s the path that we’re recommending. Because the client is coming to us because they want a specific recommendation. They’re not coming to us because they want to understand all 12 different options and the intricate details of each and every one.
Scott Bishop: I have a few that do, but they can be difficult.
Steven Jarvis: Sure. There’s always going to be that person who wants to ask all the deep questions, but most of the clients, most taxpayers, they want to understand the why, they want to know what it’s going to do for them over that 10, 20, 30 year period, and then they want you to recommend a course of action.
Scott Bishop: That’s correct.
Steven Jarvis: Well, Scott, I really appreciate the time you’ve come on and spent with me on the show, one of the things that we always do is make sure that we’re recommending action items that our listeners can take. We can take this information and make sure it’s implemented, make sure it’s valuable. As you think about the conversation we’ve been having today, what’s a recommendation you can make to listeners as far as action they can take to improve the value they’re delivering to clients through tax planning?
Scott Bishop: What you need to do is really take a look out there, look at the financial planning journals, take a look at some of the thought leaders and say, in my current firm, do I have the skillset, the team, or even the ability to offer these services? And if you don’t have it, you may want to think about your long-term career path and the location you’re in because, at the end of the day, here’s what I say, a lot of us got into the financial planning side of the business, where we were able to invest money, do estate and things like that. But some of the skill sets that were very valuable back in the nineties when I got in the financial planning business have been commoditized.
If you want to stay on top of your game and give a reason for your clients to continue to work with you versus going to work with possibly someone like me that can do these types of things and are able to in my firm requirement, I think it’s time for you to look at your current affiliation model and make sure that you can offer these services if it’s something you want to do. There’s many ways to skin a cat, but if you truly want to be on the top of your game as a tax aware certified financial planner, you need to be affiliated with a firm that allows you to do that and you need to stay on top of your game and continue to study and learn, because these laws change all the time.
I was telling one of the younger guys in my office, if this Build Back Better plan passed, as it was in the middle of last year, this young advisor and I would be on playing in the same sandbox because they were taking away 15 to 20 years worth of knowledge, of tools that I was using that he didn’t know, and they were going to put us on par.
When things change, you need to be able to make sure you change with it. When the Secure Act passed, I became an expert on the Secure Act and got affiliated with other people that can do there. And I started doing webinars on the Secure Act. When the Cares Act passed, I started becoming an expert in that area, talking on it, doing webinars on it and letting my clients know and perspective clients know that I was on the game and we were making sure that we knew those issues. If you want to be at the top tier of your game, you need to find out if you’re in a place where you’re willing and able to do that for your clients.
Steven Jarvis: To summarize that into a couple of specific actions, I’d say to first one out of what you’re describing is you need to make a commitment to tax planning. You need to decide that this is something that’s important to your clients. And, in fairness, only the clients who pay taxes, your clients who don’t pay taxes you can skip right past it, that’s fine. But you need to make a commitment to the importance of this.
You need to have an action plan, not just for how to start, but how to stay up to date to your point, these things change. And you need to make sure that you’re continually improving your knowledge, that you’re following thought leaders in the industry, that you’re learning from the people who are committed to this and that you’re understanding how to deliver that to your clients.
And then I’d say the third piece of this that maybe was really more what we covered throughout the conversation is this needs to be incorporated into your planning process. This can’t be something that you just hope happens or is fly by the seat of your pants. It needs to be a specific intentional part of your process, start to finish.
Scott Bishop: Absolutely. To quote Jay Svoboda, “There is no try, there’s do.” If you truly want to be at the top of your game, put together a personal business game plan to be the best in your business in the areas that you want to focus on.
Steven Jarvis: Yeah. Love it. Scott, thanks so much for being here. I really appreciate it. And to everyone listening, until next time. Good luck out there and 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.