Read The Transcript Here:

Steven Jarvis, CPA (00:51)
Hello, everyone, and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals Edition. I’m your host, Steven Drivers, CPA. And this week, I’m excited to have a conversation about the overlap of tax prep and financial planning with an advisor who is, in fact, doing both. Knight Coleman from Coleman Night Advisory Group joins me this week. Night, welcome to the show.

Knight Colman (01:11)
Thank you so much for having me. Really excited to be here.

Steven Jarvis, CPA (01:15)
Yeah, I’m definitely excited. I always love hearing other people’s perspective on how this overlap can be beneficial to clients because at end of the day, I’m completely convinced that better client outcomes come from collaboration between tax professional and financial advisor, whether that’s something like we have a retirement tax services where we have a tax team, we collaborate with financial advisors, but it’s independent companies or in your case where you’re doing tax prep and financial planning under one roof. So as we get started here, give just a little bit of background on your experience and the firm you’re with and kind of the service offering you have.

Knight Colman (01:45)
Yeah, no thanks, so much for asking. we do what we call holistic financial planning, again, investments, tax planning, insurance, cash flow modeling, planning, and estate planning, all of that, again, CFP, all those five areas. But from the beginning, one of our founders, a tax attorney, came from the tax realm. And pretty early on, it was just so clear how much value that adds, not even just the being under one roof for the planning strategies, which we can chat about, but also just from the client service side of the ease, the flow. Okay, I know the person who’s going to be doing the Roth conversion strategy also will fill out the 8606 for whatever that is to really keep it all under one roof.

Steven Jarvis, CPA (02:45)
I’m glad you started there because it’s really easy, especially the age of the internet, to always jump to the end, to like jump to the fanciest, shiniest, most complicated thing that can possibly exist. And sure, those things come up at times, but I love that you just started with the client experience, that client service model, because at the end of the day, every financial planning decision has a tax impact. And although more and more advisors are talking about taxes in their marketing, I still think it’s the exception to find advisors who are effectively implementing collaboration between, financial planning professional, and tax professional. And so I love talking to people who are in your situation where both are actually happening under one roof because done right, that can be incredibly valuable for the client. So, Knight, talk a little bit about you, like you personally, because you right now, you’re currently actually doing tax prep as well as doing financial planning, so you’re getting to experience both, is that right?

Knight Colman (03:35)
Yeah, definitely. And what I believe is just true is when you get the tax prep under your belt, then it leads directly into tax planning. And then when you do really good tax planning, it makes tax prep so much easier. One of the things that even the less clients that we have to put on extension than doing pro forma’s for those clients and then being able to say, instead of being right at the end of December having to do a Roth conversion, well, what if we did our tax planning in the June, July, August months, and then we have, you know, the final quarter to even iron out all those things. But something that I’ve also realized, I love tax planning strategies. More clients just want to even know, am I going to owe anything, no matter what, I can come up with, I love qualified charitable distributions and you can almost turn this qualified retirement account into an HSA with triple tax benefits. Yeah, yeah, yeah, I love it. And the clients will, well, am I going to owe money for this quarter? I have an underpayment penalty. Why did that happen? And those type of things are so much more frustrating and so again back to the client experience. But all of that combined, our approach is the human side, the emotion side and we’re such a values-based firm. So we start with that with the client. But the overlap between planning and taxes, I mean it is just the same for us because as you already mentioned, every single strategy, even the amount of time you’re rebalancing a portfolio that has tax implications. But I’ll at say my foray six years ago into like what actually started really getting me excited about tax planning was the Roth conversion. And I heard the simple statement of it’s just a tax rates problem.

