Collaborating With Your Clients' Tax Advisors

You have lunch with your top client’s tax advisor. You brainstorm ways to create a better experience for your mutual clients and exchange meaningful information.

The tax advisor is so excited about your value proposition they give you several referrals. Sound like fantasy? With a little insight, this can be reality. Bonus – you get to write off lunch!

Let’s start with a peek inside the brain of a tax advisor. Ten or 20 years ago, tax season was an invigorating hike up a moderately steep hill. Now it’s a panicked sprint through a dark, haunted forest. In the past 20 years, the tax season has been effectively cut in half.

When I started doing taxes in the 1990’s, we had 12 weeks. Tax law changes mean many of the tax reporting forms are not available until March. Tax preparers today have about 6 weeks to prepare hundreds of tax returns. Keeping up with the avalanche of tax law changes in the last five years was overwhelming.

Why not just file an extension? Although you can extend the time to file to October 15, if you do not pay any tax due by April 15, there are penalties and interest. Calculating the tax due takes almost as much time as preparing the return. If the client owes penalties, the tax preparer may be stuck paying them.

I used to look forward to catching up on news about kids, travel, and goals while entering clients’ tax information. These days, the wild sprint to April 15 barely leaves time to gather information, incorporate tax law changes and check for accuracy. The tax advisor may miss learning about a significant life event.

Tax returns are more complex than they once were. When your client invests in a partnership, LLC or S-Corp., they get a tax reporting form called a “K-1”. The K-1 has a short name, but a long reach. It often requires 2 to 10 additional tax forms and multiple state returns.

More clients receive restricted stock (RSUs) and stock options (NQs, ISOs). RSUs are taxed when they vest (client gets the stock) even if they don’t sell it. Tax withholding is usually too low. Exercising Incentive Stock Options may create alternative minimum tax. The alphabet soup of foreign account reporting - PFIC, FINCEN 114, 8938 - is mind-boggling. Most clients don’t realize they must file these forms. Tax preparers should weigh the pros and cons of various tax positions. Is it better to elect to expense their new truck under code section 179, or use bonus depreciation?

Looking for Wonder Woman - Staff preparers must be able to accurately prepare complex returns under extreme pressure, while keeping a calm, pleasant demeaner with clients.

We all want to:

  • Take care of our clients
  • Give appropriate, timely and accurate advice
  • Provide a great client experience
  • Be appropriately compensated

How can financial and tax advisors collaborate so both advisors and their clients are happy? Here are a few ideas:

Tax planning –Working with a tax advisor gives you a more accurate picture of a client’s tax situation. Help your clients diversify out of a concentrated position in employer stock, choose between taxable or tax-free bonds, or do tax-loss harvesting. The tax advisor can adjust withholding or have your client pay estimated taxes to avoid a huge tax bill. You won’t get that call on April 15 asking you to sell investments to pay the tax due.

Changes/Life Events – Marriage, death, divorce, retirement, a new baby or adoption, a home sale or purchase, starting or terminating a business, buying a rental property all have significant tax consequences. We often find out about these events before the tax advisor.

Providing Timely Tax Documents – Find out when the 1099, K-1 and other tax reporting forms will be issued, make sure the client can access them online and knows which forms to give to their preparer. Check that cost basis information is available when securities are sold.

Timing is Everything –Avoid trying to schedule meetings from January 15 to May 15. A snack basket for staff during the busy season is appreciated. Lengthy emails and phone calls are not. Make sure the client has given you and the tax advisor permission to discuss their situation, preferably in writing, or schedule a call or meeting with client and both advisors. Fall is a great time to assist with year-end tax planning. Remember that October 15 is the extended deadline.

Getting Referrals – Define and communicate criteria for your ideal client, what you do best, and your process. If their tax advisor thinks you just monitor their investments, they are less likely to refer to you. If they understand the scope of advice and benefits you provide, they will think of you as a valued colleague.

Giving Referrals - Develop a network of tax advisors who have expertise in different areas: foreign reporting, real estate, 1031 exchanges, small business, stock options. Not all tax advisors prepare fiduciary returns for estates and trusts. Make sure you connect your client with the right specialist.

Be aware of the different licenses and qualifications for tax preparers. Enrolled Agents (EA) are licensed by IRS and can practice in all states. EAs must pass the IRS Special Enrollment Exam and meet annual continuing education requirements. Certified Public Accountants (CPA) are licensed by a state board of accountancy and must pass the Uniform CPA exam and take continuing education classes. Rules are different for each state.  Tax Attorneys can prepare returns and represent clients in court. They may be appropriate for an unusual tax situation or a large balance due.

Start by looking for a local chapter of these national groups:

National Association of Enrolled Agents:

National Association of Tax Professionals:

American Institute of CPAs:

Establishing and deepening relationships between advisors enables us all to give better advice, make our relationships with clients stickier, and expand our client base.

#collaborating #clientstaxadvisors 

Originally posted on WIFS website August 16, 2023

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