Special Guest: Steven Jarvis, CPA
Key Points – Special Guest: Steven Jarvis, CPA
- The Strategic Partnership Between Modern Wealth Management and Retirement Tax Services
- Steven Jarvis, CPA Shares the Mission of Retirement Tax Services
- Collaboration Between CPAs and Financial Advisors Is Key
- Financial Planning with Tax Planning Layered on Top
- 23 Minutes to Read | 38 Minutes to Listen
Modern Wealth Management is excited about our new strategic partnership with Retirement Tax Services. RTS’s Steven Jarvis, CPA joins Dean Barber and Bud Kasper on America’s Wealth Management Show to discuss that partnership and the importance of CPAs and financial advisors collaborating in the best interests of the client.
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Welcome, Steven Jarvis, CPA, to America’s Wealth Management Show
Dean Barber: Thanks so much to those who join us on America’s Wealth Management Show. I’m your host, Dean Barber, along with Bud Kasper and our special guest, Steven Jarvis, CPA. Steven, welcome to America’s Wealth Management Show. It’s great to have you here.
Steven Jarvis, CPA: I’m excited to be here. Thanks for having me.
Dean Barber: We’re talking to a CPA, so yes, we’re going to be talking about taxes. We talk about taxes a lot on America’s Wealth Management Show. The reality is that if you live in the United States and have money or make money, taxes are going to be a factor of your life. It’s critical that a good financial planner is working alongside a good CPA in a coordinated effort—preferably in the same room with you, or at least through technology—to make sure that you pay the least amount of taxes over your lifetime.
Our New Strategic Partnership with Retirement Tax Services
So, we have formed a strategic partnership with Steven Jarvis and his company, Retirement Tax Services. So, Steven, before we get too deep into talking about taxes, I want you to give everyone a sense of your background, why you started RTS, and how you work with financial advisors.
Steven Jarvis, CPA: I’m happy to talk about all that. It’s been an interesting journey. I’m sure a lot of people might be wishing they could run away after hearing that I’m a CPA. How could listening to a CPA possibly be interesting? Somewhat in jest, I was recently told that I was the most interesting CPA in the world. Let’s be honest, that is a low bar. But I do pride myself in being able to carry a conversation, maintaining eye contact, and all those great things that people with social skills should do.
As far as my background, whatever you think a CPA does, that’s probably at least somewhat true for parts of my career. I’ve sat behind a computer and crunched a lot of numbers. There were a lot of long hours. But I grew up around financial planning, so I wasn’t a foreigner to a lot of what you guys do.
Collaboration Between CPAs and Financial Advisors Is Key
And then a couple of years ago, I was essentially approached by financial advisors who were looking for that collaboration that Dean mentioned earlier. They said, “You know what? Our clients are the best served when we have proactive and collaborative relationships.” But they were struggling to find CPAs, tax preparers, who would take that approach with them. It just felt like there was this tall cement wall that people were just lobbing the ball back and forth and hoping for the best. There wasn’t proactive and intentional communication.
So, when they came to this idea of creating this firm that focuses on working proactively between tax preparers and financial advisors, all for the benefit of the client, my first reaction was that it sounds simple and that it must already exist. There’s no way this is a new idea. We’re not going to start a business on something as simple as effectively communicate.
Dean Barber: Well, it doesn’t exist very many places. It exists in our firm because we built it out over a decade ago. But one of the things that we realized is that we need more bandwidth. It’s awesome to partner with a firm like yours, so that we can extend that bandwidth and provide even greater communication and greater tax planning services for our clients. So, you started RTS. What was the idea there?
Driving Your Financial Plan in the Right Direction
Steven Jarvis, CPA: The idea was to offer what you spent years building out within your firm to more financial advisors. Most advisors don’t have that or haven’t realized that’s so important. What you created under Modern Wealth Management with having those tax folks in house is very much the exception. Not all advisors are in a position or have the vision to build that out themselves.
We wanted to create a resource for those advisors and our now shared clients to get the benefit of us collaborating. I look at this as if we’re driving a car. You want someone who can look through the windshield by planning for your future and thinking about what comes next. You also want to make sure that someone is also checking the rear-view mirror to make sure that what has happened is correct.
