What You'll Learn In Today's Episode:

  • Why financial advisors should ask to see their clients’ tax returns.
  • Things to consider when looking at a tax return.
  • How to plant the seeds for future tax planning and what to watch out for.
  • Planning strategies you should consider.
  • Why understanding each client’s tax tolerance is important.
  • How to utilize tax events to a client’s advantage.
  • Value-added services you can use with your clients.
  • Important action items to up your game in the tax realm.

Do you want to be a hero to your clients? If you answered yes to that question, then ask to see their tax returns. One of the biggest expenses in retirement is taxes—and paying more than your fair share does not make you more patriotic. So today Matt and Micah are delving into taxes and breaking down how you can use tax returns to deliver massive value to your clients. 

Listen in as the guys share why you should be asking for your clients’ tax returns, as well as what to look for on those returns. You’ll learn what their top go-to strategies are to save clients money and score some major brownie points. This is part one of a two-part episode, so make sure not to tune in today and next week!


This is The Perfect RIA, in case you didn’t know. Bringing you all the strategies to help your business grow. Are you happy? Are you satisfied? Are you hanging on the edge of your seat? Sit back and listen in while you feel the beat. Another myth bites the dust…

Matthew Jarvis:   Hello, everyone. Welcome to another lovely episode of The Perfect RIA podcast. I’m your cohost Matthew Jarvis. And with me as usual, Mr. Micah, Micah, how are you buddy?

Micah Shilanski:  I’m doing excellent. Jarvis, I got to say. Lots of great opportunity, a lot of fun stuff happening in the summer in Alaska. So we’re hanging in there yourself.

Matthew Jarvis:   Well, I’m good. I would like to note, for the record though, you guys can’t see us. Micah is in a suit and tie right now in his office and I’m lounging at home.

So I feel like normally it’s you that’s like in Hawaii and I’m in the office.

Micah Shilanski:  Well, yeah, our travel schedule did get slightly interrupted this year, and that was one thing I got to say, a little different with the coronavirus and whatnot, because I was going to talk about forcing mechanisms. When you’re out of town, it really forces you to stay more on top of your schedule and to be more diligent and being that we were forced to be in town, I canceled a lot of trips. We ended up putting in a little mini search. Well, actually I’ll blame you, because you’re coming up we actually rearranged the calendar, but it worked out kind of nice to have a little mini surge in the beginning of June. So it works out.

Matthew Jarvis:   Yeah, I will certainly confess or just note that I find myself, I don’t say working. I find myself putting in more office hours if you will, but not really getting anything more done because like I said, there’s just not that forcing mechanism. In fact, a friend of mine says that the coronavirus is just light, dark, light, dark, light, dark, repeat, just everything blends together. But it’s a good reminder that travel, or it’s easy to say, “Well Hey, Matt and Micah travel all over because they’re just bums and that’s what they do.” And there certainly is an element of that.

Micah Shilanski:  I can’t deny that.

Matthew Jarvis:   I can’t deny that. But there really is this element of if I’m going to be out of the office next week, I’m going to get my … done so I can leave, leave the office. We’ve talked about this a lot on the podcast, but it’s an incredibly powerful forcing mechanism. There’s a fair amount of science behind that, that when you have … it was that quote that we used on a podcast the other day, don’t give me time, give me a deadline and what better deadline that I’m going to leave the office?

Micah Shilanski:  I had to take it so far. And I know I’ve shared this with a lot of the nation, but when I first started and I wouldn’t adhere to these forcing mechanisms or the internet would still be there and all these other things, I had to force myself to go to a remote cabin where there was no cell signal. I mean, that’s how dramatic I had to be in order to follow these rules. Again, kudos to forcing mechanisms to making that happen.

Matthew Jarvis:   Yeah, I would, because this podcast is about taking action, not that we’re at the end already, something that I’ve done that I would recommend the members of the nation, go on your calendar and block out vacation days if you will. It’s easy to say, well, “Hey, I don’t work Fridays, but what else am I doing today? I might as well screw around at the office.” Use like Jocko, “Good. I can’t do my hobby. Good, now I can find something else to do. That’s not plain office.”

Micah Shilanski:  Yep. Out of the office, do not book appointments, whatever it takes. Well, speaking of forcing mechanisms, we have a family foresee mechanism that we’re going to talk about today, right? Our favorite aunt?

Matthew Jarvis:   Our favorite aunt.

Micah Shilanski:  Aunt Iris, yay.

Matthew Jarvis:   Yes. Well, and speaking of our favorite people, this podcast should, and we won’t know until it’s over, so it should be approved for CFP credit. This is a two part podcast.

Micah Shilanski:  That’s right.

