Most people have a CPA and a financial advisor working in completely separate silos. You meet with your advisor to discuss investments and your CPA to file your taxes. But what happens when these two professionals never actually speak to each other? That gap can end up costing a significant amount of money.
When your financial plan and tax strategy are disconnected, important wealth-building opportunities can fall through the cracks.
The Financial Quarterback Approach
At Pinnacle Wealth, we view our role as the financial quarterback for your wealth. Sometimes we line up to run a play, and the market shows us a defense we’re not totally familiar with.
“The tax landscape of a client is our theoretical defense,” explains Dylan Rudningen, Associate Wealth Advisor. “We need to acknowledge we don’t know everything.” To win the game, we call on a tax professional who lives in this stuff daily. Their expertise helps us translate exactly what the defense is showing us.
Missed Opportunities and Tax Layups
When your team isn’t talking, you may miss out on easy wins. Dylan points out that certain strategies can pass through the cracks pretty easily without coordination. These overlooked opportunities, or layups, often include:
- Optimal amounts and timing for Roth conversions
- Strategy for taking distributions from retirement accounts
- Exact withholding amounts for IRA distributions
- Timing for vesting restricted stock units (RSUs) or stock options
“Those are little things that can really be taken advantage of if you’re in contact with somebody’s CPA,” Dylan notes.
A Real-World Tax Disaster
Dylan recalls a cautionary tale involving an outside advisor who executed a massive Roth conversion. “What the advisor didn’t take into account was that he had a ton of mutual funds in his taxable account,” Dylan explains.
“It kicked off a lot of capital gains distributions … which, with the Roth conversion compounding on it, there could be some pretty significant tax implications there. Also, that large of a Roth conversion pushed this client up into a higher IRMAA bracket.” This lack of communication really hurt the client’s trust.
A Collaborative Success Story
On the flip side, great things happen when egos are put aside. Dylan recently worked with retiring clients transitioning from passive to active real estate losses. By looping the CPA into the conversation early, everyone got on the same page. The CPA provided critical insight into the active-versus-passive rules and income thresholds.
This collaboration yielded great results:
- Maximized tax losses during the retirement transition
- Increased financial confidence for the clients
- Strengthened the professional relationship between the advisor and CPA
Red Flags to Watch Out For
How do you know if your financial advisor is actually doing tax planning? You need to pay attention to the warning signs during your annual review. Look out for these major red flags:
- They never ask for a copy of your tax return
- They don’t use software to analyze your tax data
- They get defensive when asked if they communicate with your CPA
- They don’t have a network of CPAs they recommend
“If you’re going in for your review and they don’t ask for your tax return nowadays, that should be a red flag,” warns Dylan.
Take Control of Your Financial Team
You deserve a unified team working toward your financial goals. Don’t be afraid to ask your advisor directly if they have spoken to your CPA recently. If you have a good relationship with your advisor, asking them to facilitate a three-way Zoom call is a great first step.
True wealth management requires teamwork. Pinnacle Wealth aims to help make our financial plans align with your CPA’s tax strategy. Reach out to us today to see how we can help you take control of your financial team and maximize your opportunities.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
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