Typically, tax preparers only look through that rear-view mirror and advisors tend to be a little more focused on the windshield. Let’s get the two of them to talk, so that we’re really driving this in the right way.
Bud Kasper: The evolution that has taken place between some CPAs and advisors is amazing. For many years, it’s always been a handoff throughout the industry. It’s, “I know this guy does a good return. Therefore, I’m going to connect you with him, and we’ll step out of the picture.” That’s a mistake. And let’s just give Dean credit. His vision for the firm has been to have these relationships because if they’re separate, we’re not getting the best possible result.
Dean Barber: Yeah. I love the way that Steven views it with driving a car.
Bud Kasper: Me too.
Financial Planning with Tax Planning Layered on Top
Dean Barber: When you think about taxes, people don’t want to pay $1 more than they need to. The problem is they’re thinking current year, current tax return. They shouldn’t be thinking that way. They should be understanding what I said earlier. If you live in the United States and have money or make money, taxes are going to be a fact of your life.
Put together a plan that allows you to pay the least amount of taxes possible over your lifetime. Money can go to the next generation as well. That’s financial planning with tax planning layered on top. It can’t exist unless you have the collaboration of the CPA and the CERTIFIED FINANCIAL PLANNER™ Professional to meet with the client together to talk about that their situation.
Don’t Tip the IRS
Steven Jarvis, CPA: I love that Dean talked about minimizing that tax over a person’s lifetime. That’s really what it comes down to. This was explained to me a long time ago by a great guy named Tom Gau. He said that there are no patriotic awards for overpaying the IRS. The way we like to say that is don’t tip the IRS. We want you to pay every dollar you owe, but nothing more.
We can have an impact on how much we pay to the IRS by looking at multiple years at a time. Just like when you’re driving a car, you can’t have a lot of effect on what’s in your rear-view mirror. It’s what’s in front of us that we can try to navigate around. We need to be looking forward.
Dean Barber: You’re right. Before allowing a good CPA like Steven and the CPAs that we have here on staff to do what they do, you first need to build a comprehensive financial plan. That way, the CPA knows everything that is going on in your financial life and what your objectives are.
And we’re giving you the opportunity to get your financial plan started from the comfort of your own home by using our financial planning tool. It’s the same financial planning tool that we use for our own clients. There’s a cool part of the financial planning tool that allows you to look forward and see what your tax return would look like in the future years.
What Is Phantom Income?
I also want to talk about some of the things that might surprise people this year and some things that they can do about it. I refer to some of these surprises as phantom income.
Phantom income in years like this can come when you’ve had a good run in the stock market. You own a mutual fund in a taxable account, which can either be in a trust, a joint account, or an individual account. And that fund for the year loses money (most mutual funds have lost money this year), yet it makes a capital gain distribution at the end of the year. That really confuses people when they lose money but need to pay taxes on this capital gain. How can that be possible? Can you explain what happens in that scenario?
Steven Jarvis, CPA: That’s one that’s going to catch a lot of people by surprise this year if they’re not working with a professional who’s given the heads up on that. I think it’ll be especially painful this year for some taxpayers because it’s such a contrast to 2021. I remember having a lot of conversations in tax season for this last year explaining to some people that they made money in their portfolio this year and that there were some positions that were sold at a gain. That’s why their tax bill is a bit higher this year. That’s hard enough anytime you’re telling somebody they owe more taxes.
Losing Money and Still Owing More Taxes?
This year, there is a very real potential of certain positions in your portfolio having lost money and you still owing more taxes. The reason this happens is that even though you own this mutual fund, there are underlying securities within that. There are underlying positions within that that have activity. Some of those individual underlying positions can have gains, even if the entire portfolio, the entire mutual fund has a loss for the year.
On the surface it looks like, “Hey, you lost me a bunch of money. Why do I have to pay taxes?” It’s due to that underlying activity, and it catches a lot of people by surprise. I’ve never seen the person who’s surprised in a good way.
Bud Kasper: I might add to that that if you’re not familiar with some tax loss-harvesting techniques that could be utilized before the year is out, then you’re not working with the person that you think is a professional.
