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Staying Ahead of the ATRA and NIIT Curve

Financial-planning-consultationDue to the American Taxpayer Relief Act of 2012 and the net investment income tax, many clients have no doubt experienced the impact of the new multi-layered tax environment. According to a panel of leading CPA financial planners, clients ranging from those with high net worth to those with middle income were shocked to be hit with the NIIT and higher tax rates this tax season, and have been receptive to proactive planning to mitigate in future years.

Consequently, 2014 is the year to sit down with your clients and provide proactive guidance, education, planning and expertise. Here are a few helpful tips from our panel of experts to help you do that.

Evaluate the impact of ATRA and integrate planning now and in the future. Now more than ever, financial planning and tax planning need to be integrated. Planning ideas in this new environment include:

  • Tax: Manage brackets to avoid the new NIIT and higher income tax brackets (while filling up lower brackets) by considering the timing of income, deductions, retirement plan contributions, investment selections, charitable gifts, etc.
  • Investing: Tax efficient investing is critical in this new multi-layered tax environment to maximize after-tax returns. Consider location of assets as you review clients’ asset allocations.
  • Risk management: Given the tax attributes of life insurance and the ability to make investment allocations inside certain policies, tax efficiency is also important in the context of insurance planning.
  • Retirement: Maximizing contributions to retirement plans can lower income below applicable thresholds, thereby avoiding the NIIT.
  • Estate: Under ATRA, fewer clients will be subject to the federal estate tax, which provides a good opportunity to revisit old estate plans to determine if assets are still passing the way the client has intended.

After considering planning steps that can be taken immediately, work with clients to develop 10-15 year projections for income tax and integrate it into their overall financial plans.

Involve multiple generations in the planning process. Planners are seeing more openness from clients in engaging younger generations in the planning process. Multi-generational meetings enable clients to share family values and priorities with the next generation and expose them to the importance of guardians, trustees and wills for the transfer of wealth. And it communicates that estate planning is much more than just taxes!

To simplify the complexity, use visuals and flowcharts to help clients understand the impact of estate plans, timing of distributions and how much goes to future generations vs. charity. Be sure to review beneficiary designations, titling on assets and communications to the next generation.

Engage with clients to spur action. Keep the momentum and engagement with clients going post tax season to get them to take action for the future. Hold face-to-face planning meetings with the top 50% of your clients before August 15. Set topics and goals for each meeting, and make sure you’ve thought about and researched each. Make sure you spend at least half the time listening to what is on each client’s mind. Develop deliverables and an action list your staff can use to continue to engage with clients after meetings.

Take advantage of AICPA resources. The AICPA has valuable resources to increase your knowledge and help you effectively serve your clients. Here are a few:

This is a great time to join the PFP Section with an introductory offer of $99 for your first year of membership (use promo PFP14). If you’re not a CPA and interested in membership, learn about becoming a non-CPA associate member.

Susan McAndrew, CPA, Technical Manager – PFP, American Institute of CPAs. Susan’s responsibilities include managing PFP member communications, creating and maintaining resources and tools for PFP/PFS members, as well as working with the AICPA’s PFP Executive Committee on their initiatives. She holds a BS and MS in Accountancy with a tax specialization from the University of Illinois and worked in public accounting prior to joining the AICPA.


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