Series: From Tax Preparer to Financial Planner: The Road Best Traveled

Series: From Tax Preparer to Financial Planner: The Road Best TraveledPart 3: Moving From Tax Planning to Holistic Financial Planning: Expand Your Financial Planning Practice Through Your Client’s

Tax Return

Presented by:

Lyle K. Benson, Jr., CPA/PFS

Ted Sarenski, CPA/PFS

Susan Tillery, CPA/PFS

Personal Financial Planning Section 2

Introductions

Lyle K. Benson, CPA/PFS Founder, L.K. Benson & Co. Baltimore, Maryland

Ted Sarenski, CPA/PFS President & CEO, Blue Ocean Strategic Capital, LLC Syracuse, NY

Susan Tillery, CPA/PFS President / Co-Founder, Paraklete® Financial, Inc. Kennesaw, GA

Moderator

Featured Speakers

Personal Financial Planning Section

IntroductionAbout the PFP Section & PFS Credential• The AICPA PFP Section provides information, resources,

advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and their closely held entities

• The CPA/Personal Financial Specialist (PFS) credential distinguishes CPAs as subject-matter experts who have demonstrated their financial planning knowledge through experience, education and testing


IntroductionAbout this Web seminarThis strategic session will help you use your client’s tax return to gain a snapshot of their current financial situation and begin to develop a closer relationship to cover all of their financial planning needs, including tax, retirement, estate, investments and insurance. You will learn:

Special considerations in 2012 How to best use your tax preparation practice to develop personal financial planning ideas for your clients The key issues to consider as you prepare, review, and discuss individual tax returns with your clients How to implement a checklist developed by leading CPA financial planners to identify planning opportunities


AICPA Web Seminar Series:From Tax Preparer to Financial Planner

Part 1 Understanding

the value of financial planning

Part 2 Moving from

tax compliance to tax planning

for individuals

Part 3 Moving from

tax planner to holistic

financial planner

Part 4 Implementing a PFP practice

Build your financial planning knowledge with this web seminar series and discover the necessary steps to transition from tax preparer to financial planner. Register today at CPA2Biz.com/Webcasts. Discounts available for PFP/PFS and Tax Section members.

http://cpa2biz.com/Webcasts


Post-Tax Season Opportunities

Tax season as a springboard for financial planningUsing the tax return as a planning toolStructuring a financial planning practiceBenefits of providing PFP services• Deepen existing client relationships• Higher-value work• Expanded services add to your firm’s bottom line

6


Overall picture of client’s financial situationUncover opportunities for planning that client has overlookedDetails of cash flow/income situationUse in conjunction with client’s personal balance sheet

Why use tax returns to develop personal financial planning


Special considerations in 2012


2013 Tax Changes (if no action is taken)

Income Tax• Bush tax cuts expire: increase in ordinary income, capital gains,

and qualified dividend rates• 3.8% Medicare surtax on net investment income of high-income

individuals (MAGI > $200k single, $250k MFJ, $125k MFS)• 0.9% increase in Medicare payroll tax for high earners• Marriage penalty relief expires

Estate Tax• $5 million exemption reverts back to $1 million• Increase in estate tax rate from 35% to 55%

Gift Tax• $5 million exemption reverts back to $1 million


2012 2013 & Beyond10% 15%15% 15%25% 28%28% 31%33% 36%35% 39.6%

2012 2013 & Beyond0% 10%

15% 20% (23.8% if surtax applies)

Ordinary Income Long-Term Capital Gains

Comparison of 2012 vs. 2013 Tax Rates


Political EnvironmentUncertainty = FlexibilityElection Year• Unlikely that we’ll have any certainty until last quarter• Start planning now, gathering data, preparing projections,

drafting estate documents, etc.