Technology Stocks Take Big Hits
Dean Barber: Yeah. One that I think is going to get hit the hardest are your funds that own a heavy amount of technology. I can give an example. Netflix is down about 62% on the year. So, a lot of technology funds own Netflix. They would’ve also owned stocks like Apple or Amazon, Tesla…
Steven Jarvis, CPA: Microsoft.
Dean Barber: A lot of those stocks are down heavily this year. Most mutual funds are going to have some technology in them, even if they’re a large cap growth fund. Even some of the large cap value funds will have some.
Bud Kasper: Even the S&P 500.
Dean Barber: The S&P 500 has a pretty good chunk of that. So, if that fund manager was astute and says, “Hey, technology is overvalued. I need to trim some of these positions.” Maybe they’ve owned it for five or six or seven years and then they sold it for a big gain early in the year. What’s happening is that gain is realized within the fund itself, not realized to the individual. But it will be realized to the individual, because at the end of the year, that mutual fund needs to make a distribution of those capital gains to the shareholder.
Using a $10-Per-Share Fund as an Example
Let’s say that you had a fund that was a $10-per-share fund, and they sold enough stocks inside their portfolio that they needed to make a $2 distribution. Well, that $2 distribution happens, but it’s not real money because as soon as they make that $2 distribution, the price per share drops by $2. That $2 reinvests back into the fund itself. You have the same amount of money at the end of the day, yet that $2 distribution is taxable.
So, if you had $100,000 in an account in that example, there is $20,000 of taxable income. You get 20% of that fund turned over. If you own a mutual fund this year or are thinking about owning one, you need to look at the embedded gains in the fund. You need to pay attention to whatever the potential capital gain distribution is going to be before the end of the year.
Bud Kasper: And, of course, you’re relating that to taxable accounts, not IRAs.
Another Reason Why It’s Critical to Work with a Financial Professional
Dean Barber: Correct. So, what should a person look for there, Steven? As a CPA, how would you advise somebody to assess that particular situation?
Steven Jarvis, CPA: When I hear explanations like this, this reinforces why there is a point you get to where you need to work with a professional. I don’t have a great recommendation of how someone on their own is going to go through and figure out what the embedded gains are and what to expect for taxes for the year.
I’m a big fan of certain people doing their own taxes. I am not categorically opposed to it. But there are certain times where doing it yourself isn’t going to cut it anymore. When you’re throwing around things like embedded gains, that’s one of those times. If someone comes to me and is frustrated about capital gains distributions and doesn’t understand what their portfolio is doing, I ask them who their financial advisor is. Then, I find out they don’t have one. They’re at a point where they need one. These are just concepts where Google can give you a definition, but that doesn’t help you with how to apply it to your situation.
America’s Wealth Management Show Is All About Education
Dean Barber: You’re right. One of the things that I try to do on America’s Wealth Management Show is provide as much education as possible. But Steven is right. There is a point when most people will need some sort of professional financial advice. When you start talking about things like we’re talking about today, I think you’re in that realm.
Bud Kasper: Yeah. Even though it’s not 100% accuracy, we can forecast what the capital gain exposure might be in a fund. You do that by talking to the fund because they’re keeping track of this. They’ll be happy to have a conversation with you. And they can’t give you an absolute number at that time because they don’t know probably until mid-January where all the final capitalization results are going to be reported. We need to proactively go in and approach this before the end of the year, so we can estimate what we could do to offset some of the tax liability.
Getting Portfolios to a Safer Position
Dean Barber: Well, and one of the things that we’ve been doing already this year is making a lot of adjustments to portfolios to get safer. That’s paid off quite nicely at this point. We’re going into our taxable accounts now and are asking, “What do we have as far as realized gains or losses? What do we have as far as unrealized gains or losses?”
When we look at that, then we can apply the potential distribution of the embedded gains. Does it make sense to hold onto that position? Or is there something else that looks like it that we could sell and do tax-loss harvesting to avoid that phantom income from the capital gain distribution and still have the same structure in the portfolio?