Knight Colman (05:50)
It’s only, you know, you’re gonna, it’s gonna be the same growth either way. It’s are you paying more in tax now or is your future tax rate gonna be higher? Which in theory isn’t like false. But then when you start to put it into practice and you’re like, well, wait a minute, it really matters. Where the assets gonna go? Are they going to be passed down to heirs? Is the person married, and it’s not just their own lifetime, it’s their spouses as well. Are they again charitably inclined, and could they use those assets for charitable giving instead. Another big one for advisors is we can if we’re taking payments from the client accounts, it’s not a distribution directly to the client and so if, I was only taking an AUM fee proportional to the account and you have them convert everything, they pay the tax and then all of sudden that Roth dollars are going to pay you instead of qualified dollars that don’t count as a quote unquote distribution to the client under certain circumstances. So there’s all these variables, as well as where do you even, you know, how do you pay the tax dollars? It from cash flow right now? Is it from appreciated stock? Or is it actually from the qualified account? So I started digging more and more and being like, whoa, this is not just a quote-unquote simple calculation of, is my tax rate 22 % right now and I expect to be 32 % in the future? And so I’m going to do Roth all now. So that was my kind of foray. Then every single step beyond that, was then, okay, well, if you’re thinking about Roth conversions, what about Roth contributions? What about backdoor Roth contributions? What about real estate? All the benefits there. I think far too many financial planners or just financial advisors only think of investments. Everything has to be under, you know, stocks, bonds, securities.

Steven Jarvis, CPA (08:04)
Yeah, this stuff all gets a lot more complicated than the internet makes it seem sometimes. And so I love the level of detail that you went in there because that’s just on the, what do we need to consider to make these decisions? Because there are a lot of different factors of what is the ultimate goal, the ultimate outcome the client’s looking for. I’m glad you touched on charity and who’s gonna use the funds. That gets missed a lot of times in these conversations. And then there’s the other side of this, which is then, hey, did that all get reported correctly? Which to your point before, when there’s really close collaboration between a financial planning professional and a tax professional, the chances of that getting reported correctly of all the factors being considered and addressed definitely goes way up. From a tactical standpoint, like what was your training or learning process like to get to the point where you were comfortable preparing tax returns? Because I went and got my degree in accounting, I became a CPA, I went a very traditional route and most advisors that route’s not going to make sense for them. But I still, I’m a huge advocate for advisors preparing tax returns to some degree because of the insight that you get. So what did that process look like for you to get to the point where you’re like, yep, I’m gonna go ahead and prepare a tax return.

Knight Colman (09:06)
Yeah, well, I have the ultimate safety net of having a partner at the firm who’s a tax attorney who has 40 years of tax prep knowledge and who is willing to sit down with me with any question I had. But my commitment to him was then, I want to try everything I possibly can to get this as accurate as possible. I’m going to do tons of research and just keep playing with it until it makes sense. started with my own tax return, lower stakes if there were errors there. And I went back to internally our firm had just all the previous years of, we use Lacert as our tax prep software. So I could literally go back and check all the underlying data. I actually went and I said, okay, our five different levels of client spectrum on the one end, which is still beyond my full-on capabilities, but like a foreign tax exclusion amount. And we have a client who lives in Southern France with a consulting firm. They sold their home. All that level of complexity. I was like, all right, let me just try and see what happens if I start from scratch there, and then all the way down to maybe a little bit simpler, W2, 1W2, just make sure I get all the data inputs accurate. So I tried kind of five different levels, five returns, and I sat down and went through it. But you go back to what you mentioned on implementation and making sure that that’s accurate. That’s huge, even for me, just understanding what forms need to be filled out in what way, and if the forms actually aren’t filled out correctly years from now, that could be you know, issues and I didn’t even know what a lot of these forms were until you actually getting into the nuts and bolts.

Steven Jarvis, CPA (11:07)
I appreciate you sharing that because there are just some things you really aren’t going to learn until you get your hands on the tax return yourself. And actually, a lot of what you described is what I recommend to advisors who are interested in learning more about this. you’re absolutely right. You had a huge advantage, which good for you for taking advantage of, of having someone in your firm that could provide that oversight. Whether, for advisors listening, whether you have somebody in your firm or not, or you have a CPA in your network who would do that for you or not, I mean, your recommendation of start with your own tax return. Everybody can do that. Even if you have a CPA who does your return, like you don’t have to actually hit file yourself. Take the time. Create a TurboTax account, an H&R Block account. The other advantage is now you’re going to see what your DIY clients are actually experienced because those DIY software’s look a little bit different, but it’ll give you a chance because it’s your own situation. You know what the outcome was. You can go through and see where these things get reported and to your point where the mistakes happen because sometimes, especially as we talk about tax plan, we talk about backdoor Roth contributions, Roth conversions, charitable giving, a lot of these things can get done wrong upfront and have little to no impact the first year around. It can come up later, and it can cause really big problems later if that’s not done right upfront. And from the financial advisor side, you can do everything from your side of it correctly, up to the point of making sure it got reported on the tax return. And if you don’t have that in-house, if you haven’t built a relationship with the tax professional, there is only so much you can do to force someone else to report a tax return correctly, which is why I’m also such a huge advocate for advisors getting tax returns after the fact and making sure that things got reported correctly. Because even if you have to amend a return, doing it the year after something happens is way better, than trying to sort something out 10 years later when a question finally comes up.

