Series: From Tax Preparer to Financial Planner: The Road Best Traveled

1. Series: From Tax Preparer to Financial Planner: The Road Best Traveled Part 3: Moving From Tax Planning to Holistic Financial Planning: Expand Your Financial Planning Practice Through Your Client’s Tax Return Presented by: Lyle K. Benson, Jr., CPA/PFS Ted Sarenski, CPA/PFS Susan Tillery, CPA/PFS

2. Introductions Moderator • Lyle K. Benson, CPA/PFS Founder, L.K. Benson & Co. Baltimore, Maryland • Ted Sarenski, CPA/PFS President & CEO, Blue Ocean Strategic Capital, LLC Syracuse, NY • Susan Tillery, CPA/PFS President / Co-Founder, Paraklete® Financial, Inc.  Kennesaw, GA Featured Speakers

3. Introduction • About the PFP Section & PFS Credential • The AICPA PFP Section provides information, resources, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and their closely held entities • The CPA/Personal Financial Specialist (PFS) credential distinguishes CPAs as subject-matter experts who have demonstrated their financial planning knowledge through experience, education and testing

4. Introduction About this Web seminar This strategic session will help you use your client’s tax return to gain a snapshot of their current financial situation and begin to develop a closer relationship to cover all of their financial planning needs, including tax, retirement, estate, investments and insurance. You will learn: • Special considerations in 2012 • How to best use your tax preparation practice to develop personal financial planning ideas for your clients • The key issues to consider as you prepare, review, and discuss individual tax returns with your clients • How to implement a checklist developed by leading CPA financial planners to identify planning opportunities

5. AICPA Web Seminar Series:From Tax Preparer to Financial Planner Build your financial planning knowledge with this web seminar series and discover the necessary steps to transition from tax preparer to financial planner.   Register today at CPA2Biz.com/Webcasts. Discounts available for PFP/PFS and Tax Section members.

6. Post-Tax Season Opportunities • Tax season as a springboard for financial planning • Using the tax return as a planning tool • Structuring a financial planning practice • Benefits of providing PFP services • Deepen existing client relationships • Higher-value work • Expanded services add to your firm’s bottom line

7. Overall picture of client’s financial situation Uncover opportunities for planning that client has overlooked Details of cash flow/income situation Use in conjunction with client’s personal balance sheet Why use tax returns to develop personal financial planning

8. Special considerations in 2012

9. 2013 Tax Changes (if no action is taken) • Income Tax • Bush tax cuts expire: increase in ordinary income, capital gains, and qualified dividend rates • 3.8% Medicare surtax on net investment income of high-income individuals (MAGI > $200k single, $250k MFJ, $125k MFS) • 0.9% increase in Medicare payroll tax for high earners • Marriage penalty relief expires • Estate Tax • $5 million exemption reverts back to $1 million • Increase in estate tax rate from 35% to 55% • Gift Tax • $5 million exemption reverts back to $1 million

10. Comparison of 2012 vs. 2013 Tax Rates Ordinary Income Long-Term Capital Gains

11. Political Environment • Uncertainty = Flexibility • Election Year • Unlikely that we’ll have any certainty until last quarter • Start planning now, gathering data, preparing projections, drafting estate documents, etc. • President Obama’s budget proposal • Reinstatement of personal exemption phaseouts and itemized deduction phaseouts • Attack on itemized deductions: mortgage interest, charitable contributions, miscellaneous itemized deductions • Above-line-deductions: health care, retirement plan contributions, education expenses • Other (retirement contributions attack, Bachus desire to require 5 year payout of IRAs through highway bill rumored to be back)

12. Estate & Gift Tax Planning • 2012 Estate/gift tax exemption linked at $5,120,000 • President’s Proposal: • Estate/GST $3.5 million exemption • Gift tax $1 million exemption • Rates jump from 35% to 45% • Retain portability • Disregard valuation discounts • Limit GRAT to 10-year term (zeroed out GRAT goes away) • Limit GST to 90 years – dynasty trusts no longer viable • Grantor trust benefits go away • Republican Proposals: • Status quo - keep $5 million+ exemption for estate and gift • If nothing passes: • $1 million exemption and 55% rate

13. Estate & Gift Tax Planning • Clients who can benefit most from planning • Elderly or ill, those who live in a state where state estate tax is decoupled from fed, clients who have asset protection needs, non-married same sex couples and wealthy • Impediment towards getting your clients to take action • Complexity (setting up trusts, etc.), cost of advisors, appraisals, etc., disbelief that changes are going to take place, uncertainty • Advisors need to help their clients understand the detriments to not planning ahead and taking action when necessary (run projections and show them the impact)