Steven Jarvis, CPA: One of the things I like to talk about with tax-loss harvesting is that it illustrates where we can have an influence over what that tax bill is over our lifetime. A lot of people falsely have the impression that taxes just are what they are. They think that you get to the end of the year, you report them, and you move on. But there are a lot of choices that the tax code allows us to make.
When we’re talking about tax planning, this isn’t where we’re trying to avoid something and hope they don’t notice. There are very legitimate opportunities available to us that are right there in the tax code. And one of these is when to recognize these capital gains and losses. When do we choose to sell a position? Is there something similar to it because there are some rules about buying and selling the same stocks.
The Wash-Sale Rules
Dean Barber: Yeah. The wash-sale rules.
Steven Jarvis, CPA: Wash-sale rules. So, there’s some nuance there. But what it comes down to is that if we’re planning, looking ahead, and understand the full picture, we can make these intentional choices. We can say, “You know what? Even though I want to hold a similar position for longer, if I go ahead and make this choice now to sell at a loss to offset other gains or to recognize this tax benefit, then I don’t blow up my financial plan. I take advantage of this tax opportunity right now to make sure that I’m getting ahead a little bit with the IRS.”
Bud Kasper: I refer to that as check mate.
Dean Barber: Yeah. What Steven is talking about is just the coordination of a CPA and a financial planner working on behalf of a client to make sure that they don’t pay any more tax than what they need to. They can take advantage of the code. But, as we said earlier, to have the power to do the tax planning, there needs to be a CFP® Professional involved that’s done a financial plan.
How the Name of Retirement Tax Services Came About
Before Steven, Bud, and I started this conversation, Bud asked Steven a good question that he gave an interesting answer to. Steven, why did you name your company Retirement Tax Services?
Steven Jarvis, CPA: It’s a great question. I’m sure my family would’ve preferred I named it after them or something like that. But we named it Retirement Tax Services because we wanted to just put right in the name there that we have a long-term focus. We don’t only work with retirees or people who are about to retire. We see so much value in doing multi-year planning and looking to the future. Whether you’re 30, 60, or 90, if we can have a conversation about how we minimize your tax bill over your lifetime, I’m going to be happy to work with you. We put retirement right there in the name so that it’s front and center for everyone. We’re going to have a long-term conversation.
Bud Kasper: That’s so great to hear. When we do our financial planning, there’s a part in the planning program where it says, because we did this, here are your tax savings. And when you see something like, X-amount of additional lifetime tax savings, that can get a person’s attention.
Dean Barber: Right. And that does happen. You can see some examples of this by downloading our Tax Reductions Strategies Guide.
Dean Barber: Steven also mentioned something else earlier that I thought was interesting. Based on how much money you have and based on where it’s at and whether it’s in a taxable, a tax-deferred, or a tax-free account, and based on how much money you want to spend over your lifetime during retirement, here is your estimated tax over a lifetime. And you see numbers that are very big, right, Steven?
What Is My Retirement Tax?
Steven Jarvis, CPA: Yeah. So, the other piece of that name is that retirement tax. A lot of people have never taken the time to think, “Well, what is my retirement tax?” This isn’t a new tax law. Don’t go out and get worried that there’s an additional tax you need to pay. We’re just talking about income taxes.
You’re still going to pay income taxes during retirement, or at least most people are. For a lot of people, that is a six-or seven-digit tax bill. This is not small dollars and it comes as a big shock. A lot of people aren’t paying attention to how much they pay an income tax each year. They’re more focused on getting a refund.
Dean Barber: Right. Even if you have a couple that is, let’s say, they’re retiring at 60, they’ve saved a couple of million dollars. Part of it’s in an IRA. Part of it may be in a Roth. Maybe part of it’s in a taxable account. They’ll easily pay taxes of $1 million over their lifetime if they live to, say, 90.
Steven Jarvis, CPA: Yeah. Easily.
Winning the Tax Savings Game
Steven Jarvis, CPA: Definitely. We all know that if we go to our job, we get a paycheck, and we’re going to pay taxes. Everyone’s comfortable with that concept, even if we don’t want to pay the taxes. But oftentimes people aren’t as familiar with the fact that a lot of these great vehicles we use to save for retirement are essentially a mortgage with the IRS. We are deferring taxes on a lot of these things. When we look at our 401(k) or IRA balance, we aren’t thinking, “What’s the IRS’s piece of the pie?”
