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Couple With Financial Advisor

Leading with tax planning: The employer benefit review

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Consumer optimism is high, partly due to the recent tax cuts for businesses and individuals as part of the Tax Cuts and Jobs Act. Rarely have clients been so interested in our expertise about how tax reform will impact them and what actions should they take today to minimize taxes.

While leading firms are embracing the gift of tax reform to ramp up their tax planning and advisory services, most firms are waiting to learn more and continuing with the status quo. By waiting, firms risk missing an opportunity to increase the value they deliver to clients and to update their service offering to sustain long-term growth.

Here is an engagement framework to increase your value to your clients by leading with tax planning, as well as to increase your individual tax return fees by 25 to 100 percent. It begins with refreshing your services for annual clients.

Start by sending a letter to clients, building on the general message that tax reform is the most significant tax change in the past 30 years. As a result, the firm is updating the services it delivers to focus on minimizing taxes through proactive planning, rather than simply preparing tax returns after the fact. Then invite individual clients to make tax planning appointments, including reviewing clients’ employer benefits. As we mentioned in a previous article, standardize your tax planning engagements to improve your execution. Let’s call this engagement the Employer Benefit Review.

In your letter, define your process for efficiency. Use a linked calendar application so clients can self-schedule appointments. Lean into phone and video meetings to save clients and staff time, while increasing frequency of conversations. Provide a list of reference documents like employer benefits available and recent pay stubs. Some of the best tax planning defers or avoids income from taxation, while still providing benefits for the client, and that usually begins with the employer.

Whether your clients are self-employed, government employees, or employees in corporate America, the Employer Benefit Review engagement can generally be broken down into the following categories:

  • Document the client goals: Everyone has dreams and goals for their career, family, education, savings, retirement and lifestyle. As an advisor, the first step is understanding what is important to your clients and documenting it. When interviewing both spouses, simply asking questions will likely uncover shared goals as well as opportunities to reconcile goals for spouses who may not be on the same page. Once you understand the client goals, review the employer benefits available from each working spouse.
  • Wealth building benefits: Retirement plans and matching contributions are the most common wealth-building benefits for most employees. These plans defer taxable income and reduce taxes. Confirm employees are taking advantage of employer matching contributions and contributing as much as possible to minimize taxes and maximize their long-term savings. Another common benefit from public companies is an after-tax discounted stock purchase plan. Document the plans available and coach clients as appropriate to maximize the benefits available. Finally, be sure to inquire about and document stock grants, stock options and other financial incentives available so you can advise them in future years about timing exercises and sales.
  • Wellness benefits: Health insurance and medical expenses are among the largest expenditures for clients. They are also among the biggest opportunities to avoid taxation of the income to pay for them. Make an effort to quantify the total family insurance expense and confirm the expenses are being paid with pre-tax dollars. Then review if the client will likely incur out-of-pocket expenses that could be covered by other benefits like Health Savings Accounts (HSAs) and flexible spending accounts. Inquire about disability insurance, life insurance, and athletic facilities or gym membership reimbursement, which all have tax-savings benefits. Don’t forget to ask about non-cash benefits that often impact quality of life, such as flexible work schedules, work from home and paid vacation days that can have a significant impact on quality of life.
  • Employer-paid expenses: Finally, review other employer-paid expenses that might benefit your client, such as dependent care reimbursements, adoption expenses, tuition reimbursements, a company car, cell phone or other expense. These may be opportunities to pay for expenses with pre-tax dollars.

Once you understand the employer benefits available, you can better advise clients how to maximize savings and minimize taxes. Put the benefits and the value of tax savings in writing. The purpose of the engagement is two-fold: 1) document the benefits and tax savings, and 2) uncover benefits that are being underutilized. Both reinforce your value as a tax advisor instead of a tax preparer. Sometimes simply documenting the value of tax free benefits and communicating that to clients is an eye-opening experience. Helping clients maximize their employer benefits may be more valuable than tax preparation alone. And helping spouses align their goals reinforces the firm’s role as financial advisor. Even if clients don’t take action after the first visit, you have re-framed your relationship and value to focus on tax savings, rather than tax preparation.

Employer Benefit Review ChecklistDownload and customize our Employer Benefit Review Checklist template for your firm’s Employer Benefit Review engagements. Use it to summarize the employer benefits, quantify the tax savings and create a launching point for more advisory services to help clients achieve their goals.

Editor’s note: To hear more from Jim Buffington, CPA, on this topic, watch “TaxProTalk: Employer Benefit Review.” And, read Jim’s article “5 Tips for Better Tax Planning” for more information about how to add this advisory service to your firm’s offerings.

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