Matthew Jarvis:   There will be a quiz for members of the backstage pass and for the general TPR nation. So listen closely, but again, I can’t promise that we will have it because it’s not approved until after it’s recorded, blah, blah, blah, blah, blah. Stay tuned for details on CFP credit for this podcast.

Micah Shilanski:  That’s true. So jump on our site, make sure you’re signed up for that. We’ve got to get your CFP number as well as some other fun details to make sure we can submit it on your behalf. There might be cool code words or passwords like Micah rocks. I mean, whatever you want right there, but just to drop some subtle hints in here.

Matthew Jarvis:   The CFP does require that we have a quiz, but they weren’t specific on what the questions had to be about. So it could be like, what is the approximate length of Matt’s hair? What color is Micah’s beard, we can do really anything we want.

Micah Shilanski:  All right. Onto productive matters.

Matthew Jarvis:   Onto productive matters. Let’s talk taxes, which I got to confess this as a place where you and I love to just really nerd out and it’s almost like … We were talking about this earlier, it’s an unfair advantage over so many other planners. I mentioned to you that I had a new prospect come in just last week. They said, Matthew, “I just want you to know I’m comparing you with other planners.” I say, “That’s perfect. I really recommend that.” Then they dropped the name of the firm they’re comparing, which we won’t name it because we don’t need enemies there, but they’re one of the largest RA firms in the country that happened to be headquartered not far from my office. So it could be anybody.

Micah Shilanski:  And they hate a particular product, but whatever.

Matthew Jarvis:   They hate a particular product and they don’t have good discretion when giving keynote addresses at industry conferences, could be anyone.

Micah Shilanski:  Could be anyone.

Matthew Jarvis:   But as I say to the prospect amongst other things, I say, “That’s really great. Just curious. Did they ask for a copy of your tax return?” “Well, no, Matthew, in fact, I was going to ask you why you wanted to ask for a copy of my tax return.” Micah, you and I’ve talked about this, we’re saying, “Hey, probably one of your biggest expenses in retirement will be taxes. We want to make sure you don’t overpay the IRS because that doesn’t make you more patriotic.”

Micah Shilanski:  Now, what do you say when that happens in that experience and you said that to that prospect, and we’re getting it into tax values, tones. There’s so many massive value things in taxes, we could spend hours on it, but the most important thing is communicating this stuff to clients. It is not about knowing the tax information, because if you can’t effectively deliver it back to a client where they can understand it, they don’t follow your advice. So let’s take a quick little go on that rabbit hole real fast, Matt. When you were chatting with the client and you conveyed that to them, what was their reaction?

Matthew Jarvis:   So usually their initial reaction is still a bit of confusion. A lot of times they’re thinking, “Well, I have a CPA. I have a tax repair, your my investment guy in the investment bucket. Why do you need to see the taxes?” That’s where I like to use really simple examples, and Micah this goes to your point, if you can’t articulate it, it doesn’t matter.

So a really simple example I like to use. I said to this prospect, I said, “Mr. Prospect, you have about $1.4 million in your retirement accounts. And again, congratulations for that. That’s a lot of hard work. The IRS is waiting, not so patiently, to be paid on that money and they’re going to get somewhere between 0% and 43%. Let’s call it half of that retirement accounts. So if we use round numbers, somewhere between zero and $700,000 of that account is going to go to the IRS and we have a lot of control on which end of the spectrum that goes to, that’s why we need to see your tax return.” And that’s a big … They’re like, “Wow, $700,000 could go to the IRS?” Yes.

Now for the members listening, that’s a pretty extreme scenario but then again, not that extreme if he pulled out his $1.4 million at once, 43% right out of the gates.

Micah Shilanski:  Right, or just over the lifetime. I mean, that’s not a very far example. Now, do they ever ask that question about, “Well, I have a CPA, why do you need to look at this?”

Matthew Jarvis:   Yeah, we get that pretty often. And I always like to use that analogy. I said, “Well, your CPA’s job is to report what’s already happened.” They’re the scorekeeper if you will, they’re telling the IRS what happened last year. We’re helping you decide what should happen this year, next year, five years from now, 20 years from now.

Micah Shilanski:  You know, I love that. I like to use a driving analogy when I’m talking about that. And it says, you know what? The CPA has a really important role of filing forms with the IRS. But if you think of it, like we’re driving a car and we’re going to retirement, we’re going to the best part of our lives. When you’re driving a car, where do you spend most of your time looking out of? I say, “Well, the windshield.” That’s right, you’re going to spend most of the time looking out the windshield. Now, that’s my job. My job is to help look in the windshield. That’s the future, these are things that we can control. What’s what’s happening. The CPA’s job is to look in the rear view mirror. And that’s the only place they’re looking at is the rear view mirror and they’re really good at telling you what happened. Now, that’s their job. There’s nothing wrong with that. But Mr. Client, if you spend your entire time looking in the rear view, mirror, driving your car, what’s going to happen?

