"Tax Season Finale”: Strategies to Drive Year-End Revenue Streams

by Ann Siford, Manager of Professional Network at Equity Trust Company

“A challenge for CPAs is how do we even out our business practices and avoid having lulls in the summer…we need to be answering how do we all increase revenue?”

What’s Next for Your Firm After “Tax Season”?

As CPAs and tax advisors catch a few moments of respite from a lively tax season, many may be contemplating “what’s next for our firm?” How do you not return to a state of seasonal normalcy where perhaps summer traditionally means significantly shorter days and less revenue?

“A challenge for CPAs is how do we even out our business practices and avoid having lulls in the summer. For the smaller firms this can be a big deal, but equally for all firms, we need to be answering how do we all increase revenue?” says David Reyes, Founder of San Diego-based Reyes Financial Architecture. “How do we keep both our revenue streams and our client centric focus?” Having worked on a regular basis with CPAs, attorneys and advisors, Reyes shares that they are seeing an increase in firms looking at ways to add value, particularly in a strategic sense. “This covers a wide area, but tax minimization strategies, the Roth conversion specifically, add a lot of value.”

Where’s the Beef? Delivering on the Value-Add

The famous 1980’s Wendy’s commercial coined the American phrase “where’s the beef?” And while businesses may hype the value-add in their advertisements and websites, it ultimately comes down to what the client perceives they are getting for their dollar. When a CPA has the Roth IRA conversion discussion, they are delivering a new wealth building idea and powerful tax minimization strategy to their clients. “This is a real opportunity for CPAs where they can achieve better positioning for the firm with the Roth conversion discussion,” comments Reyes. “There is a lot of misinformation out there and an equal lack of education. It is complicated and extremely complex. This is where the CPA can highlight their expertise and deliver value to the client.”

Impacting the Firm’s Bottom-line

Once prepared with a baseline understanding of Roth IRA conversions, CPAs are in a prime position with their client. “The Roth IRA conversion positions CPAs where they can look at the revenue stream for their firm and strengthen it,” explains Reyes. “In fact, one key advantage for CPAs is that they can add a minimum of 15 billable hours to their practice. In many cases, this is more than the average hours spent on a tax return.”

Firms are taking a variety of approaches when it comes to the level of participation in Roth conversions. Some firms choose to position themselves as the experts while others are looking for collaborative partners that include estate planning attorneys, advisors and perhaps other CPAs. According to Reyes, CPAs need to have at least a general knowledge and then be in a collaborative position where they can assist other estate planning professionals with the tax return issues. “There are going to be AMT issues, withholding issues, recharactarization and reconversion issues for starters,” says Reyes. “There is a lot of analysis upfront that needs to be done and secondarily, follow-up work. This is a way for CPAs to be in front of the client during, outside of tax season and on a continual basis. It opens the door to more advanced planning and involvement of the CPA.”

The collaboration should extend beyond tax return issues of a Roth IRA conversion as the Roth IRA can be a tremendous estate planning tool. Passing on assets via a Roth IRA instead of a traditional IRA can potentially save heirs tens or even hundreds of thousands of dollars in taxes over their lifetime. The transfer of wealth and managing the taxes and complex financial issues around it calls for increased collaboration to ensure clients are achieving their family and/or business wealth transfer goals as well as their philanthropic ones.

And the timing couldn’t be better states Reyes. “We’re at a historically low level for the marginal tax rate. This is an opportune time for people to do estate planning. It is always a good time to do wealth transfer during times of low taxes and low asset prices. And you want to accomplish this while you are living. You really want to reach out to those clients who can benefit from a wealth transfer plan now.”

Identifying the Ideal Conversion Client...

Regardless of how deep your firm plans to be involved in the Roth IRA conversions, as either the experts or assembling a team to service clients, you want to quickly identify the clients with the most to gain from the conversion.

“The low hanging fruit includes clients who are in the higher tax bracket, have an estate tax issue, they don’t need their IRA money and have outside funds (non-qualified investments). Ideally, you are looking at clients who are concerned about tax increases,” explains Reyes. “A question often overlooked is, ‘What are my kids or grand kids’ taxes going to be?’ This is where stretch IRA planning and the CPA can play a critical role.

“On the business owner side, explore if they have a pension plan as this is one way to modify the plan to help mitigate taxes or create a pension plan to mitigate or eliminate the taxes. Does the business client have a net operating loss? Are they charitable and do they have a charitable tax deduction? These factors will aid in making the Roth IRA conversion more beneficial.”

For the traditional client who may have $250,000, may have outside non-qualified money, and is in a higher tax bracket, CPAs will need to do more fine tuning of what makes sense for the client.

“It is always about determining the optimal level of conversion amounts within the tax brackets,” says Reyes. “As you move up the income tax chart you have to do a higher level and form of analysis. It is the law of diminishing returns. You get into how much should you convert and then you start to get into bracket creep. At some point you get to where you should not convert any more money in that bracket. If you think it is going to work for your client, do the conversion, because remember, you can always reconvert.”

….But Ask Yourself This First

CPAs may wish to consider asking themselves a question Reyes poses each time he examines a Roth conversion. With each client he has identified or has inquired about a conversion, Reyes answers the question, “Why should I not do the Roth Conversion?”

“By looking at first why you should not do the conversion and determining that the conversion doesn’t make sense, you stop right there. The only reason is if someone or the beneficiary is going to be in a significantly lower tax bracket,” explains Reyes. “Anything else equal to or greater than these benefits often means it will work.” This approach he believes enables his practice to be true advisors, saves time and moves them on to serving the client in the manner that makes the most sense for them. One thing is for certain, when you are being client centric, you are adding value to client relationships.

Jump Starting Your Next Move

So where do you go from here? In talking with Reyes, his firm’s financial architecture business model starts with bringing together professionals such as the CPA and the attorney to take a collaborative and multi-disciplinary approach with the client. “Number one thing I would incorporate into a firm’s practice is at the very least a collaborative partner in a Roth IRA conversion,” stresses Reyes. “Minimally, you would want to work with a high level financial advisor who is an expert in Roth conversions. Additionally, for clients with estate tax issues, work with an estate tax attorney. I don’t believe a conversion can be properly analyzed and implemented without these professionals.”

Reyes suggests professionals should start the education discussion and insert themselves into the process. It serves as a great retention tool and leads to a higher level planning mode beyond the conversions with trust issues, taxation issues on beneficiaries and advanced planning.

Since the income restriction on Roth conversions no longer applies, CPAs and advisors have a pool of 13 million higher-income households now eligible to hedge against tax increases and achieve tax-free growth within their retirement accounts, in addition to leaving a sizable legacy to their heirs. CPAs integrating Roth IRA conversion strategies into client discussions will experience a higher-level of activity for their firms for the remainder of the year and beyond; increased revenue streams; and clients who are happy knowing exactly what they are getting for their dollar.

Ann Siford is Manager of the Professional Network at Equity Trust Company, a custodian specializing in the investment of retirement funds in alternative assets. The Professional Network provides professionals in the self-directed retirement account industry with educational resources, access to expertise from peers and industry experts and targeted promotional tools to aid in expanding their business.

For more information on the Professional Network, contact Ann at 1-888-382-4727 x255 or visit http://www.trustetc.com/pronetwork to sign up.

 

Disclaimer: Equity Trust is a passive custodian and does not provide tax, legal, or investment advice. It does not endorse or recommend any contributor, company, or specific investments. Any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your legal, tax, and accounting professionals.