Taxing times call for more than tax prep
taxnews
“Any accountant has insight into their cli-
ents’ financial situation,” said Jonathan Wit-
tlin, CPA, CFA, vice president and portfolio
manager for financial planning at Lenox Ad-
visors. “The CPA who prepares returns is in
front of clients at least once a year to review
what’s going on, gather documents, etc. If
they’re doing their job, they’ll also be asking
questions about any life changes that may be
happening, and what the client expects from
an income standpoint.”
Wittlin sees financial planning as a natu-
ral outgrowth of tax preparation. “Knowing
the client’s tax situation is a huge help from a
planning standpoint,” he said. “It’s a natural
fit for the CPA to move into a [financial] plan-
ning role.”
“You never know whether it will be good
times or bad times,” he observed. “The next
problem or the next big boom could be just
around the corner, so it’s important to be-
come familiar with the client’s situation. If
you know what their goals and problems are,
you can advise them when the economy does
things none of us expect.”
Lenox takes a team approach to financial
planning. “We don’t have in-house CPAs,”
said Wittlin. “If a client comes in and says
he’s been working with Joe CPA for 15 years,
that’s who we’ll use. We make him a part of
the team. In the ideal situation, it seems as
though we’re all working for the same com-
pany. We stay in touch with each other and
share information.”
CPAs enjoy an advantageous relationship
with their clients in comparison to other
financial advisors, said Mark Merenda, the
president of Naples, Fla.-based Smart Mar-
keting. “Everyone who pays taxes has to
come in once a year,” he said. “Other finan-
cial advisors would love to have that advan-
tage. Accountants are traditionally focused
on cost savings, and in times like these, that’s
seen as a very positive quality in the eyes of
most investors.”
The ongoing economic downturn offers accountants the opportunity to extend their reach and help their clients at a time
when they are most needed.
BY ROGER RUSSELL
half,” said Merenda. “Whether they charge on
a fee or an asset basis, it’s been a tough year.
For example, if you get paid a 1 percent fee on
a $2 million portfolio, that’s $20,000. But if the
assets lost 40 percent of their value over the
past year-and-a-half, your income is down
by that amount.”
Moreover, a fair amount of clients want to
blame their financial advisors for the recent
tough times, he explained. “That creates an
opportunity. People who are unhappy with
their investments will be more willing to
consider making a change in their advisors.
Accountants are respected as being cautious
financial shape as long as they have cash to
pay all the bills. That’s better than not having
enough, but just because they have enough
short-term cash doesn’t mean they’ll have
the assets to support their existing lifestyle
projected out over 10 or 15 years.”
“We try to shelter that money and provide
a payout at the back end. For example, they
might place their signing bonus in something
they can’t touch for 10 years, and after that,
they might get $100,000 on an annual basis,”
he said. “It’s not designed to be anything
other than supplemental income. In 10 years
they might be in broadcasting or injured, so
it provides a nice revenue stream for athletes
who now are in their mid-20s.”
HOUSE APPROVES 45%
ESTATE TAX EXTENSION
WASHINGTON, D.C. — The House voted
to set the inheritance tax at 45 percent
permanently for estates larger than $3.5
million. The estate tax is set to expire
this month and disappear temporarily
this year, only to return at a higher rate
of 55 percent in 2011. All estates will
be subject to a 15 percent capital gains
tax rate unless the legislation passes.
The bill, which was approved by a vote
of 225-200, would continue to exempt
estates of less than $3.5 million. Married
couples with estates of $7 million would
be exempted through estate planning,
leaving less than 1 percent of estates
subject to the inheritance tax.
Accountants
are respected
as being
cautious and
prudent.
WORKING WITH OTHER PROS
As part of the team approach, Sharvin works
with insurance brokers and other financial
advisors. “A lot of times, they’re inundated
with so many friends who are also advisors
that they don’t know if they would have
picked the advisor without that friendship.
It helps them to have an independent CPA’s
viewpoint and still retain their long-term re-
lationship with the friend-advisor.”
The need for financial planning by advi-
sors who are familiar with their clients’ tax
situation is more important than ever, said
Holliston, Mass.-based tax preparer Larry
Novick. “It’s a result of the economy and gov-
ernment’s response to the economy, which is
to spend and spend,” he said. “Tax planning
follows tax preparation, and it’s fair to say that
over the next few years the tax rates will be
phenomenal.”
In contrast to the team approach, Novick
has Series 7 and Series 63 licenses, and can
sell the products that he recommends. “I have
a one-stop shop,” he explained. “I already
know the tax implications of the products I
sell based on my clients’ financial situation,
and that’s very important. Many advisors just
sell a product and let someone else worry
about the tax impact.”
Regardless of the approach, CPAs make
great candidates to be financial advisors,
said Lenox Advisors’ Wittlin. “However, they
should make sure they have the basic knowl-
edge. I would want to get one of the designa-
tions [such as the CFP or PFS], since there
is such a broad amount of information they
should know.” AT
THOUSANDS DISCLOSE
FOREIGN ACCOUNTS
WASHINGTON, D.C. — Over 14,700 holders
of foreign bank accounts told the Internal
Revenue Service about their existence
under a voluntary disclosure program. IRS
Commissioner Doug Shulman said that
the agency received voluntary disclosures
about billions in accounts in 70 countries.
The IRS had extended the program
and offered to allow most of those who
came forward voluntarily to avoid criminal
prosecution for tax evasion. The agency
has successfully prosecuted several account holders at Swiss bank UBS who did
not come forward voluntarily.
TOUGH YEAR FOR PLANNERS
“Financial advisors who aren’t CPAs have
taken a brutal beating in the last year-and-a-
and prudent with their clients’ money, which
is exactly what most investors want today.”
Jim Sharvin, a Los Angeles-based CPA,
works in tandem with his clients’ other advi-
sors. “I don’t sell any products, although I’ve
thought about it,” he said. “I decided that I
can offer a more independent perspective by
working in a team environment.”
“Financial planning is a natural outgrowth
for CPAs who prepare their clients’ returns,”
said Sharvin. “We know the whole financial
situation and financial health of a client. We
can see in a nutshell where the assets are
headed. The return provides a great reference
tool in sitting down with the client.”
“My clients typically have a lot of income
up front, and sometimes only for a short
time,” explained Sharvin, who specializes in
professional athletes. “For most of them, it’s
all about cash flow. They think they’re in great
MILLIONS MAY OWE UNDER
MAKING WORK PAY
WASHINGTON, D.C. — The Making Work
Pay Credit could lead to more than 15. 4
million people owing additional taxes,
according to a new report. The credit
is advanced to taxpayers by employers
through reduced withholding, resulting in
an increase in take-home pay. A Treasury
Inspector General for Tax Administration
report said that the implementation of
the tax credit creates the possibility that
millions of taxpayers may be advanced
more of the credit through reduced
withholding than they are entitled to
receive. When filing their returns for 2009
and 2010, such taxpayers may ultimately
owe additional taxes. Some also may be
subject to estimated tax penalties.