Matthew Jarvis:   Probably going to crash.

Micah Shilanski:  Exactly. That’s what we’re here for. By looking at your taxes, by looking through the windshield, we’re going to avoid a lot of problems that you probably just would have ran into. And that’s why I went in a copy of your return. Is that okay?

Matthew Jarvis:   Perfect. Micah do you pause every time and wait for them to answer the crash question? Or do you blow right past that?

Micah Shilanski:  Yes. Yeah. I try not to do too many rhetorical questions. And I want engagement, this isn’t a performance for them just to sit back and enjoy. I want them to be engaged in the conversation.

Matthew Jarvis:   Yeah. I just wanted to draw that out for the nation, especially in these technical topics, it’s so important to not just lecture and to just drone on, you’ve got to interject those questions. Even those fun things like, “Hey, we’re looking forward out the windshield into all the fun things.” Like you said, the best years of your life are your goals in retirement, just to see those little positive notes. Because otherwise the weight of the topic really can weigh down on people.

Micah Shilanski:  So we all know that taxes are important. If you don’t think taxes are important in retirement, then hang up now, quit listening, because everyone here should agree that taxes are the huge key. Especially this year, we have some extra things that we need to be thinking about while we’re doing our tax planning and mid year is a great time. Well, all year’s a great time to be doing tax planning-

Matthew Jarvis:   All year’s great.

Micah Shilanski:  … but it’s a great time to be bringing up to clients. So Jarvis, what do you say we just kind of run through some key items and for our listeners, again, this is a two part episode, part A is a little bit in theory. Not too much theory because this stuff we actually do, but we’re going to do concepts and what we talk about, how we go through. Part two, special bonus to our backstage pass members because we’re going to record a video with this as well and we’re actually going to go through a couple of tax returns. Of course you remember the backstage pass, you’re going to see that video and we’re actually going to go through how we would look at a tax return, how we would communicate that and what our tax planning options are.

Matthew Jarvis:   Yeah. We’re going to pick some tax returns that Mica and I have not looked at in advance so that you can see kind of how our thoughts form as we go through this. So yeah. Things to keep in mind, obviously this year, we want to keep in mind the CARES Act which passed. We want to keep that in mind, are we going to do things that could disqualify them for doing their stimulus check. We’re going to look at those things. So CARES Act is a big consideration. Also something that comes to mind every year, what is the Medicare income limit? This is obviously only important to your clients that are over the age of 65 and are collecting Medicare, that they don’t go over that income limit of $174,000 as a married couple. Micah and I, you and I were laughing about this earlier. There’s probably no greater pain to a client than if they get that letter from Medicare saying, “Hey, guess what? Your Medicare premium just went up.”

Micah Shilanski:  You know, that’s exactly right. You could save them $50,000 in taxes and if their premium goes up by that 50 bucks a month, $600 a year, your dog meat if you weren’t on top of this, I literally had this conversation today with a client and she’s like, “Yes, I should be happy that we make so much money, but how do we get rid of this Medicare premium?” I mean really going on top of that. Now, it was because of other issues that didn’t involve me, which was nice. So now going forward, we’re the heroes because we’re able to get them under this threshold that’s there, but keep in mind the CARES Act. What I think a lot of people are forgetting and Jarvis you mentioned this is that income limitation. This was a 2020 tax credit, it wasn’t 2018 tax credit.

That means just because they got it in 2018 because their income qualified or didn’t, it’s going to be on this year’s tax return, 2020, to see if they keep that money or not. So if they got a CARES Act, 1,200 bucks a person, $2,400 and maybe they had kids, then you decide to be really cool and do a Roth conversion because the markets were down and now you kick their income above that, what? $150,000 married filing joint. Now all of a sudden they have to give some of that CARES Act money back. When clients owe taxes, this can be a bad if you haven’t set that stage.

Matthew Jarvis:   Yeah, that’s a real easy mistake to make. And I guess, especially for our retired clients, well really, all of our clients, do you have some flexibility, especially year to year on tax planning. This might be a year if they’re taking distributions where you say, “Hey, we’re going to actually draw from our Roth account this year to make sure we stay under that limit, don’t have to give back that $2,400.” Or as a business owner, someone else who might say, “Hey, let’s double fund. Let’s put an extra contribution into your 401k or CEP so that we stay below that limit.” So it seems like a small thing, but no one else is advising them.

