Lifetime Events - Tax Planning
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Highlights and tax planning strategies for lifetime events
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Lifetime Events - Tax Planning
- 1. Preparing for Life’s Important Moments www.wrightaccountingcpa.com
- 2. Life is Complicated – Especially Money Matters • You will encounter several weighty financial milestones during your lifetime - Marriage - Children - College - Retirement • One significant recurring financial event is your annual tax return, which is often overlooked as a resource for planning www.wrightaccountingcpa.com
- 3. Tax Planning Is More Than Just April 15th • Most financial events, significant and routine, have tax consequences • Most people think about their taxes after April 15th but don’t know who to call • After April 15, attention shifts to understanding your taxes, instead of filing your return • CPAs are trusted advisors who assist with a variety of financial issues and their tax consequences year round www.wrightaccountingcpa.com
- 4. A CPA’s Approach • Take a holistic view of your life using your tax return as a guide • Integrate tax considerations into your entire financial picture • Consider how decisions affect other areas of the life – college education, aging parents, retirement, etc. • Address strategies to resolve immediate issues and identify tax savings opportunities for the long-term • Apply all of the objectivity, integrity and diligence you expect from a CPA www.wrightaccountingcpa.com
- 5. Selecting a CPA www.wrightaccountingcpa.com • Relationship and trust • Education, qualifications and credentials • Complex tax knowledge • Year-round availability
- 6. Navigating the Tax Services Marketplace • Differentiating between various tax return preparers • Factors to evaluate: - Training - License – do they have one? - References - Approach • Where CPAs provide additional value
- 7. New Return Preparer Initiative • IRS’ objective: To elevate the compliance level and ethical conduct of tax return preparers. • Everyone who prepares a return must get a PTIN • CPAs have unlimited practice rights before IRS and are not subject to additional oversight regulations • IRS added new category of tax return preparer called “Registered Tax Return Preparer” - Sets minimum standards for unlicensed preparers - Limited practice rights before IRS www.wrightaccountingcpa.com
- 8. CPAs vs. Other Tax Preparers • Licensed to practice accountancy, provide tax services • College degree to sit for rigorous exam • Professional code of conduct & ethics exam www.wrightaccountingcpa.com
- 9. The CPA Credential • College degree (150 semester hours) • Rigorous 4 part-CPA exam (14 hours) • 40 hours of continuing professional education each year • Licensure by State Board of Accountancy
- 10. The Value of the CPA • Year-round services that go beyond tax • Broad base of knowledge • Specialized training • Honesty & integrity - keystones of the profession • AICPA enforceable code of conduct specific to tax services www.wrightaccountingcpa.com
- 11. QUESTIONS Questions - www.wrightaccountingcpa.com - E-mail Dillon Wright at dillon@wrightaccountingcpa.com
- 12. Copyright © 2011 American Institute of CPAs Copyright © 2011 American Institute of CPAs Thank you
Editor's Notes
- Thank you for the opportunity to speak with you, today. My name is [name] and I am with [name of firm].
- As CPAs, we know that over a person’s lifetime, they will come to several key points in life where the choice they make has significant financial implications. Almost everyone considers the four events listed above as a key point to consider working with a financial advisor, most often a CPA. These are the obvious choices but they are even more complicated than most clients realize. For example, consider these nuances to these four milestones: Marriage – this is more than the young couple just getting started, what about: saving for a daughter’s marriage? re-marriage with a blended family ex-spouses making claims for child support where the new bride and groom need to keep finances (and assets) separate 2nd marriage late in life for a retired couple (implications of blending finances is a different; some seniors opt NOT to get married because of the tax implications Children – the birth of a new child is an amazing event, but child provide other tax savings opportunities and considerations like: The child and dependent care credit Adoption credit Special benefits/incentives for special needs children Dependence exemption for divorced or separated parents College – did you know there are over 14 separate tax incentives related to higher education, from credits and deductions to tax-deferred savings. The sheer volume of choices often leaves most taxpayers confused and many don’t take full advantage them, or even pick the incentive that results in the most value. Available incentives vary by year, type of education, age of child and nature of expense. Working with a CPA ensures that the taxpayer will take advantage of the right incentive at the right time and take full advantage of the tax benefits! Retirement – this isn’t just about saving for retirement or how distributions are taxed. Other considerations are: Evaluating the different options available for self-employed taxpayers to set up retirement accounts The value of itemized deductions often changes once someone retires, since it may mean they no longer have mortgage interest so special planning should be done each year to evaluate the benefit of itemizing to make sure clients understand the real after-tax benefit of their charitable giving A popular question for retirees is whether they should start collecting social security now or wait until later – this is always a good analysis to run in the years leading up to retirement rather than leaving clients to wonder After all of this, the one big recurring financial transaction that is often overlooked as a key planning tool is the actual tax return. So many see it as an annual rite or obligation, but CPA tax practitioners know that the 1040 is just the beginning of the story. By evaluating what is on (or not on) the tax return, asking probing questions and watch for trends and changes over the years, CPA tax practitioners are uniquely situated to provide holistic financial advice that considers all the major milestone while simultaneously consider the tax implications (and planning opportunities) all along the way.
