Staying competitive in the financial advice market requires professionals to provide a breadth of services beyond investments, and tax guidance is a natural fit, according to Michael Goodman, founder and president of Wealthstream Advisors.
He is a certified public accountant, but that level of formal training isn't necessary to offer clients useful recommendations on how they can save and spend smarter by keeping certain tax strategies in mind.
“Offering help with taxes is one of the least taken-advantage-of areas for advisers,” Mr. Goodman said.
Taxation around individual retirement account distribution is a great place to start.
During the years after retirement, and before individuals have to take required IRA minimum account distributions at age 70½, is a great opportunity for strategic moves, such as accelerating income from other investments or converting regular IRAs to Roth IRAs.
“It's an important window of opportunity because individuals typically move into a lower tax bracket then,” Mr. Goodman said.
Another area where advisers can provide beneficial advice to clients is with regard to Medicare premiums. The amount Americans have to pay for Medicare coverage and for prescription drug coverage is higher depending on their taxable income.
Knowing about these rules and helping clients keep their eyes on their adjusted income levels can produce health-care savings, he said.
Taxable income also impacts one’s ability to itemize other deductions, such as medical expenses and tax-preparation fees.
It's also crucial to have a basic understanding of the taxability rules around income from Social Security.
“Clients just want to know that you know enough to ask the right questions,” Mr. Goodman said.
He often talks to a client's accountant before bringing that client into the meeting or onto a joint call to make sure the the other professionals are on the same page before either makes a recommendation to the client.
Wealthstream Advisors has year-end tax planning meetings with clients where all facets of tax issues are discussed. It's important to ask clients about recent events that can impact the bottom line, he said.
Such a meeting back in 2008 revealed that a client had just sold a property, a taxable event with income that Mr. Goodman's firm was able to balance against investment losses incurred that year.
Taxes are really something that can come up, in one form or another, at every meeting.
“Just don't position yourself in a way that suggests you know more than you know,” he said.
• Coordinate with a client's tax preparer because clients will appreciate it and the tax professional will too, which is good for business development.
• Seek education on tax strategies from resources like QuickFinder, conferences such as AICPA's adviser conference, blogs like those from Ed Slott, publications from the Internal Revenue Service or other publishers that offer tax updates.
• Technology, such as BNA Income Tax Planning or software from Robert Keebler, can help advisers provide tax services. Or, traditional financial planning software may be able to model some of the tax impacts of certain moves, and good rebalancing software should help with tax-loss harvesting.
• Direct “fee sensitive” clients — those who worry you'll charge them more — to talk to their dedicated tax professionals about the issues that you have uncovered, hopefully leading them to savings down the road.
• Begin by reading and analyzing the tax returns of clients, asking their tax preparer about anything complicated or amiss. It will help advisers learn a lot about their clients and begin to build a relationship with their tax professional.