Micah, to your point earlier, when they go into CPA, the CPA is going to say, “Wow, bad news. Got to pay back that CARES check you got. And by the way, it’s because your advisor did a Roth conversion, that bum.”

Micah Shilanski:  I was just going to say, they’re going to throw you under the bus when this happens, right?

Matthew Jarvis:   Totally.

Micah Shilanski:  That is exactly what’s going to take place.

Matthew Jarvis:   You hadn’t made all that money in your investment accounts, you could keep that $1,200.

Micah Shilanski:  So Jarvis, easy way to get around this. So let’s say we do a Roth conversion for our client, or we do whatever strategy we’re just about to talk about. And their income is going to be above that threshold. So they got the CARES Act check, now we’re going to do something which makes them a hundred percent ineligible, just to make my math super easy, that’s going to be there. They got to give back the $1,200 per person, 2,400 bucks. So it’s June, we’re doing tax planning, we’re going to do something that triggers that away. What am I going to do? Am I going to sit there and wait and say, “Well, you’re going to owe this money back and hope they remember,” or am I going to have them, or from their accounts, send a check off to Aunt Iris for $2,400 for an estimated tax payment so they do not owe at the end of the year?

Understanding your client’s tax tolerance is really, really important. I have some clients, as long as it’s under five grand, they don’t really care. That is very, very few. Most clients, if they owe anything, they’re annoyed. Stay ahead of this.

Matthew Jarvis:   Yeah. And that’s something we’ll look at in the next episode, when we go through a tax return, but Micah that’s something I always … As I’m looking at a tax return with a new client, I say, “Oh, I see that you owed or got a refund of X. Is that your preference?” “Yeah, Matthew, I actually, I love getting a refund because I use that money to pay my property taxes.” Good to know. Or they say, “You know what, actually, I hate getting a refund.” This is rare. “I hate getting a refund because I don’t want to lend my money to the IRS.” Okay, whatever it is, I need to know that preference and Micah to your point, nine times out of 10, they want to get a refund.

Micah Shilanski:  Yep. But again, you’re giving them the choice behind there. This is super, super important. You educate, give them the choice and then go through with that. So let’s get into some pretty cool things. Now, as we get through with this, we do have to say that when we’re looking at tax returns, there are several things that we’re going to look at and we’re going to go through with the client and next week we’re going to go through this in depth. But one of the things I always do is I always get the tax return from the client and I go over the client’s tax return with them. That means I’m going to flip the tax return around, if I’m meeting with them in person, I’m going to push that tax return in front of them. I’m now going to read it upside down because I’m a miracle worker and read it upside down to them. I’m saying that slightly jokingly, but clients are always impressed when you can read and write upside down.

So I’m going to go through their tax return with them because no one has really explained it to them. Now that I do this, anytime in the future that I’m giving a tax planning recommendation, I can say, “Remember when we went through your tax return and we were talking about A, B and C? Now it’s going to be lower, that means you owe less in taxes, is that going to be okay?” Because now they have a framework for me explaining to them in that position of authority.

Matthew Jarvis:   Yeah. I would add a couple things on that. If you’re struggling reading things upside down before you meet with a client, go ahead and read the tax return. So I like to look at a tax return in detail before I look at it with a client, that way as I’m looking at it upside down, it’s kind of jogging my memory.

I also, and this is a small thing, but it adds up. I let them know. I say, “Hey, this is just a copy. And if it’s okay with you, I’m going to make a couple marks on this when we’re done and then I’ll all throw it in the shredder.” Because again, I’m asking for their permission. I wait until they say “Yes, that’s fine.” then as we’re going through, I’ve said, “Oh, I’m circling. Here’s your W2 income. This is your job. Here’s your social security income. We’re going to go through those.” And I don’t hesitate at all. Micah, I’d be curious for you. I like to draw all over it.

Micah Shilanski:  Sure. I operate with a stylus, so it doesn’t work that well. But yes, marking on it, drawing it is totally fine. But explaining why that number is important is really critical, not in complex jargon, in layman terms. This number is really important because it affects how much of your social security is subject to tax. Going through things like that, giving them a why in this case. You’ve explained why the tax turn is important and why each number is important. This gives you that authority to make those tax recommendations to your client.

Matthew Jarvis:   Micah, what if they have a bigger tax return? Let’s say that’s a small business owner. They’ve got 30 or 40 pages of taxes and statements and attachments and all these things. How deep, how many of those pages, or how many numbers will you touch on?

Micah Shilanski:  Ooh, I’m going to stick to the highlights cause they are not tax people. I will stick to the highlights of the first two pages. So on the individual return, I’m going to go over the 1040 information and potentially the Schedule A. Potentially, maybe not even always that one.