14. Estate & Gift Tax Planning • Start now! Use up exemption in 2012 • Some techniques take months to implement (GRATs, IDGTs), etc.) • Need to start now to educate clients, draft documents, prepare valuations, etc. • Income generation through CRUTs • Opportunities with low interest rates (GRAT) • Asset efficiency implications of gifting • Drafting to gift but not gift

15. Estate & Gift Tax Planning • Beware of large outright gifts • They are not protected from creditors claims and the remainder is not kept in the family • Reasons to gift now: • Save estate tax (federal and state) • Asset protection (if via trust) • Grandfather for GST • Grandfather for grantor trust changes • Lock in discounts • Remove appreciation from estate • Cash flow planning and running of projections is essential before taking action (create plan to ensure client is comfortable before triggering)

16. Income Acceleration and Planning • Added dynamics of President’s proposal • Requires min 30% effective rate for those with income over $1 million annually • Harvesting gains • Last quarter of the year • Not affected by 30-day wash sale rules • Monitor elections for deemed sales • Comp and benefit issues • Exercise stock options • Pay bonuses before year-end • Deferred compensation elections (Don’t necessarily forego deferral accounts, particularly when there are matching provisions. Educate your clients and consider the political landscape.) • Roth conversions

17. Income Acceleration and Planning • Cash basis taxpayers • Accelerate billings • Other income acceleration ideas • Accrue bond interest in 2012 versus 2013 • Accelerate installment payments • Other planning • Re-allocation of portfolio based on tax changes (qualified plan versus non-qualified plans, etc.) • AGI planning between 2012 and 2013 to effectively manage the new 3.8 percent Medicare tax in 2013

18. Itemized Deduction Planning • President’s proposal will limit itemized deductions to 28% -- and reinstate phaseouts • Accelerate itemized deductions in 2012 • Set up donor advised funds and fund future year’s charitable contributions in 2012 • Accelerate miscellaneous itemized deductions by prepaying expenses to get above the 2% limit • Interest rates at historically low levels • Look at the clients Form 1098 and mortgage statement • Discuss their refinancing strategy • Evaluate all of the client’s debt • Alternative minimum tax situation • Consider prepaying real estate taxes and personal property taxes

19. Expand your financial planning practice through your client’s tax return

20. How does this impact you if you are a tax preparer? Obtain written consent from clients Disclosure of tax return information (general, specific, foreign) Disclosure of use of tax return information Criminal penalty for “knowingly and recklessly” disclosing or using tax return information More information at aicpa.org/pfp/advocacy Regulation 7216

21. Children Education planning Gifting Income shifting – remember kiddie tax rules Gift Tax Returns Elderly parents Estate planning Dependency rules Future financial commitment Dependents

22. Wages, self employment income, partnership income, etc. Maximizing deferral opportunities 401(k), 457, 403(b) Retirement plans from former employers Consolidate IRAs from multiple sources Social Security benefits SS maximization strategies Does a Roth conversion still make sense? Income – understand the sources

23. Source/alternatives/assets managed Taxable Tax exempt Critical to understand their investment strategies Bank accounts – FDIC limits Cash levels – emergency fund Is there too much in cash? Interest - Schedule B

24. Source funds stocks Performance Consider alternatives to these investments How are assets titled? (estate planning issues) How are assets custodied? Tax efficiency of investments Impact of market downturn Too much concentration in one stock? Review tax impact and potential changes to tax law Dividends - Schedule B

25. Capital loss carryovers Trading activity – fees / expenses Portfolio churning? Loss harvesting – part of ongoing wealth management Coordinated with tax plan? Core of investment strategy Schedule D

26. Emergency Economic Stabilization Act of 2008 • Brokers and custodians must track and report cost basis information • End result – simplifies cost basis reporting but adds complexity: • Proactive decisions must be made on accounting methods to be used and custodian should be notified prior to settlement of transaction (otherwise, default method will be used) • Firms that track portfolios need to ensure firm system matches system of custodian • For tax reporting purposes, 1099-B trumps all other data • How to handle new clients

27. How does business fit into overall planning? Succession planning Retirement plans Determine income shifting opportunities among family members Risk management - discuss range of options to structure the business Compare to LLC, corporation, etc. Home office Hobby loss rules Schedule C

28. LLCs, Subchapter S and Partnership Income? Passive losses? Self-employment income Valuation issues IRS attack on family entities Investment partnerships Hedge funds Venture capital Other alternative investments Any potential tax liabilities arising from negative basis? Schedule E

29. Real estate Risk management Multiple owners Form of ownership Estate planning Passive activity loss rules Vacation home rules Like-kind exchanges Schedule E

30. Trusts (1041) How are assets being managed? Trustee adequacy What is the purpose of the trust arrangement? Is investment strategy appropriate? Is trust income being reported properly? Distributing income or retaining? Schedule E