Another one that comes as a surprise to a lot of people is that Social Security is taxable. There’s some nuance there as far as how much is taxable, but for a lot of people, most of their Social Security income is going to be taxable, and they’re going to pay tax on it.
Bud Kasper: One of the things that is so crazy is that some people ask about getting a refund. They say they’re so happy about getting a refund, but they shouldn’t really be happy. They just paid more money to Uncle Sam earlier and gave him the opportunity to use it instead of you using it. But people have that mindset, which I think has more to do with discipline than anything.
Taxability of Social Security
The provisional income rule states that if you’re a single taxpayer and 50% of your Social Security plus any source of taxable income and tax-exempt income from municipal bonds exceeds $24,000 for a single individual, it starts to become taxable. Married filing jointly is $32,000.
Steven Jarvis, CPA: That’s where it starts. Once you’re over $44,000 for married filing jointly, it’s 85% taxable on up. For single individuals, it starts at $25,000.
Dean Barber: So, if you take half of a person’s Social Security, especially a married couple, getting above $32,000 with any additional sources of taxable income can be a big deal.
Looking at Your Tax Allocation
One of the things that we like to look at eight to 10 years prior to someone retiring is their tax allocation. Don’t just jam everything into that tax deferred 401(k). Utilize the Roth 401(k) if it’s available. Build up some money in a taxable account. If you can do that right, you can suddenly start to play the game with Social Security and Roth conversions after retirement.
You’re staying down in that lower tax bracket, say the 12% bracket, for a long time and getting some sizable money moved over to Roth IRA and delaying Social Security. So, you’re getting a 6% increase on your Social Security every year. When you get to 72, Required Minimum Distributions start. At 70, you’ve turned on your Social Security. One of the things I don’t think people really realize is that any income that you take off that Roth IRA never shows up on your tax return. So, it’s not one of those pieces of income that can cause Social Security to become taxable.
Steven Jarvis, CPA: The way Dean described all that goes right back to why we named the firm Retirement Tax Services. That’s why we take that long-term approach.
What Dean described is not something that we can figure out right before the tax deadline, put the plan in place, and think everything will be fine. This is a multi-year approach. This is in-depth and intentional planning. We need to take time to sort through what that’s going to look like over multiple years. We don’t get ahead with the IRS by taking it one year at a time.
The Tax Code Is Written in Pencil
Dean Barber: That’s right. And Steven said something to me earlier about how the tax code is written in pencil. What did you mean by that?
Steven Jarvis, CPA: Yeah. I don’t know where that statement originally came from, so I won’t take credit for it. But I use it all the time. What I mean by that, though, is that the tax code is instigated by Congress. I don’t know that they take the time to write it. But the tax code all comes out of Congress.
The Tax Cuts and Jobs Act Expires in 2026
And as we know, Congress can change their minds as often as they’d like about how the tax code works. None of the tax code is written into the Constitution. So, we don’t even need an amendment to the Constitution to change how the tax code works. In fact, we already know that taxes are going to change in 2026 when the Tax Cuts and Jobs Act expires.
So, I use that phrase often just to remind people that this intentional planning is so important. We need to do the best we can with the information we have now and set ourselves up with flexibility for the future because we don’t know how that will change.
Dean Barber: Here’s another scenario. What you’re talking about and what we’ve been talking about is a coordinated effort between a forward-looking CPA and a good CERTIFIED FINANCIAL PLANNER™ Professional to mitigate taxes over a lifetime.
The ultra-wealthy people expect that from their advisors. Not only do the massive affluent not expect it, they don’t even know that it exists. And they wind up paying far more in taxes than what they should over their lifetime. And it’s not because they had an inept CPA or tax preparer doing their taxes. It’s because they missed so many opportunities. You stop missing opportunities by building a financial plan.