On the business return, I am not getting into depreciation or anything else of that nature. I am just hitting some highlights on that business return. On the personal one, I do want to say if they do have 8606 money, or PAL money, passive activity loss, limitation, money. I will absolutely point that out to the client because they have no idea what that means. They have no idea how that works. So I will absolutely pointed out to them.

Matthew Jarvis:   Correct and for our listeners who are newer to tax planning, the 8606 is where you would report nondeductible, IRA contributions, known as the cream and the coffee. And so that’s something that is often missed. Both has that planning opportunity. A lot of times, those nondeductible contributions are forgotten and then they pay taxes on the money twice.

Micah Shilanski:  Not only that, but most of the time, it’s not always accurate. You can fix that by the way, these are not permanent numbers. You can fix some errors with an 8606 over time. So these are things to watch out for. If you see any money, or you hear about any contributions, Jarvis, as you said, tell the client you don’t want them to pay money taxes on the money twice and walk through a little history with them. Maybe you need to do an amendment to this form in order to get the correct number. We’ve done it for six figures before.

Matthew Jarvis:   Really?

Micah Shilanski:  Because things were messed up, yeah.

Matthew Jarvis:   Wow. Wow. Of course an 8606 for a client who’s not yet retired is a big planning opportunity to potentially utilize their company retirement plan as a way to separate the cream from the coffee, if you will. That of course is a strategy, you need to understand very well because you can do it very wrong. It has to coordinate with some end of year stuff, things we can go on to another day.

Micah Shilanski:  So those are the things that I’m going to point out on a return. Anything else before we get into some strategy ideas?

Matthew Jarvis:   So probably the biggest ones I’m going to point out, I’m of course going to watch for a lot of things, what’s the address on their tax return? How are their names spelled? There’s lots of little things and we’ll talk about this on our next episode, but yeah, those are the big ones. I guess probably the biggest one I want to make people aware of when I’m looking at their tax return with them is how much they paid in taxes. Almost no one can tell you what they paid in taxes. They can tell you to the penny what they got in refund or what they owed but I like to make them aware, “Hey, you paid $34,000 in income taxes last year.” They’ll say, “Matthew, is that good? Is that bad?” It’s not either. My job is to make sure that you pay the IRS every dollar that you owe, but that you don’t leave them a tip. I kind of smile and say, “I don’t really to want to give them a tip.” And then sometimes I’ll add in there-

Micah Shilanski:  In Seattle, don’t they have mandatory 30% tips for a livable wage? Those poor IRS workers without a livable wage.

Matthew Jarvis:   It’s funny you mentioned the live in Seattle because people feel like this obligation to say, “Well, Matthew, I don’t know about these tax strategies.” And then I would have to say, “Well, good news. The IRS accepts donations against the national debt. So if we ever save you too much in taxes, please feel free to donate that against the national debt, or to a charity you care about, or really anywhere else, that’s up to you.” By the way, no one has taken me up on that Micah, not ever. That additional push back ends very quickly.

Micah Shilanski:  Yep and it’s done. All right. So let’s talk about some planning strategies and I’m going to take some easy ones right off the top. Number one is we already mentioned a little bit, but 8606, separating the cream from the coffee as you said, using that money appropriately. There’s so many fun ways to do that and it’s a solid win by the client because they had no idea it was there and no one really ever told them about it.

Matthew Jarvis:   Real quick, Micah-

Micah Shilanski:  Yeah, yeah.

Matthew Jarvis:   … and not to go too deep on 8606, I see a really common mistake here made by clients, even CPAs and advisors, which is the IRS is going to look at all IRA accounts held by that account owner. Just because you put your nondeductible in a different IRA account does not separate the cream from the coffee. So if that doesn’t make sense to you, look it up. If it does make sense to you, don’t be surprised to run into that time and time again.

Micah Shilanski:  Another thing I saw, is I saw an advisor do it half correctly at the beginning of the year, then at the end of the year, they transferred the money from an employer account to an IRA account.

Matthew Jarvis:   Oh no.

Micah Shilanski:  Of course they’re looking at year end values, it doesn’t matter what happened before. So I mean, totally blew this whole thing up, that was there. So yeah, really understand this and if you don’t, that’s totally fine. Get with a CPA that does and work together on that side. The passive activity loss limitations. Again, this is one where people own rental properties, their income’s above what’s that? 120 grand or whatever it is. They can’t deduct anything from these losses, from these rental properties that they own, yet they feel like they’re getting a tax deduction. They have these rental properties. They say, “Well, Micah, look at all this money I’m saving because I’m saving so much in taxes.” And you look at the tax turn and it’s a goose egg on that first return, on the first page, because they’re not actually getting it.