31. Required Minimum Distributions being taken? Net Unrealized Appreciation (NUA) from 401(k) Beneficiary elections Where should client be taking money from? Has a Roth Conversion been considered? Cash flow needs – sustainable withdrawal rate (spending as a % of assets) Retirement Plans/Distributions

32. Maximizing opportunity Investment choice What is the best choice for deferral opportunities? Consider qualified plan/defined benefit plan Consider hiring spouse Regular vs. Roth contributions Retirement Plan Choices: Simple, SEP, IRA, Solo 401(k)

33. Charitable contributions Appreciated securities Timing of Deductions CRUT, Charitable Lead Trust Private foundation Donor Advised Funds IRA distribution – direct to charity Contribution carryovers IRS documentation rules Understand your client’s charitable intent Itemized Deductions

34. Growing importance Residency rules Statutory Domiciliary Multiple state residency Planning opportunities and pitfalls Potential tax liability in other states Timing of payments and AMT State Taxes

35. Long term care insurance Health insurance Self employed? What is current coverage? Potential health issues COBRA if job loss Medicare rules Eldercare issues Impact of Obama Health Care Act Corporate medical reimbursement plan Health Savings Accounts Medical Expenses

36. Investment fees Reasonable or excessive? Other expenses 2% AGI Planning opportunities to avoid loss of deductions How to shift? “Bunching” deductions into one year Allocating deductions among Schedule A, Schedule C and Schedule E Miscellaneous Deductions

37. Mortgage interest expense rules Planning opportunities Limitations (new $1.1 million rule) Refinancing opportunities – current rate environment Investment interest expenses – carryover rules Other interest – tracking use of funds Margin interest Interest Expense

38. Current partnership agreement Valuation Buy/Sell Retirement plans Employee benefit plans Partners Profit allocation Pro-rata Special allocations Guaranteed payments Multi-state operations Partnership Tax Returns

39. Total assets Compensation of officers – reasonable? Rents – who owns the property? Pension and profit sharing Employee benefit plans Shareholder agreement Partners Succession plan Deferred compensation agreements Multi-state operations S-Corp vs. C Corp S-Corp – adequate basis for losses? Corporate Tax Returns

40. Number of donees Previously filed 709 Split gifts 529 plans – special rules Valuation discounts Basis and date Generation skipping Exemption availability Life insurance trusts Gifting Strategy Gift Tax Returns

41. Impact on overall planning Current/proposed changes Stock options Planning opportunities for ISO exercise AMT credit carryover – potential loss of credit Alternative Minimum Tax

42. How to utilize this checklist Checklist to use in your practice

43. You can learn a lot about someone through his or her tax return. Many financial planning opportunities can be uncovered with a thorough review of your client’s tax return. Summary

44. Q&A

45. PFP Section Resources • Additional materials • Roadmap to Developing and Managing a CPA Personal Financial Planning Practice (aicpa.org/PFP/pathway) • Checklist: Analysis of a Tax Return for Personal Financial Planning (aicpa.org/PFP/pathway) • PFP Practice Center (aicpa.org/PFP/practicecenter) • Forefield Advisor (aicpa.org/PFP/forefield) • AICPA Advanced Personal Financial Planning Conference (cpa2biz.com/PFP) • 2-day sessions for those in earlier stages of PFP • Implementing PFP Services: Step by Step Plans for Success • CPA/PFS Review Class • For the full calendar of upcoming PFP Section events, visit www.aicpa.org/PFP and click on CPE & Events 45

46. CPA/PFS Program At-A-Glance • PFS exam review • Self-study, web review and live review options available to purchase at cpa2biz.com • PFS exam registration • Learn more & register at aicpa.org/PFSexam • Summer and winter exam window each year • PFS education • In-depth self-study courses available to purchase at cpa2biz.com • 2012 PFS exam sponsorship program • Summer deadline: June 18, 2012 • Winter deadline: December 26, 2012 • For more information, visit www.aicpa.org/PFP/PFS

47. AICPA Web Seminar Series:From Tax Preparer to Financial Planner Build your financial planning knowledge with this web seminar series and discover the necessary steps to transition from tax preparer to financial planner.   Register today at CPA2Biz.com/Webcasts. Discounts available for PFP/PFS and Tax Section members.

48. Lyle K. Benson, Jr. CPA/PFS L.K. Benson & Company, P.C. lyle@lkbenson.com Phone:(410) 494-6680 www.lkbenson.com Ted Sarenski, CPA/PFS Blue Ocean Strategic Capital, LLC tjs@boscllc.com Phone: (315) 471-2672 http://boscllc.com Susan Tillery, CPA/PFS Paraklete® Financial, Inc.  stillery@parakletefinancial.com Phone: (678) 290-3930 http://parakletefinancial.com Thank You