President Obama’s budget proposal• Reinstatement of personal exemption phaseouts and itemized

deduction phaseouts• Attack on itemized deductions: mortgage interest, charitable

contributions, miscellaneous itemized deductions• Above-line-deductions: health care, retirement plan

contributions, education expenses

Other (retirement contributions attack, Bachus desire to require 5 year payout of IRAs through highway bill rumored to be back)


Estate & Gift Tax Planning2012 Estate/gift tax exemption linked at $5,120,000President’s Proposal:• Estate/GST $3.5 million exemption• Gift tax $1 million exemption• Rates jump from 35% to 45%• Retain portability• Disregard valuation discounts• Limit GRAT to 10-year term (zeroed out GRAT goes away)• Limit GST to 90 years – dynasty trusts no longer viable• Grantor trust benefits go away

Republican Proposals:• Status quo - keep $5 million+ exemption for estate and gift

If nothing passes:• $1 million exemption and 55% rate


Estate & Gift Tax PlanningClients who can benefit most from planning • Elderly or ill, those who live in a state where state estate tax is

decoupled from fed, clients who have asset protection needs, non-married same sex couples and wealthy

Impediment towards getting your clients to take action• Complexity (setting up trusts, etc.), cost of advisors, appraisals,

etc., disbelief that changes are going to take place, uncertainty• Advisors need to help their clients understand the detriments to

not planning ahead and taking action when necessary (run projections and show them the impact)


Estate & Gift Tax PlanningStart now! Use up exemption in 2012• Some techniques take months to implement (GRATs, IDGTs),

etc.)• Need to start now to educate clients, draft documents, prepare

valuations, etc.

Income generation through CRUTsOpportunities with low interest rates (GRAT)Asset efficiency implications of giftingDrafting to gift but not gift


Estate & Gift Tax PlanningBeware of large outright gifts• They are not protected from creditors claims and the remainder

is not kept in the family

Reasons to gift now:• Save estate tax (federal and state)• Asset protection (if via trust)• Grandfather for GST• Grandfather for grantor trust changes• Lock in discounts• Remove appreciation from estate

Cash flow planning and running of projections is essential before taking action (create plan to ensure client is comfortable before triggering)


Income Acceleration and PlanningAdded dynamics of President’s proposal • Requires min 30% effective rate for those with income over $1

million annually

Harvesting gains• Last quarter of the year• Not affected by 30-day wash sale rules• Monitor elections for deemed sales

Comp and benefit issues• Exercise stock options• Pay bonuses before year-end• Deferred compensation elections

(Don’t necessarily forego deferral accounts, particularly when there are matching provisions. Educate your clients and consider the political landscape.)

Roth conversions


Income Acceleration and Planning

Cash basis taxpayers• Accelerate billings

Other income acceleration ideas• Accrue bond interest in 2012 versus 2013• Accelerate installment payments

Other planning• Re-allocation of portfolio based on tax changes (qualified plan

versus non-qualified plans, etc.)• AGI planning between 2012 and 2013 to effectively manage the

new 3.8 percent Medicare tax in 2013


Itemized Deduction PlanningPresident’s proposal will limit itemized deductions to 28% -- and reinstate phaseoutsAccelerate itemized deductions in 2012• Set up donor advised funds and fund future year’s charitable

contributions in 2012 • Accelerate miscellaneous itemized deductions by prepaying

expenses to get above the 2% limit

Interest rates at historically low levels• Look at the clients Form 1098 and mortgage statement• Discuss their refinancing strategy• Evaluate all of the client’s debt

Alternative minimum tax situation• Consider prepaying real estate taxes and personal property

taxes


Expand your financial planning practice through your client’s tax return


How does this impact you if you are a tax preparer?Obtain written consent from clients• Disclosure of tax return information (general, specific, foreign)• Disclosure of use of tax return information

Criminal penalty for “knowingly and recklessly” disclosing or using tax return informationMore information at aicpa.org/pfp/advocacy

Regulation 7216


Children• Education planning• Gifting• Income shifting – remember kiddie tax rules• Gift Tax Returns

Elderly parents• Estate planning• Dependency rules• Future financial commitment

Dependents


Wages, self employment income, partnership income, etc.Maximizing deferral opportunities• 401(k), 457, 403(b)

Retirement plans from former employersConsolidate IRAs from multiple sourcesSocial Security benefits• SS maximization strategies

Does a Roth conversion still make sense?