They may see the Schedule E and be like, “Look, I lost 20,000, but at least I didn’t have to pay taxes on that.” And they don’t realize how to utilize that. So looking at their passive activity losses and utilizing it in one of two different ways, one, can you do anything with their income to drop them below a threshold, so you can trigger that 25,000 limitation, right?

Matthew Jarvis:   Yeah.

Micah Shilanski:  So if you go below that income threshold, you can instantly get that $25,000. Number two, how do you set up the sale of the property to coincide with another great tax event, like a massive Roth conversion. We have sold real estate properties that had suspended losses of $80,000, $90,000 on them and turned around and sold property. We’ve done Roth conversions. We’ve done other thing to offset that income because why not? How much am I really getting if I just sell it? Maybe I go from a 24% bracket to a 22%, but could I do an $80,000 Roth conversion in that same window? And all of a sudden, get so much more money growing tax free. So these are great opportunities that are there.

Matthew Jarvis:   These are also things that you want to make sure that you’re seeding to your prospects and your clients. So if you say, “Oh, I see that you have a rental property. In a future meeting, we’re going to talk more about how you can actually get some extra tax benefit from that.”

Micah Shilanski:  Good point

Matthew Jarvis:   This is again for prospects, I’m going to say this, for clients I’m going to say this, because clients forget and they’ll come into a meeting, they’ll say, “Micah, great news. I sold that rental property.” “Well, when did you sell it?” “I sold it in December.” “Well, it’s January now … ” Oh, and it’s not that they’re intentionally withholding, but again, they get us in boxes. You’re my investment guy. There’s my tax gal. There’s my legal person. And you want them to always remember hey, I’m looking across all of them.

Micah Shilanski:  You know, when I’m onboarding clients, one of the things I go through is I share with clients in our communication policy, a million dollar tax mistake that was made.

Matthew Jarvis:   Cool.

Micah Shilanski:  Yeah, it was a calamity of errors that was there. I can go into another podcast, but I kid you not from gifting to inheritance, to sales and properties, that it was just shy of seven figures of taxes, which could have almost been a hundred percent avoided because … This was my client, by the way, which even makes this worse. They did all of this with an attorney involved and didn’t call me because I was not the tax guy And they were dealing with an estate tax attorney who did this stuff and so I all … and I fired that client by the way. So now in our communication policy, I always share that example of what went wrong.

So now anytime something big comes up with them, they make sure to call me so they don’t make that seven figure tax mistake and clients will bring that up. “Well, Micah, this may not apply, but I remember you told me that story where a client owed a million dollars in taxes and I don’t want to make that mistake.” So sharing those experiences with taxes, and if you don’t have them take some of ours and use them. I know this advisor friend who did X, Y, and Z and this is what happened. This is why you need to communicate with me. Those are great things. Sorry, I’m all geeking out about this.

Matthew Jarvis:   No, no, no, totally. Yeah, a mentor of mine went into this, that’s great. Yeah, another tool I’m always watching for are QCDs, qualified charitable distributions. Any clients that are charitably inclined, now this is harder to spot on tax returns than it used to be because most people aren’t able to itemize their charitable contributions, which by the way, makes the QCD even more valuable, especially with the CARES Act having suspended required distribution. Need to remind clients, “Hey, you can still do your QCDs and clients who think that … or not think, clients who don’t have to take a required distribution until age 72 need to be reminded that once they hit 70 and a half, they’re eligible for QCD. So very powerful strategy there.

Micah Shilanski:  And that was a key thing, so many people miss that once you hit that 70 and a half marker, that’s there. I know Jarvis, this is an idea I got from you actually, so need to give you credit for something over these years.

Matthew Jarvis:   Yeah. I’m retired now, this is my last episode.

Micah Shilanski:  But Jarvis, from your office, one of the things you do with your QCDs and please correct me if I’m wrong, is you create a separate account for clients to do QCDs and you put money in there. They get a checkbook that they can write checks to charities and you get a big sticker that you put on it, what is it? Charitable only or something of that effect?

Matthew Jarvis:   Yep.

Micah Shilanski:  And then clients can use just that account. We’ve moved to that about a year ago, clients absolutely love that idea. Check with your custodian, of course but instead of filling out all the forms, et cetera, they have a separate account. They can write checks to their charity. Man it’s a great too.

Matthew Jarvis:   Yeah, it really is. It makes it easy to track. Then you get the check stubs, get deposited, you can see where the money went, you can let the CPA know, because of course QCDs don’t show up on the 1099 correctly. I guess correctly’s not the right word. They don’t show up in a way that’s readily apparent to the CPA. I’ve seen many cases where people are getting double taxed on that.