The Inflation Reduction Act … That Has Nothing to Do with Inflation
Before Bud and I wrap up our discussion with Steven Jarvis, CPA, I want to talk about some new proposed legislation coming through. I’m talking about the Inflation Reduction Act (IRA). There are all kinds of tax nonsense in there that has nothing to do with inflation. But there are some interesting taxes that are going to come out of that. Most of those will affect corporations, but there is still some interesting stuff in there that doesn’t apply to the individual and has nothing to do with inflation.
Bud Kasper: We still know that the corporations are going to pass it on to their customers.
Dean Barber: Yeah. So, there will be a tax that way. Anyway, there are a few more things I want to talk about. First is Roth conversions—when to do them and how much. Second, I want to talk more about the sunsetting of the Tax Cuts and Jobs Act. And third, I want to talk about making sure you step up in basis for any taxable accounts upon the death of the first spouse. So, let’s start with Roth conversions. What’s do you think about Roth conversions?
Steven Jarvis, CPA Loves Roth Conversions
Steven Jarvis, CPA: I love Roth conversions. I think they’re something that everyone needs to consider. Still, they’re not going to be a perfect fit for everyone. I can’t think of anything that everyone should do right now.
But Roth conversions are worth considering in every situation. The beauty of Roth conversions is that they allow us to make a choice about the timing of our income. We can fill up this bucket of money that the IRS is never going to come back and ask us for more of. That’s what I love about that getting money into that Roth bucket. It takes away the IRS’s ability to change the game on us later.
Dean Barber: I think it also ties right into the sunsetting of the Tax Cuts and Jobs Act. We all know at the end of 2025 that tax rates are going up for everybody. So, if we can convert now at a lower tax bracket, we don’t have to pay taxes on any of that distribution forever more.
Steven Jarvis, CPA: Yeah. There are two things that are beautiful about Roth. If tax rates go up in the future, we’re better off doing Roth conversions. We’ve saved real dollars for having converted now and it creates additional flexibility.
Even in the off chance that tax rates don’t change, we still have flexibility by having money in Roth. If we ever have that moment in life where we need a large sum of money, whether it’s for something fun like an RV or something not fun like a roof or medical expenses, it gives us flexibility.
Roth Conversion Thresholds
Bud Kasper: People also need to understand the conversion process. We want to make sure that we hit thresholds because there’s an exact amount that you might want to convert in a given year that would be different than what it would be for the next year. It’s a calculation that needs to be understood and customized to the person’s best interest.
Steven Jarvis, CPA: Typically, there are two kinds of thresholds that we start by looking at. What tax bracket are we in? And then as we’re getting closer to the Medicare age of 65, we’re looking at our income related to how much our Medicare premiums are going to be. Even though your Medicare premiums don’t end up on the tax return, the amount you pay is determined by the amount of income you have on your tax return. That gets missed a lot and can be painful if we don’t take any consideration.
Bud Kasper: Because that’s a two-year mistake, isn’t it?
Steven Jarvis, CPA: Yeah, exactly.
Dean Barber: That is another form of tax even though they don’t call it that. They call it a premium. I agree with Steven that Roth conversions need to be considered. They need to be looked at even though they won’t fit every time.
Thinking About the Impact of RMDs
I think the other thing that you need to do before you start thinking about Roth conversions is fast-forwarding your life to 72. Ask yourself, “What are my estimated RMDs going to be at that point and what’s that going to do to my tax bracket?
One of the cool things that our financial planning tool does is allow us fast forward to 72 to see your estimated RMDs. Retirement Tax Services and Steven’s CPAs helps with that as well. We’ll show you what your 1040 is going to look like, what your tax burden is going to be, what your marginal rate is going to be, and your effective rate. Then, what if we did some conversions? How does that look in the future? And suddenly we’re starting to calculate what your taxes are over a lifetime, not just in a given year. We’re not being shortsighted.
Getting Ahead of the IRS
Steven Jarvis, CPA: We can get ahead of the IRS as we make choices. But as we get older, unfortunately the number of choices we can make gets limited. As we hit Social Security age and Required Minimum Distribution age, we suddenly have fewer options. So, look ahead and saying, “What’s going to happen if I don’t do anything? Do we start being proactive and making some choices now?”