Knight Colman (12:50)
Yeah, love what said, and what I realized too are some of the implications of like one of my suggestions. Before I really got into tax returns, I didn’t even really know what the pro rata rule was at all. I’m thinking back and the amount of time, sure, roll over a 401k into an IRA. That one move now has so many new implications to it by just knowing wait a minute, I can’t just do this backdoor Roth strategy in the same way. And again, there’s ways around it, but still to this day, I don’t know if I actually didn’t get into the return the tax realm if I would have understand some of those nuances. countless examples of that, but that’s how I continue to see the benefits as well as there’s just something about seeing the tax summary and the comparison between, okay, this is what the tax return would have looked like, and this is what it can look like now. And then the actual refund coming back or something to that extent, that really is motivating, I actually can see the value that’s happening.

Commercial (14:06)
belaysolutions.com

Steven Jarvis, CPA (15:39)
Well, and like with anything else in life, there’s only so much you can learn from the sideline. You can learn a ton from listening to podcasts, from reading books, from taking courses. I’m a big fan of all of those things. I create a lot of those things. But for people who follow what I do, you’ll notice that I always include how advisors can take action and how they can get their hands on this themselves. Because that’s the piece, to your point, that’s the piece that’s really gonna make this come to life. Of you can read about the Prorata rule, but the first time you see it get messed up, the first time you see an 8606 with the pro rata rule calculated and realize, somebody didn’t actually tell me about this IRA balance, and now we have to report it. That’s when it will, you’ll never forget it again. That’s when it’s really gonna get driven home. And so there’s just so much value in being able to get your hands on those tax returns and do the work yourself.

Knight Colman (16:24)
Yeah, and now that if you think about it too, like as a financial advisor or planner, you don’t have a ton of reason to maybe even track home improvements or things like that along the years. Whereas that could provide so much value to your future client without them even knowing. And one of the things that we do is we have access to our clients cash flow. We have counseling, so we literally know when they have home improvements and we can stock it away or even put it into the basis, even if we have a basis calculator for the future. And we actually have a running list for a lot of our clients who may never even sell their home. But in case they do, that’s then one less thing that the client has to go back and think about it. And I’m not saying that that makes sense for everyone. That’s like way extreme. But none of these things I would have even thought of were possible until actually, for the first time, being like, wait a minute, this client owes this capital gains tax on selling their primary residence and…one really easy way to save them real tax dollars is if they had just documented over the last 30 years all the improvements they made. But how was someone going to know 23 years ago what the exact cost was? So that’s part of what gets me really excited about now. It’s not even just the tax prep, the tax planning we’re doing this year. It’s I feel so confident 10 years from now I’m going have a client who didn’t even know what I’m doing right now is solving that future headache for them and that’s really exciting to me.

Steven Jarvis, CPA (18:09)
It’s definitely where the best tax planning comes in is when we take that long-term approach, because if we only focus on the current year, there’s only so much we can do. And usually focusing only on the current year means you’re heavily favoring tax deferral, which can make a lot of sense in certain situations, but it’s not some wonderful be-all fix-all when it comes to tax planning. We got to take that multi-year approach and having access to that information, knowing that you’re going to be coming alongside the client for years to come certainly makes a huge difference on that. I’d love to hear your perspective on, advisors approach this in a lot of different ways. I don’t run into advisors who try to convince me that tax planning isn’t important, but it can be challenging to find the right balance of how much time you get spent on these things, because time that you spend on tax preparation is time that you’re not spending on financial planning or growing the practice or other areas of your business. So maybe just speak a little bit from a business model standpoint, why the emphasis on continuing to incur the cost and training and time of offering tax prep, when in theory there’s other things as financial advisor you could be doing.