Income – understand the sources


Source/alternatives/assets managed• Taxable• Tax exempt

Critical to understand their investment strategiesBank accounts – FDIC limitsCash levels – emergency fund• Is there too much in cash?

Interest - Schedule B


Source• funds • stocks

PerformanceConsider alternatives to these investmentsHow are assets titled? (estate planning issues)How are assets custodied?Tax efficiency of investmentsImpact of market downturnToo much concentration in one stock?Review tax impact and potential changes to tax law

Dividends - Schedule B


Capital loss carryoversTrading activity – fees / expenses• Portfolio churning?

Loss harvesting – part of ongoing wealth managementCoordinated with tax plan?Core of investment strategy

Schedule D


Emergency Economic Stabilization Act of 2008

Brokers and custodians must track and report cost basis informationEnd result – simplifies cost basis reporting but adds complexity:• Proactive decisions must be made on accounting methods to be

used and custodian should be notified prior to settlement of transaction (otherwise, default method will be used)

• Firms that track portfolios need to ensure firm system matches system of custodian

• For tax reporting purposes, 1099-B trumps all other data

How to handle new clients


How does business fit into overall planning?Succession planningRetirement plansDetermine income shifting opportunities among family membersRisk management - discuss range of options to structure the business• Compare to LLC, corporation, etc.

Home officeHobby loss rules

Schedule C


LLCs, Subchapter S and Partnership Income?• Passive losses?• Self-employment income

Valuation issuesIRS attack on family entitiesInvestment partnerships• Hedge funds• Venture capital• Other alternative investments

Any potential tax liabilities arising from negative basis?

Schedule E


Real estate • Risk management• Multiple owners• Form of ownership• Estate planning• Passive activity loss rules• Vacation home rules• Like-kind exchanges

Schedule E


Trusts (1041)• How are assets being managed?• Trustee adequacy• What is the purpose of the trust arrangement?• Is investment strategy appropriate?

Is trust income being reported properly?Distributing income or retaining?

Schedule E


Required Minimum Distributions being taken?Net Unrealized Appreciation (NUA) from 401(k)Beneficiary electionsWhere should client be taking money from?Has a Roth Conversion been considered?Cash flow needs – sustainable withdrawal rate (spending as a % of assets)

Retirement Plans/Distributions


Maximizing opportunityInvestment choiceWhat is the best choice for deferral opportunities?Consider qualified plan/defined benefit planConsider hiring spouseRegular vs. Roth contributions

Retirement Plan Choices: Simple, SEP, IRA, Solo 401(k)


Charitable contributions • Appreciated securities• Timing of Deductions• CRUT, Charitable Lead Trust• Private foundation• Donor Advised Funds• IRA distribution – direct to charity• Contribution carryovers• IRS documentation rules

Understand your client’s charitable intent

Itemized Deductions


Growing importanceResidency rules• Statutory• Domiciliary

Multiple state residency• Planning opportunities and pitfalls

Potential tax liability in other statesTiming of payments and AMT

State Taxes


Long term care insuranceHealth insurance• Self employed?• What is current coverage?

- Potential health issues- COBRA if job loss

Medicare rulesEldercare issuesImpact of Obama Health Care ActCorporate medical reimbursement planHealth Savings Accounts

Medical Expenses


Investment fees• Reasonable or excessive?

