One of the most significant threats to the long-term success of wealth accumulation, particularly for high-net-worth individuals, is the burden of taxes. The question to all finance professionals, from CPAs to wealth advisors, is simple: What steps can we take now to proactively help maximize wealth and minimize tax burdens in the future? Often, these strategies require the partnership of a CPA and wealth advisor to implement successfully.

The CPA + Wealth Advisor Alliance

When an individual needs tax advice, they often look to a CPA. And, when they need financial or investment advice, they turn to a trusted wealth advisor. However, these two areas of one’s financial life are deeply intertwined, leaving this siloed approach fragmented and susceptible to a number of long-term challenges, all stemming from a lack of coordination between advice and efforts. When the individual is required to communicate the recommendations from one professional to another, and then oversee whether the recommendation was implemented correctly, no one wins – least of all, the client.

Establishing a collaborative partnership between the tax professional and wealth advisor creates a synergistic and efficient environment, particularly for the client. This collaboration fosters open communication and teamwork, allowing all parties to bring their expertise to the situation and work together to determine and implement a cohesive, coordinated plan.

At Granite Harbor, we consider collaboration with tax and legal professionals an integral part of all client relationships, as we firmly believe it is central to achieving success.

Triggering Events for Professional Partnerships

For CPAs, aligning with the right wealth advisor represents a significant opportunity to transition from tax preparation, focused on historical perspectives of one’s finances, to a proactive tax planner dedicated to reducing future tax obligations.

During tax return preparation season, CPAs are entrusted with one’s previous years’ cumulative financial data, handed over with the hopes all tax credits and deductions available to them will be utilized to minimize the year’s tax bill. While that in itself is important, there are ways to help clients reduce future tax liabilities if you know where to dig in deeper.

The following tax return line items can warrant a discussion with a wealth manager partner:

• Dividend and Interest Activity: Evaluate the client’s tax exposure stemming from their portfolio’s income. There may be opportunities to structure strategically based on the client’s tax situation.
• Capital Gain Exposure and Reportable Gains: Understanding the full scope of realized gains, any carry-forward losses, and the tolerance for realizing additional gains is critical. This includes evaluating the potential Medicare surcharge taxes on capital gains.
• Compensation Structure: Small business owners not fully capitalizing on a QBI deduction should consider reviewing how they pay themselves. This evaluation may involve considerations between C-Corp, S-Corp and partnership structures, how much wage versus K-1 income is generated, among other things.

Additionally, in high-performing partnerships between CPAs and wealth advisors, thorough diagnostics can be conducted collaboratively on behalf of a client whenever a major life event is noted, or significant tax change occurs. Some key instances where partnering with a wealth advisor can be particularly beneficial include:

• A Major Life Event. Marriage, a death in the family, a divorce, retirement, a job transition, or similar events can trigger a time for a collaborative review.
• A Tax Liability Change. Going from employed to freelance, buying a business, selling a business, or even restructuring a portfolio should trigger a look at future plans.
• Real Estate Transactions and Capital Gains. Investors should frequently ask for an overview of their tax liability. This is doubly true when creating an early retirement plan.
• Business Succession Planning. Handing down a family business requires thoughtful consideration and partnership to ensure continuity and preserve a legacy.

In many cases, clients will require regular updates to their plans to maximize growth potential. The IRS suggests checking your tax withholding, at a minimum, whenever there is a major life-changing event.¹

What Makes an Effective Partnership Between a CPA and a Wealth Advisor?

Selecting the right partners is paramount in any collaboration. Consider the following criteria when establishing a team of professional advisors:

• Experience and Expertise: The value of tax and financial advice depends upon the professional’s knowledge and experience. In addition to their licensing and work history, consider their capabilities and how they demonstrate their expertise through their service offerings, educational resources, and reputation.
• Ongoing Professional Development: With constantly changing tax laws, legal precedents and financial regulations, a commitment to ongoing education is paramount when entrusting financial, tax and legal professionals for advice.
• Objectivity and Independence: An ideal partnership between a CPA and a wealth advisor will be one where they can look at a client’s financial situation from an independent perspective, through an objective lens, identify potential options and come together to collaborate and develop a cohesive plan.
• Strong Communication: Effective communication is the bedrock of any successful partnership. A partner with proactive outreach and a robust follow-up process is essential for ensuring ongoing alignment of plan expectations and execution.

Creating Trusted Advisor Relationships

A strong partnership is built on more than just shared business goals; it also involves sharing knowledge and experiences. Great partnerships foster professional development for all parties involved. That’s why Granite Harbor offers an open-door collaborative approach, allowing for a working relationship that suits everyone involved, and strives to maintain alignment between wealth and tax plans.

At Granite Harbor, our top priority is helping our clients live their best lives. Through our Compass 360 Planning Process, we work to maximize wealth, safeguard financial interests, and transform wealth management into a dynamic, collaborative venture. A cornerstone of this approach lies in partnering with tax professionals who recognize the invaluable benefits of such collaboration.

Whether you are an investor currently missing the benefits of a proactive team working collectively on your behalf, or a tax planning professional interested in exploring potential partnership opportunities, schedule a call today to discuss how we can help.

Source:

1. https://www.irs.gov/newsroom/tax-withholding-how-to-get-it-right