Knight Colman (19:08)
Yeah, that’s a great question that I think we still go back and forth on, I think that the answer is our clients have seen such a huge value to it that it’s ingrained, and my belief is it makes me a better planner. Now, my path this past year was not sustainable. I worked every single weekend and I had two days off from January till April 15th. But the reason why is because I haven’t built out my system yet for being able to handle that workload. And so in my opinion, I had one really, really hard tax season, which is the one behind me. And now even already, it’s starting to pay dividends because out of our, let’s say, 150 tax returns, we already finished 120 of them, and for those 120, most of those can immediately go into tax planning, which just is financial planning. I can’t separate those two. So I guess that’s part of it. And then I’m a very strong proponent of you give the best outcome to your clients, the firm will grow, those pieces will come into place, but we don’t do a ton of marketing or new client development. It is mostly referral-based. Because we haven’t given as much time and attention to that, it is more on our own internal systems and that client experience is number one.

Steven Jarvis, CPA (20:41)
Well, I certainly appreciate the kind of the honesty and transparency there because what I heard, you can correct me if I’m wrong, what I heard from that was, hey, it is challenging to do this tax thing, but because of what our clients tell us and because of the value we see in it, you’re completely committed to making sure it happens. So maybe that looks a little bit different in the future as far as how it gets done. But that’s probably the most consistent theme I hear from advisors, I’ve yet to meet the person who tries to insist, oh, this has to be done in-house or you’re a terrible advisor. I don’t hear that extreme, but we see a lot of different variations of this, but that common theme of the tax piece is just too important. And that’s where a lot of the advisors come to us and work with us through retirement tax services when we’re doing tax returns for clients or advisors is they see the value of doing tax prep. Maybe they’re not in a situation like you where they had somebody already in the firm who can help oversee it. And the reality is it’s really hard to find talent right now in the tax prep world. So I mean, good for you for being committed and diligent enough to follow through on it because I’m personally optimistic that there is room for significant improvement in the tax prep world. And we’ve been able to see that with our team to some extent that it’s not every weekend, all day, every day, that kind of a thing. But just with deadlines and just kind of the nature of the tax prep world right now, there are some realities there that still need to be worked through. So it is challenging.

Knight Colman (21:51)
Yeah, and I think that the hardest part is the things that were hold up for us. A lot of it comes to clients not being able to be organized, get their own documents or things like that. But something that’s really, really nice, I believe, about having that human-to-human client experience, and they trust us so much from the planning side, that they’re also willing to probably do a little bit more for us to really try and hit our February 15th deadline, is like, gives us two months of individual tax prep. A lot of our clients really try to go above and beyond for us because we also have that really personal relationship of it isn’t just tax prep.

Steven Jarvis, CPA (22:36)
No, that’s really good point. And it’s definitely something that has stood out to me as well. And something I’ve benefited from working alongside financial advisors is we’ll work with clients who they’ve worked with CPAs for years. They’re not new to working with CPAs, but they kind of take almost this lackadaisical approach of, it’s not really due until April 15th. So I’ll get to it I get to it. And so we’ve definitely got a huge advantage out of being able to reach out to the advisor and say, hey, we’re not hearing back from Bob and Sue. If you could kind of prompt them, like we could get this done and move on to the better tax plans things. Because of that deeper relationship that typically is inherent with financial advisors We’ve seen a lot of great results from that It’s just I think from the it creates a client a better client outcome as well that they’re hearing from multiple financial professionals Hey, this is important and here’s why it’s important and here’s why the timing makes sense Let’s go ahead and get this done. So at the end of the day, it really does create better client outcomes more than anything

Knight Colman (23:28)
Yeah, well, something that sounds amazing, especially about what you do and if you’re an advisor out there too, if you’re saying, what’s another great way of being able to learn more about taxes? If someone’s already leveraging your team, what a gift to be able to take some of their actual clients and maybe say, you know what, can I go underneath the hood a little bit and hear from your end? So I think that’s, again, what you’re doing in the industry, bridging those two and supporting the advisors. But I’m assuming after even probably a year or a couple years of working with you, those conversations can go even deeper. And I think that’s where there’s so much value. Like you said, there’s all these things on the surface level, but when you start to think years, decades down the line, what are the planning strategies now? That’s so, so huge. So it’s that level of depth.

