Partnering with a Certified Financial Planner® who is also a Tax Professional (CPA or Enrolled Agent) can offer significant value and time savings.  There’s a close relationship between financial planning and taxes, but non tax professional advisors are not permitted to offer tax advice and are encouraged to partner with CPA’s to ensure proper tax planning guidance and preparation.
 
Clients of Lighthouse Financial Advisors get the benefits of having both services under one roof.  There is no back and forth between advisor and accountant and no lost in translation concerns.  We already know your investment portfolio details, your charitable intent, family changes, income & expense projections, etc.  Not only are these services streamlined, we also proactively plan for taxes during the year since there are few ideas you may implement after the ball drops on New Year’s.
 
All life events involve money…and money means taxes.  The article below highlights planning areas we provide and if you don’t yet work with a dual CFP®/CPA advisor, thoughts for you to bring to your tax professional.
 
Adapted from: 
9 Questions Clients Should Ask CPAs at Tax Time
 
By Elaine Floyd, CFP and Richard J. Koreto
Horses Mouth


1. Will a life event or major purchase affect my taxes? 

Remind CPAs about any births, adoptions, marriages, separations, divorces, or deaths. Have the clients’ children reached a milestone age like 18 or 21? Have they left school and started jobs, possibly changing their deductibility status? 


Death in the family is especially important: Does an inheritance trigger a federal or state estate tax? If an inheritance includes an IRA or 401(k), the tax rules are strict, and failure to properly manage the inheritance could have major tax consequences. 


Major purchases can also have a big effect. A second house may mean another set of home-related deductions. But probably not a third house, as homeowners can typically get deductions from only two residences. 


2. What will my tax bracket be in 2014? 

A tax bracket is the rate at which the last dollar of income will be taxed. Knowing your client’s tax bracket helps you calculate the tax efficiency of various investment or financial planning proposals. 


A paycheck change is only one factor, so don’t make immediate assumptions: Tax brackets can change for many reasons, including changes in tax law as well as changes in tax filing status. Tax filing status depends on whether your client is married or single and whether there are dependents to claim on the tax return or not. A change in income or an increase in interest and dividends or even gambling or lottery winnings could also change a tax bracket. 


3. Can you help me estimate my income for 2014? 

Go beyond salary. Bonuses, freelance assignments, investment income, alimony winnings, and more all play a role. And it’s not enough to know gross income. It’s also important to have an estimate of adjusted gross income, modifications to adjusted gross income, and taxable income. Each of these types of income is dependent on various deductions or credits that need to be estimated in order to come up with projections for the new year. 


Why is this even important? An accurate estimate of 2014 income allows you to properly manage retirement savings plans, for example. 


In order to estimate the various forms of income for 2013, clients will need to provide their tax advisors with certain information so the numbers can be crunched. For example, the CPA will need to know if the client plans on making approximately the same amount of charitable contributions this year as she did last year. And if there was a one-time or unusual event last year, such as a sale of an asset, the CPA will need to adjust the estimate accordingly. 


4. Do I have any remaining loss carryforwards going into 2013? 

Loss carryforwards are tax losses as a result of selling investments at a loss. The IRS only permits deducting investment losses to the extent that they are offset by gains of up to $3,000 a year. Any losses in excess of this can be carried forward to future tax years, hence the name “loss carryforwards.” 


A CPA can help clients determine your client’s loss carryforwards by looking at past tax returns. The answer can help you and your client better understand how investment activity affects their tax situation. Occasionally, you may want to suggest selling some assets to absorb some of these previous losses for precisely this reason. “Tax loss harvesting” is traditionally a year-end activity, but it really should take place throughout the year as investment opportunities present themselves.
 
 
5. Am I eligible for a Roth conversion? Is it recommended? 

A Roth IRA conversion allows workers to convert traditional IRA assets to a Roth to avoid taking required minimum distributions in retirement and avoid paying tax on any distributions taken. A Roth conversion also involves paying taxes on the assets converted, since contributions to traditional IRAs are made on a tax-deferred basis. A CPA can estimate the tax that would be due on a Roth IRA conversion. 


Clients should also ask their CPAs for an estimate as to what the tax liability would be on a partial Roth conversion—such as one that might bring them up to the top of their current tax bracket. The CPA’s estimate of the “bracket-completion” amount is likely to be the most accurate estimate of the tax clients might pay in the event of this type of partial conversion. 


The CPA is likely to have an opinion on whether a Roth conversion is a good idea or not. Definitely encourage your clients to discuss the option with their CPA as well as discuss it with you before making a decision, as any conversion will have investment and retirement implications, as well as tax consequences. 


6. Should I increase my retirement plan contributions? 

The IRS hasn’t increased the contribution amounts for most types of retirement plans in 2014, so there’s no incentive there for making contribution increases.
Retirement Plan Contribution Limits
Type of Retirement Account
Additional 2014 Contribution
Maximum Contribution
401(k), 403(b), most 457 & federal govt. thrift savings
None
$17,500
IRA
None
$5,500
IRA catch-up contributions
None
$1,000
401(k) catch-up contributions
None
$5,500
Source: IRS
However, that doesn’t mean clients should just leave it as is. Phase-out limits for various plans have increased, so even if a client’s income is up, he or she may still be able to put away more. This is a good conversation to have this time of year.

7. Do you have any recommendations for reducing my 2014 taxes? What about 2015 and beyond? 

CPAs can recommend a number of strategies that might help reduce tax liability in the future. A variety of laws, such as ACA, have changed the playing field. Some of the strategies may be complex and may need your input as well as the CPA’s. Others may be within your control. 


8. Should I change my tax withholding for 2014? 

Various situations may mean that clients need to change the amount they withhold from their paycheck. If they’ve gotten married, divorced, or had a baby, they’ll need to make changes on their W-4 form. Also, if they’ve been getting large tax refunds, it may make sense to increase the number of exemptions they take on the W-4 to match up what they pay in tax with their actual tax obligation. 


Most CPAs note that it’s better to evenly match withholding with tax obligations rather than aim for a large refund. That’s because the funds that make up the refund could be invested, saved, or used to pay down debt rather than accumulating in the U.S. Treasury Department only to be returned back to clients in the form of a refund. In 2012, the average tax refund was $2,803. 


And don’t necessarily consider a state and federal lock-step. There may be reasons for separate withholding forms for state and federal—another good question to have clients ask their CPAs.