Bud Kasper: If people focused on the amount of tax savings they’d get every succeeding year rather than their return, they might find out that they should be focusing on the tax side more so than on the other side.
Dean Barber: I agree, Bud. Steven said earlier that people think taxes are just a fact of life. But the fact of the matter is that this is something you can control. But this is not something that you can control by simply bringing your information to a CPA who’s only looking in the rear-view mirror. This can only be controlled by creating that multi-year tax planning strategy that’s layered on top of your overall financial plan.
Steven Jarvis, CPA: You’re exactly right.
The Popularity of Qualified Charitable Distributions
Dean Barber: And something else that became very popular after the Tax Cuts and Jobs Act are Qualified Charitable Distributions. We’re seeing more and more QCDs this year. QCDs may lose some of their allure as the sunset provision comes in. Standard deductions come down, personal exemptions come back in. So, what do you think about using QCDs right now?
Steven Jarvis, CPA: I’m a big fan of Qualified Charitable Distributions. This is a great example of why that collaboration between the CPA and financial planner is so important. Tax forms don’t always set everyone up for success. QCDs are an example of where if you don’t have professionals talking to each other, they can get reported wrong on a tax return. Then, you basically pay double the tax on some of these things. The default tax form is not going to say, “Hey, this was a QCD.” You would think it should, but it doesn’t. So, professionals need to be talking or you lose all the benefit of taking the strategy.
Bud Kasper: Good point.
The Sunsetting of the TCJA’s Impact on Estate Taxes
Dean Barber: That’s exactly right about those 1099-Rs. We’re going to switch gears to talk about the estate tax and how that’s going to sunset. Basically, the unified credit or how much you can pass to the next generation is going to be cut in half at the end of 2025.
That brings us to a final point that if you are a married couple and one spouse passes away, you need to file a special form. That special form allows you to claim a step-up in basis. Your step-up in basis is done by your financial advisor, but it allows you to claim your portion of the unified credit and you get to carry it forward forever.
Looking at IRS Form 706
Steven Jarvis, CPA: We’re talking about IRS Form 706. And it’s never a happy topic to talk about people passing away. But again, that’s another reason to work with a qualified professional. You really should have a checklist for the year that someone in your life passes away because there are things you need to do in that year to make sure you’re setting yourself up for success.
One of those is IRS Form 706. We talk about that threshold at 24 million for a married filing jointly couple, but you only get to that if you claim your spouse’s exemption. And if they cut it in half, that gets a lot lower. You would think they would do it automatically, but nothing the IRS does is logical. So, you need to make sure that you’re looking for those things and taking advantage of those opportunities when they’re available. You can’t go back and retroactively grab that.
The Assistance of a Financial Professional Is Critical with These Complicated Matters
Dean Barber: That’s right. Hopefully everybody can get the picture here that this is complicated stuff. It requires the help of a professional. We’re going to allow you to see exactly what your scenario is by allowing you to utilize the very same financial planning tool that we use. You can use it from the comfort of your own home by clicking the “Start Planning” button below.
Once you click the start planning button, you’ll need to enter in your current information. We need your name, age, when you want to retire, what kind of account you have, what your Social Security estimate is going to be, etc. And is it a taxable account? Is it a Roth IRA? Is it a 401(k)? Or is it a joint account? Those things are critical in getting good output.
Please understand as well that our financial planning tool is typically intended for professional use. It’s very detailed. So, there’s no shame if you have questions about how it works. In fact, we encourage you to reach out to us with questions so we can give you some tips and tricks on things that you can do to improve your overall situation. If you need help or have questions, you can schedule a 20-minute “ask anything” session or a complimentary consultation with one of our CERTIFIED FINANCIAL PLANNER™ Professionals. We’ll do a quick virtual meeting with you, and help you get started.
Thanks for Joining Us, Steven Jarvis, CPA!
Steven Jarvis, we’re excited about our strategic partnership. Thanks for being here on America’s Wealth Management Show.
Steven Jarvis, CPA: Thanks for having me.
Dean Barber: All right. Everybody stay healthy, stay safe. We’ll be back with you next week. Same time, same place.
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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.