- Tax compliance is about getting the tax return right. It is always an after-the-fact process where we review what happened last year and translate that activity into numbers on a tax return. But, that should only be the beginning. While tax compliance ends with a finished return, tax planning starts there. Then we look at what went right and find was to repeat them. We evaluate what went wrong and find was to avoid repeating costly tax mistakes. We step back and look at the big picture to see what we can be doing differently that may change the outcome on future returns – some strategies are short term (e.g., fix withholding) while others are long-term (e.g., set up an new retirement plan). We also anticipate major financial events and review them to determine their tax consequence. By engaging in the tax planning process, you take the guess work and anxiety out of the tax return process. Going forward, you learn to anticipate and manage your tax situation, instead of accepting it as inevitable.
- A CPA tax practitioners takes a holistic approach to a client’s financial situation, using the tax return as a guide. We are uniquely positioned to integrate tax implications of financial decisions and events (big or small) and advise and help our clients understand how they affect their overall financial plan. What is the loss to your investment portfolio when you do not consider the after tax return on investments? What is your additional estate tax liability when you don’t consider current and future tax implications in your planning decisions. We’ll identify and address areas that require immediate attention based on prior year returns while also anticipating new strategies and tax planning opportunities. We also step back and connect your current situation to your long-term goals. Do your planning strategies make sense for the long-term? Are there any potential catastrophic outcomes that need attention sooner rather than later. And then we apply all of the objectivity, integrity and diligence you expect from your CPA to all that we do on your behalf.
- Again, a few “rules of thumb” and pieces of common-sense advice are in order. You want to work with someone you trust. So do your homework – get references. Above all, ask lots of questions. Find out what kind of training they have. Are they credentialed? Do they have a license? Do they adhere to a strict code of ethics? Can they offer objective, unbiased advice, and do they encourage you to make informed decisions? Do they seem like someone who will be there for you today, and tomorrow? Everyone has different needs and personalities. You’ll want to find a financial planner you’re comfortable with, and you may go through several meetings to find that person. The key thing is to understand all of your options – so you can make sure you’re standing on a solid foundation as you prepare for your financial future.
- So far today, we talked about the types the tax implications of major life milestones, how CPAs work differently with their clients – in focus and approach. However, it is important to walk through the qualifications of various tax return preparers. After all, when it comes to taxes, all preparers are not created equal. When selecting a tax preparer, you want to understand their training - both in obtaining their credentials and maintaining them. You also want to get references and ask them how they handle the preparation process. A CPA will do more than just collect forms then deliver a tax return. Most CPAs have a process starts with a review of client records against prior year returns, they use a checklist and an organizer to perform an in-depth assessment of the clients current year situation, and finally compare current year tax records to documents provide in prior years – all of this just to start the preparation process. Once drafted, most CPAs follow-up with additional questions based on information revealed during a detailed review. These questions often form the basis for the corrective steps or forward planning strategies that we talked about earlier. The CPA may go through one round of Q&A or several rounds – as many questions as it takes to feel satisfied that the return is both accurate and complete. Finally, many firms end with a final quality control check before delivering the final returns to the client.
- The steps I just discussed are typical for a CPA but this is not the rule for all tax preparers. In September 2010, the IRS finalized the details of a new tax return preparer oversight program. Under these new IRS regulations, anyone who is significantly involved in the preparation of a tax return must register with the IRS and obtain a preparer tax identification number (PTIN). This is just a number that identifies the tax return preparer. It is NOT a license to practice and does not validate the qualification of a tax return preparer. While the PTIN system is up and running, the part of the program establishing Registered Tax Return Preparers has been suspended, pending a legal challenge. If the program is upheld, this type of preparer will not be state or federally licensed and will have passed only a basic Form 1040 test; a college degree is not required. Furthermore, under the program as outlined in the regulations, they will have minimum continuing education requirements and limited consumer representation rights before the IRS, and should not be confused with CPAs, attorneys or Enrolled Agents.
- CPAs provide services year-round, not just at tax time and the services go beyond tax. They regularly work with clients who have complex financial issues, as well as those just getting started securing their financial futures. CPAs provide the wisdom, expertise and guidance their experience and credential designates they can supply. CPAs are obligated by most states to complete an ethics exam and CPAs who are members of the AICPA are held to a code of ethics that solidifies their commitment. Ethics plays a large role in the profession because of the fiduciary nature of the work CPAs perform. Clients rely on and trust the information CPAs provide. Compliance to the profession’s ethical standards – upholding honesty and integrity – are imperative.
- CPA stands for Certified Public Accountant. There are four requirements for becoming a CPA: education, exam, experience and licensure: Education: A CPA candidate must have a college degree and, in general, 150 hours of education (according to the Uniform Accountancy Act). Exam: A CPA candidate must prepare for and pass the Uniform CPA Examination, a rigorous 4-part exam. Experience: A CPA candidate must have 1-2 years experience working as an accountant or within an accounting-related position, depending on which state he or she seeks licensure. Licensure: A CPA candidate must obtain licensure through a state board of accountancy.
- I hope this presentation today helped you to understand how CPAs work to go beyond the tax return and take a holistic approach to tax services. We have broad experience as well as specialized knowledge. We work year-round and are available to answer questions during the year and at keys milestones over the life of our clients. Honest and integrity are keystones of our profession since clients trust and rely on CPAs and the advice we provide.
- I would be happy to answer any questions at this time.
- Thank you! It was a pleasure being with you today and welcome you to contact us with questions anytime! We would love the opportunity to talk with you about how we can be of service.