Micah Shilanski:  And that is one of our beginning of the year massive values, we always do in January and I know you do as well. We reach out with tax information to our clients and their CPA saying,” Oh, by the way, here’s how much you did in QCDs.” CPAs love that. Clients love that because they forget.

Matthew Jarvis:   Yep. They really do, they really do. Well, Micah, what are some other strategies that you go to strategies? We’re going to have to wrap this episode up pretty quick, but there’s so many of these, we’ll just go for hours.

Micah Shilanski:  Okay. Well, we’ll hit it real fast and we’ll go into something bigger, but Roth conversions. Keep in mind, you have the contributions at 6,500 bucks you can put if they’re over 50, but you also have conversions, and there’s no limits on conversions and what you can do. There’s no undo button anymore, which is frustrating, but Roth conversions are great one. What about gain harvesting? I love this one.

Matthew Jarvis:   Yeah. Yeah, gain harvesting is one that we use on a regular basis for clients that are in a ordinary income tax rate, they would let them have capital gains for free. On that note, both the capital gains rates and the Roth conversion limits, the Roth contribution limits, there is a tool that I’ve used for many years and we’ll throw a link up on the podcast to it. Putnam, makes a two page tax guide that I print on card stock every year and keep handy on my desk. It has all the numbers at a glance. I’m not sure where I first found it, I’ve never actually gotten it from them directly. I always just search for it on the internet, but we’ll link to that in the podcast.

Micah Shilanski:  Yeah. It’s really nice having those numbers, so you can refer to it with clients and you can be on top of planning and it’s okay to give ranges, keep in mind. If I’m giving a client information and I don’t know the exact number, I’m not going to make a number up-

Matthew Jarvis:   no.

Micah Shilanski:  … or come up with that exact number. So you know what, it’s around $170,000. Let me get you that exact information, I’m going to get back to you. And I always err on the lower side, whenever I’m giving out a number. So going back to the Medicare issue, what, it’s $174,000? If for whatever reason, I forgot that income limit, I would say, “You know what? It’s probably around $170,000. Let me look it up and see how it impacts you directly and I’ll let you know.” So if you don’t have that available again, go with that lower amount because if you go too high and lower it, you look like the bad guy.

Matthew Jarvis:   Yeah. Yeah, I know we touched on this just briefly. I want to hit Roth conversions just one more time.

Micah Shilanski:  Yeah sure.

Matthew Jarvis:   This is a strategy I use with almost all of my retired clients, using up the remainder of their tax bracket each year to create tax liquidity. So many retirees, especially middle-class retirees, the majority of their investment assets are pretax. So if they have a liquidity event, maybe they want to buy an RV, they need a bunch of money for medical expenses, that’s going to create a huge tax impact. But if we’ve converted even just $5,000, or $7,000 a year, or $13,000 a year, that really adds up over time. The only time I think I wouldn’t do that is if they don’t have any heirs maybe and so we’re worried that we might waste that tax benefit, but that’s rare.

Micah Shilanski:  But either way, you don’t make this decision.

Matthew Jarvis:   Correct.

Micah Shilanski:  Give this information to your client and allow them to … even if you don’t think a Roth conversion makes sense, get the brownie points, right. We call this the dishwasher rule. If I do the dishes and my wife doesn’t see it, I don’t get any credit for it. So she needs to see me closing that door and putting that soap in and those fun things. Same thing with this, is if you do this work for a client, share with them results. “Hey, we looked at your taxes over the weekend. We got to say A, B and C and it just probably doesn’t make sense to do a Roth conversion, so I would say holding off.” Something short and sweet, but they know you’re taking care of them.

Matthew Jarvis:   Perfect. Perfect. Any other big tax plan opportunities that stand out in your mind, Micah?

Micah Shilanski:  We could jump into the business side of the equation and there’s just a … We can do a whole nother podcast on that, but sticking to this, those are the big ones. Nothing else is jumping out in front of me.

Matthew Jarvis:   Yeah. Now what I would say again, for our advisors listening we’ll and we’ll jump into action items, but I think this reinforces the importance of having a niche so that you know the tax issues of your people, of your market, that you’re not trying to know the taxes for everything. If you’re trying to know the taxes for passive activity losses, and instead of stock options and this and that, that’s a lot to keep track of. Quite frankly, you’re not going to get compensated for that. If you know just one area and you can really master that. The ways to master that, talk to the centers of influence who work in that area, what are the big tax issues you see for these people? Read their industry publications, find out what it is that they’re running into and just be a master of those strategies.

