[IMGCAP(1)]Not all CPAs look at tax season the same way.

Whether your firm has a wealth management division or not, there are opportunities to serve at a higher level by recognizing issues beyond what goes on Line 12 on the tax return. While clients don’t have any special affection for tax season, it is the time when they are thinking about everything from their income and investments through their charitable deductions and retirement plans. Many CPAs, on the other hand, are too busy for anything but cranking out returns. As a result, clients can be left under-served or hanging at the altar of pro-active advice when they are most receptive to receive the elevated service opportunity that presents itself.

Here today, we will show you some of the opportunities hidden in plain sight to elevate the service that you provide to clients and build a stronger relationship with your client in the process.



Starting with dependents, ask questions about the children. Appropriate questions would be about their health, any special issues that may be present or the client’s thoughts on funding education. For children over 18, inquire whether that child has their own will, durable power of attorney of health care power. Also query whether there are any income deflection opportunities to mitigate the parent’s tax bill.

If you see an elderly parent being claimed as a dependent, chances are that many issues involving elder planning may need attention. Start by asking about the plan for mom’s care, as she needs more attention than merely a place to live. Is there long-term-care coverage, or is it assumed that your client will be the caretaker for an elderly or infirm parent? Ask if there has been any coordination with any other siblings regarding the long-term-care needs that may arise.

Find out what the elderly parent did with their home. Many cases show that mom, under the direction of a local lawyer who is not an estate planning professional, simply gave the home to the children whether she lived there or not. If the parent passed away in the past year, consider the possibility that the home should be included in the estate of the deceased parent under the “life estate” provisions, enabling a step up in basis for the beneficiaries. If the elderly parent is still alive and the home has been gifted, consider reverting the deed to a trust where the parent is the primary beneficiary.

Moving on to the income lines of the 1040, ask about your client’s W-2. Find out what they expect for income in the following year and ask if they are maximizing any deferral opportunities for high-bracket taxpayers or accelerating income for those in an unusually low tax bracket in an upcoming year. For owners of a closely held business, ask about opportunities to beef up the retirement plan for even greater deferral opportunities.

When looking at interest and dividend income, consider a few material components. The first is the title of the accounts generating the income. For many clients, these 1099s will demonstrate that the accounts are owned in joint name. This may work for some, but for many, utilizing a trust is a better solution. Find out if your clients have trusts and the age of their estate plan.

Schedule C taxpayers also have planning needs that can be discovered by the tax preparer. First is to remind the client of the inherent risks of a Schedule C with unlimited liability flowing to the owner from the business. I’d also inquire about the owner’s succession plan. Frequently sole proprietors feel that the business dies with them. While this may be true from a tax and entity perspective, frequently there is value to that business where no attempt was made to create a workable succession plan. Lastly, ask if the cash flow from the Schedule C is enough to beef up the retirement plan your client utilizes. They may not be aware that a defined-benefit type of pension plan is possible for this sole proprietorship. The retirement options are especially valuable to a client where the Schedule C is a second income from director’s fees, speaking fees or somewhere else that may be deferred with a retirement plan.

Schedule D also reveals issues that may need attention. The Schedule D may be the most visible evidence of whether the investment plan is coordinated with the income tax plan. Seeing large distributions from investment products, large capital gains, loss carry-forwards, and too much or too little activity in terms of transactions all raise questions in my mind.

Ask your client if they make their investment decisions on their own or if they have guidance. If they have guidance, ask if there is any time spent with the advisor to mitigate taxation. If the answer is no, don’t be surprised, but be ready to serve, or to introduce that client to a pro-active and holistic advisor.

For a client over age 59-½, ask about retirement distributions. Most CPAs automatically suggest that clients defer qualified assets as long as humanly possible, but there may be times when a counter-intuitive approach may make sense. This frequently happens for clients who retire early.

For the client who retired at age 61, there may be years where taxable income is very low from the loss of earned income and the ability to control their tax bracket through their portfolio management and income choices. After paying taxes at the maximum rate for most of one’s adult life, it is common to bask in the glory of a few years where your tax bill is extremely low. But for many, this is a temporary situation that will change upon reaching RMD age. A possible approach is to accelerate income for a few years to utilize the low bracket that may go unused without the pro-active creation of taxable income. For those intent on not working, a Roth conversion may be a good choice to utilize low-bracket opportunities.



Schedule E is my favorite form for discovering hidden opportunities to provide greater and more meaningful service. On the E, CPAs see a lot of real estate investments and flow-through entities.

For real estate reported on Schedule E, the asset is likely owned in the taxpayer’s individual name. As rental real estate inherently carries risk, I’d prefer to see that rental property owned in an entity that may provide some sort of asset protection such as a limited liability corporation. This is especially true of rental property that is owned jointly with another person. The individual or joint ownership exposes all of your personal assets to the potential liabilities created from the rental property, but the joint ownership subjects your rental asset to the possible liabilities of your partner also. A protected entity may be a better form of ownership for these real estate assets owned by more than one individual.

Similar questions need to be asked of flow-through entities. For trusts, ask about the underlying assets inside the trust. Also inquire about the client’s beneficial interest — their rights to income and principal distributions and future or contingent beneficial interests. Learn about the trustee(s) of the trust. In some trusts, the trustee is not changeable and in others there is some discretion. Ask your client about their relationship with the trustee and if they know whether they can change that or not.

For flow-through entities that are active trades or businesses, there are likely to be other owners or partners. The overwhelming majority of small businesses have no succession plan or one that is so outdated that it will not work if called into action. Your client should be comfortable with every element of the succession plan and probably needs the guidance of a wealth manager. If you simply tell them to go see their attorney for an update, the updated document may still contain difficult or unworkable valuation language without proper funding for all possibilities — death, disability or a desire to exit the business.

John P. Napolitano, CFP, CPA, is CEO of U. S. Wealth Management in Braintree, Mass. Reach him at JohnPNapolitano on Facebook or at (781) 849-2390.

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