Other expenses2% AGIPlanning opportunities to avoid loss of deductions• How to shift?• “Bunching” deductions into one year• Allocating deductions among Schedule A,

Schedule C and Schedule E

Miscellaneous Deductions


Mortgage interest expense rules• Planning opportunities• Limitations (new $1.1 million rule)• Refinancing opportunities – current rate

environmentInvestment interest expenses – carryover rulesOther interest – tracking use of fundsMargin interest

Interest Expense


Current partnership agreementValuationBuy/SellRetirement plansEmployee benefit plansPartnersProfit allocation• Pro-rata• Special allocations• Guaranteed payments

Multi-state operations

Partnership Tax Returns


Total assetsCompensation of officers – reasonable?Rents – who owns the property?Pension and profit sharingEmployee benefit plansShareholder agreementPartnersSuccession planDeferred compensation agreementsMulti-state operationsS-Corp vs. C CorpS-Corp – adequate basis for losses?

Corporate Tax Returns


Number of doneesPreviously filed 709Split gifts529 plans – special rulesValuation discountsBasis and dateGeneration skippingExemption availabilityLife insurance trustsGifting Strategy

Gift Tax Returns


Impact on overall planningCurrent/proposed changesStock options• Planning opportunities for ISO exercise

AMT credit carryover – potential loss of credit

Alternative Minimum Tax


Checklist to use in your practice

42

How to utilize this checklist


You can learn a lot about someone through his or her tax return. Many financial planning opportunities can be uncovered with a thorough review of your client’s

tax return.

Summary


Q&A


PFP Section ResourcesAdditional materials• Roadmap to Developing and Managing a CPA Personal

Financial Planning Practice (aicpa.org/PFP/pathway)• Checklist: Analysis of a Tax Return for Personal Financial

Planning (aicpa.org/PFP/pathway) • PFP Practice Center (aicpa.org/PFP/practicecenter)• Forefield Advisor (aicpa.org/PFP/forefield)

AICPA Advanced Personal Financial Planning Conference (cpa2biz.com/PFP) • 2-day sessions for those in earlier stages of PFP

o Implementing PFP Services: Step by Step Plans for Successo CPA/PFS Review Class

For the full calendar of upcoming PFP Section events, visit www.aicpa.org/PFP and click on CPE & Events

45

http://www.cpa2biz.com/pfp


CPA/PFS Program At-A-GlancePFS exam review • Self-study, web review and live review options available to

purchase at cpa2biz.comPFS exam registration • Learn more & register at aicpa.org/PFSexam • Summer and winter exam window each year

PFS education • In-depth self-study courses available to purchase at

cpa2biz.com 2012 PFS exam sponsorship program • Summer deadline: June 18, 2012• Winter deadline: December 26, 2012

For more information, visit www.aicpa.org/PFP/PFS

http://www.aicpa.org/InterestAreas/PersonalFinancialPlanning/Membership/Pages/PFSExam.aspx

http://www.aicpa.org/PFP/PFS


AICPA Web Seminar Series:From Tax Preparer to Financial Planner

Part 1 Understanding

the value of financial planning

Part 2 Moving from

tax compliance to tax planning

for individuals

Part 3 Moving from

tax planner to holistic

financial planner

Part 4 Implementing a PFP practice

Build your financial planning knowledge with this web seminar series and discover the necessary steps to transition from tax preparer to financial planner. Register today at CPA2Biz.com/Webcasts. Discounts available for PFP/PFS and Tax Section members.

http://cpa2biz.com/Webcasts


Thank You

Lyle K. Benson, Jr. CPA/PFSL.K. Benson & Company, P.C.

[email protected] Phone:(410) 494-6680www.lkbenson.com

Ted Sarenski, CPA/PFSBlue Ocean Strategic Capital, LLC

[email protected]: (315) 471-2672

http://boscllc.com

Susan Tillery, CPA/PFSParaklete® Financial, Inc.

[email protected]: (678) 290-3930

http://parakletefinancial.com

mailto:[email protected]

http://www.lkbenson.com/


http://boscllc.com/

http://boscllc.com/


http://parakletefinancial.com/

http://parakletefinancial.com/

Documents

Series: From Tax Preparer to Financial Planner: The Road Best Traveled