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4 tax and financial planning tips to share with clients

GettyImages-578161073Uncertainty is a common theme these days. People worry about the future and face many personal finance questions. The AICPA Personal Financial Planning (PFP) Trends survey found that 80% of CPA financial planners said their clients had a higher stress level about their financial plan than normal. The CPAs surveyed reported that they spoke with their clients early in the COVID-19 pandemic and often. As a CPA financial planner, you play a key role in reassuring clients and easing their concerns. In this blog post, CPA financial planners and CPAs with the Personal Financial Specialist (PFS™) credential detail the top tips they are implementing with their clients now.    

Paula S. McMillan, CPA/PFS, CGMA, on retirement planning: Help your clients minimize the cumulative lifetime taxes they and potentially their heirs will pay. After all, taxes can erode a nest egg. You can review your clients’ financial plans and recommend they pay taxes during low tax years since this will result in lower taxes overall. They may wish to consider IRA withdrawals if they have cash flow concerns. Roth conversions could potentially be a good idea if your client’s beneficiaries are in the same or higher bracket. But be sure to remember charities won’t get the tax break that an individual would for a Roth IRA, so plan carefully. Now that the SECURE Act requires most beneficiaries to distribute the entire account within 10 years, both IRA withdrawals and Roth conversions could potentially help the next generation with tax planning.

Jennifer E. Birchett, CPA/PFS, on identity protection and credit reports:  As their trusted adviser, remind clients to stay alert so they can spot fraudulent activity. Encourage them to review their credit reports. They can request one free report per year from all the major credit bureaus. Once they’ve reviewed their credit reports and see that everything looks correct, they should consider freezing their credit. This will prevent someone from opening new credit in their name. They can always lift the freeze for a specific period if someone needs to run a credit check. 

Dave Cherill, CPA/PFS on interest rates, loans and mortgages: Now is a good time for clients to consider intra-family loans and refinancing current debt. With interest rates at (or near) all-time lows, loans can be made for little cost. As always, all loans should be documented with the proper payment terms, stated interest rate and timeline. Too often, I see intra-family loans without proper support and documentation. If your clients have loans in place, they may wish to consider refinancing these loans to lower interest rates. If the borrower uses the loan proceeds to purchase other investments, they may be eligible for an investment interest expense deduction. This planning technique allows clients to reduce (or limit) both transfer taxes and income taxes assessed to a family. The low-interest-rate environment also applies to mortgages. Clients should consider whether to refinance their primary or secondary home mortgages to reduce expenses or lock in better payment terms. (Note that mortgage interest deductibility may be limited based on the principal amount being mortgaged, resulting from changes the Tax Cuts & Jobs Act of 2017 imposed).    

Phillip Mitchell, CPA, on the required minimum distribution (RMD): The CARES Act suspended RMDs for 2020 while the SECURE Act changed the beginning age to 72 years old from 70.5 years old. If an RMD was made earlier in the year, the taxpayer had until Aug. 31 to reverse the distribution. Even though the RMD is not required for the 2020 tax year, qualified charitable contributions from an IRA will allow those who do not itemize deductions to have an elevated benefit versus writing a check from their savings account.

As a CPA, clients seek your help with all aspects of their financial situation. The AICPA is here to help:

  • The PFP and Tax COVID-19 toolkits have resources to help clients plan in this unprecedented time.
  • The Personal Financial Planning and Tax Sections have tax and financial planning guidance and tools to help you advise clients on their finances.
  • The PFS credential can set you apart, showing clients and prospects that you have specialized knowledge in the area of financial planning.

Association Staff

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