Micah Shilanski:  Again, there’s nothing wrong with engaging with a good COI going through these things. Especially when I was first starting out, really trying to understand this, understand the CPA’s mentality, et cetera, I would always go to the CPA first before recommending a Roth conversion to make sure we’re on the same page. By the way, I will still do that, if it is a new CPA. I will talk with the client and get their permission and say, “You know what? I want to talk with them professional to professional, go through a couple of ideas.” Get the CPA directly on the phone, go through a Roth conversion idea with them before presenting it to the client to make sure we are on the same page. Now, ones I’ve been doing this for 15 years with, I’m not worried about, I know what they’re going to say, but new ones really, really important.

Matthew Jarvis:   And we’ve talked about centers of influence a lot. We’ve done some 100K challenge videos for the Backstage Pass members. This is a great opportunity to pay a CPA, to say, “Hey, I’m working on this case. I’m thinking about recommending a Roth conversion. I would love to pay for an hour of your time to discuss through the pros and cons of Roth conversions with you. Is that okay with you?” “Yeah, sure. You’re going to pay for my time? Great.” Then you can go in and show your expertise and really again, you can learn a lot from them, but either way you’re demonstrating your expertise.

Micah Shilanski:  All right, so let’s get into some action items that are really important to be there. Number one, up your game in taxes. What’s your plan every single year? I don’t care what level you’re at. What is your training program that you’re in to up your game in taxes? We talked about before, Gear Up is a good one if you have a decent understanding of taxes. If you have no understanding, take Thomson Reuters 101 class, take an H&R Block tax class. Take something basic to understand the concept of the tax churn. I know I go to Gear Up almost every year and Jarvis, I’m forgetting, where do you go for your tax stuff every year?

Matthew Jarvis:   Is that a joke, are you teasing me?

Micah Shilanski:  No, you do a … oh, AICPA, AICPA.

Matthew Jarvis:   No, I go to their conferences sometimes. AICPA has great stuff. Of course, Bob Keeler has got great stuff through the AICPA. There’s several other people that have have great stuff. I would also, related to that if tax returns are really a foreign thing for you and you’re having a hard time seeing these strategies in there, I would sign up for a Holistiplan, which we should get a sponsorship from them, but we don’t. They can image in your PDF tax returns and then they come up with a few dozen tax considerations. I wouldn’t say that they were 401 level, but they’re definitely above 101 level and it will help create awareness for you of tax strategies. It will tell you, “Hey, they should be considering a Roth contribution.” These kinds of things, so Holistiplan is a great option for that.

Micah Shilanski:  I want to do another action item that’s that’s really important. I love the Holistiplan idea too, but another action item that’s going to be there, put a tax DMV, delivering massive value item on your calendar every year to get with clients. If you want to grow your practice, if you want to increase your client base, if you want to make your clients happier, bring up taxes on a frequent basis, at least once a year, do a massive value item with taxes. Whether that’s a QCD review, whether it’s a Roth conversion review, whether it’s just, “Hey, are you on track for this year for taxes?” But make that part of the plan for this year, 2020.

Matthew Jarvis:   Yeah and I’ve have to say I do it twice every year. Micah, I know you do it at least twice. We’re doing it in January timeframe. Here’s the things you need for your tax return. We’re doing it in fall timeframe. October, here are year end planning items and we’ve got samples of those in the backstage pass but we’ve talked about this a lot. You can find podcasts on that as well.

Micah Shilanski:  Okay. Of course, another action item that’s going to be out there, sign up for the backstage pass. What are you doing? This is like a money back, guarantee promise that we have. If you don’t love it, if you don’t think it’s worth the money, we’re going to give you your money back. No problem whatsoever. But there’s a lot of content that’s inside of area. And it’s not always the big things. Sometimes it’s the little things with having the perfect RIA. It’s the little things and the subtleties and how Jarvis has a conversation with COIs or client relationships or these other things that will really up your game. If you’re not putting money into PD, personal development, you are hurting yourself. So while I like us as that solution, what’s your other PD plan for this year? Improve your professional game. Really, really important.

Matthew Jarvis:   And I would say as always be sure to go ahead and give us five stars on the podcast, but more importantly, please send a quick message over to Michael Kitsis and ask him to start featuring our podcast on his weekend reads. We really it’s like a personal goal. We’ve been featured once for our groovy music. We’ve got some goals there. We really appreciate your help. I’ll give you Mike, his cell phone number or something else.

Micah Shilanski:  I was going to say, Jarvis is whining this morning when we were talking on our business meeting about how much we were going to spend in swag. And I have to tell you, I am committed to spending Jarvis’s money, his portion of it on swag for you.

Matthew Jarvis:   Perfect.

Micah Shilanski:  So go ahead and mention to Kitsis, take a picture of it. Hit us up on social that you do it and we will send you some swag for that.

Matthew Jarvis:   Perfect, perfect. And as always until next time, happy planning.

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