Steven Jarvis, CPA (24:24)
Yeah, and this might feel like a silly example, but it’s the most recent one that comes to mind of where the advisors we work with really benefit from the program. And then again, the client outcome is so hugely improved. I had an advisor reach out to me and said, hey, I’ve got this mutual client. They told me who it was. I knew exactly who they were talking about, who they live in an income tax free state. And they have a vacation property in a very high tax state. And the client came to the advisor saying, hey, we saw this thing, want one of the spouses to establish residency in this other state, so our property taxes will go down. And since it was tax related, they kind of came to the advisor saying, Hey, it’s a tax thing, so we’re just gonna do it, because you’re the advisor, you don’t do the tax thing. They’d almost kind of pre-made the decision. The advisor was able to come to me as their CPA and somebody who gets both sides of it and say, hey, could you help provide some context here and give them just some background on what the income tax implication would be. If, and so this is something, I mean, you’d be able to address really easily at your firm, because you work internally. And we’ve seen the benefit of working alongside advisors, because that advisor is able to just get on a call with me and say, Help me understand this. Is this a good idea? Is it not? What’s the math? And then we are able to quickly get back to the client and say, Hey, that is certainly an option, but just so you know, here’s what it means from the income tax side and put them on a much better path. so that collaboration, and sometimes it’s almost the unanticipated things, because yes, the tax return has to get filed every year. Yes, we can work on improving systems and processes and getting data collection better. Those are all, I would say, incremental benefits, but sometimes it’s the things that you’re not expecting of the question you didn’t know the client was gonna ask or the life decision they come across. You’re saying, you know what, if I had a CPA on SpeedDial, my life would be a lot easier, and that definitely is something we’ve really tried to create at Retirement Tax Services.

Knight Colman (26:06)
Oh, that’s amazing. I mean, there’s an even just that value of any potential planning idea or strategy, having that space to ask someone for help. Because that’s really hard to, as you already mentioned. Yes, there are YouTube videos online, but you chat GPT now. Again, it’s to get someone who can really walk you through the nuances in a way is rare. No, no regrets. I’m really excited for the upcoming year, and what I’ve realized is just how kind systems can be to your future self. And one thing that was huge for us is just ask, make the request for earlier documents. And the second thing that I did that was really valuable was I also offered like 15 to 20 minutes with me and I will help you gather your documents because mutually beneficial really is and I think I probably had 10 clients take me up on it but those were clients that would have probably needed to be extended first off which then just occupies brain space later in the year and then two even just offering that. And being kind, client service value, and I think also motivated the other clients, like, wow, this is really how far Knight is willing to go to support us. I really want to make sure I can support him. So those were a couple of things that we did this year that even different from last year that I think we’re excited to keep building on.

Steven Jarvis, CPA (27:436)
There’s definitely so much action that can be taken in this area. Again, whether advisors listening have tax prep in house, they collaborate closely with a CPA or a CPA team. There’s a lot, and sometimes I feel like I’m almost just trying to, like this campaign to make a CPA’s life easier, but at the end of the day, it makes the client’s outcomes better. It’s gonna make your life as an advisor better. It’s gonna deliver more value. And…for this upcoming filing season, we did just add a new CPA to our team. So we are inviting more advisors to join this program. So you can get on retirementtaxservices.com or reach out to my team at advisors@rts.tax. We’d love to tell you more about the program. There’s so much opportunity here to be helping clients. So, Knight, really appreciate you sharing your perspective and being willing to take time on this. I know that advisors really value learning from other people doing these things. So again, really appreciate your time here.

Knight Colman (28:31)
Yeah, absolutely. So fun chatting with you and hopefully help someone out there with some.

Steven Jarvis, CPA (28:34)
Yeah, absolutely. There always is. I love being able to hear the questions and feedback from people of advisors taking action because of what they heard here. Your perspective is definitely appreciated and valuable. And for everyone listening, thanks for being here. And until next time, good luck out there. And remember to tip your server, not the IRS.