How Tax-Efficient Planning Deepens Existing Client Relationships

Business Growth: Marketing & Referrals 

Prospecting is necessary for growing your practice, but maintaining your current client base is equally important — and it actually can contribute to growth.

Showing your existing clients areas where you can add money to their retirement can deepen their trust in you, securing their commitment and even leading them to tell their friends and family about you. Tax Clarity® subscribers can attest to the power of using the topic of taxes and the software to show existing customers additional money in retirement.

Show Clients How Taxes Really Work

The interactions between different types of income and deductions can be a difficult concept for consumers to grasp. Without that understanding, they can suffer significant tax inefficiency in their retirement strategy. But an advisor armed with Tax Clarity can quickly identify sub-optimal situations, showing clients how to make retirement decisions in the most tax-efficient way.

Whether the client has a tax-related retirement question or you bring up the topic of a tax-efficient retirement, you simply have to enter your client's 1040 information into the Tax Clarity software. It takes less than five minutes. The software then calculates and displays their personalized Tax Map.

Whereas taxpayers typically think of the traditional progressive tax rates — 10%, 15% and 25% and upwards as income increases — Tax Clarity shows how taxes have evolved into a more-complicated system. The software calculates the effective marginal rate, the rate at which one additional dollar of income will be taxed when added to existing income. Those rates can be nearly 50% in some cases, even for people who would otherwise be in a 15% bracket for ordinary income.

The Tax Map is a visual representation of this concept, showing the stair-step, traditional tax brackets in red. On the Tax Map, gray is shown above the red and indicates the effective marginal tax rate that is created by any additional taxes required because of other income included or phase-outs of deductions. The visual representation of ordinary tax rates compared to effective marginal rates helps clients understand how taxes are different in retirement.

Show Your Recommended Strategies

You can also use the Tax Clarity Tax Map to demonstrate how changing retirement withdrawals can be more tax-efficient. For example, you may recommend for your client to consider a Roth conversion. This will have an impact not only on this year's taxes and cash flows, but also the size of their eventual estate. Further, a client might want to invest dollars that are in a Roth more aggressively than dollars they plan on spending early in retirement. And this is a natural transition to an overall financial plan and a conversation about portfolio risk.  

Answer Questions about the 2017 Tax Cuts and Jobs Act

After passage of the 2017 Tax Cuts and Jobs Act, consumers were clamoring to understand how it would impact them. Advisors with Tax Clarity software were able to answer questions, giving them an edge over other advisors. Consumers continue to ask advisors how the Tax Cuts and Jobs Act impacts them, so the opportunity remains strong to help differentiate yourself from other advisors by using Tax Clarity for tax-efficient planning.

The software’s pass-through deduction feature is particularly important for advisors with clients who own small businesses. You can demonstrate the impact of the deduction for pass-through income and the phase-out of the deduction under the Tax Cuts and Jobs Act. An article in Financial Planning suggests that the 20% deduction for qualified business income on pass-through entities will provide substantial savings for clients. Over the next several years, small business owners could save an estimated $415 billion thanks to the new deduction. 

For clients with a lifestyle business, a business well under the threshold for the phase out, there could be opportunities to stack Roth conversions or IRA withdrawals on top of their self-employment income and pay a rate that is considerably lower than expected.

What You Can Calculate with Tax Clarity

With Tax Clarity, you also can calculate a client’s:

  • Self Employment Tax— Demonstrate the impact of paying both the employee and the employer's share of Social Security and Medicare taxes for self-employed clients
  • Dependent Tax Credit— Allows you to demonstrate the impact of the revised Child Tax credit, including dependents over age 16
  • Saver's Credit— Allows you to demonstrate the impact of the Saver's Credit, which is particularly relevant for semi-retired individuals who have choices on which accounts to draw from in order to supplement part-time work

Additionally, you can optimize year-end tax opportunities for clients using Tax Clarity, and Covisum offers training  to help you see how to do this.

Covisum Provides More Than Just Seminars

We created Tax Clarity to help advisors grow their practices and built the consumer-facing seminar content to help you market your ability to deliver value to clients and prospects with tax-efficient planning. We provide the tools to that visually illustrate the value of a good tax-related retirement income decision and we give you an entire support team to help answer client and software questions. To see the power of the software, watch this Tax Clarity demo.
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