Journal of Financial Planning: January 2016
Bill Harris, CFP®, is a co-founder and principal of WH Cornerstone Investments, a firm dedicated to empowering people to see their future as greater than their past. He is a member of the board of directors for FPA of Massachusetts. Follow him on Twitter @whcornerstone or @billmharris.
Throughout human history, the practice of rituals is prevalent. Rituals are perceived as unique to the cultures that create them, however, around the globe you will often find similar rituals across cultures. Sitting around a fire and sharing stories to pass down one’s heritage and knowledge is one of those rituals. Some people may have been banging on drums and passing around a peace pipe while others may have sung songs and danced, but the end result was the same. Knowledge was shared.
The financial planning profession has its rituals, too. We educate our members in various ways, with publications like the Journal of Financial Planning, through national and local chapter education seminars, and through national conferences like the FPA Annual Conference or FPA Retreat. I bet in the early days of FPA Retreat there may have even been a few campfires.
Now, we have FPA Knowledge Circles—the modern-day campfire that uses technology to link people around the country and the world to share best practices. A dedicated planner must give their whole self up to their craft. FPA Knowledge Circle participation is a monthly mastery ritual, another step along the path to an enlightened planner.
Knowledge Circle Kicks Off
Boston, the site of FPA’s 2015 Annual Conference, was the perfect scene to kick off one of the newest Knowledge Circles on the topics of tax planning and tax strategy. Knowledge Circles are virtual and in-person meetings for like-minded FPA members who want to engage in discourse about best practices on a particular subject, in this case, all things taxes. FPA currently offers eight Knowledge Circles: Tax Planning and Tax Strategies, Business Success, Estate Planning, International Cross-Border, Investment Planning, Retirement Planning, Theory in Practice, and Women and Finance.
Room 209 was located in the epicenter of the meeting rooms at the Boston Convention Center. As a host of the new Tax Planning and Tax Strategies Knowledge Circle, I was eager to get to the room early. I hurried through the packed hallways, lined with scholarly advisers from across the country. It was like a running through a sea of offensive lineman from the New England Patriots. I joked to myself, “Only those clever enough to navigate this hallway could ever be worthy of navigating the tax code.”
Eventually, I found my destination. I entered the brightly lit meeting space, a spectacular setting for a world premier.
Truth be told, I had no idea what to expect that September day in Room 209. As we waited for the start, I nervously paced the room wondering if anyone would show up. The kick-off was up against fellow CFP® professional Brittney Castro who was talking about leveraging social media for financial planners. To some, taxes are not the most exciting topic, so I wondered if we’d get a respectable turnout. But as the start time approached, dedicated planners started to roll in, and before long, the room was filled.
Our meeting began with a white board brainstorming session for upcoming topics, and the list was lengthy: Roth conversions, trust taxation, capital-gain pitfalls, taxation of Social Security, how to deal with CPAs, and so much more. Soon, the white board was filled with sizable subjects. More importantly, we had a very engaged and experienced group. “We are on to something special with this Knowledge Circle,” chimed Christine Walsh, FPA’s community program manager.
Working the 1040
One topic that kept coming up during our conversation that first day was the 1040 tax form. Participants agreed that a thorough walk-through of the 1040 would be an optimal subject to open our next meeting, the virtual inauguration. One month later, the 1040 basics conversation was held.
My Knowledge Circle co-host, Lora J. Hoff, CFP®, from IPI Wealth Management Inc., and FPA’s Walsh circulated the 1040 basics guide prior to the meeting as a discussion starter. There’s a cliché amongst advisers: “You don’t know what you don’t know,” and that statement became apparent during the first virtual meeting. In addition to a comprehensive tax review, I learned several new clever strategic and practice management tips (see the sidebar for more).
From Social Security numbers to signatures, inch-by-inch, line-by-line, no stone was left unturned on the menacing Form 1040. We finished the call digging into the weeds on disallowed passive losses from passive activities. Paradoxically, the conversation of passive losses spilled over on to a FPA Connect discussion after the call.
A Forum for Sharing and Learning
I asked my co-host what her overall thoughts were at our post-meeting debrief. In her disarming Texas drawl, Hoff summed it up best, “I am very excited about this new tax community. It allows us to share information among our cohorts so we can all be that much better at tax consulting for our clients.”
Whether it’s a routine subject like the 1040, or a peculiar matter like the cow flatulence tax of Ireland or the beard tax of Russia, yours truly along with Hoff and Walsh invite you to join us for an interesting and informative conversation every third Tuesday at 2 p.m. EST. It’s a rite of passage you can’t miss.
Look for future Journal columns to share some of the practical tax planning and strategy insights generated by the Knowledge Circle.
SIDEBAR: 5 Planning Tips from the 1040
Line 8a: How much does your client have in liquid assets? Are any assets in low interest-bearing money markets or CDs? Is this appropriate for their risk tolerance?
Line 8b: Are any of your client’s assets invested in tax-exempt securities? What is the goal of their investments—the tax benefits or the income?
Line 13: Is your client paying capital gains on a fund that lost money this year? If the capital gains amount here is unusually large, it’s possible an asset was sold that made money available for a new investment (refer to Schedule D). Also, you can see if you have competition for asset gathering.
Line 38: Did your client gift any money or assets to their children or grandchildren that could potentially help reduce taxable income? They could have gifted $14,000 per donor per donee with no consequences.
Line 62: Is your client withholding too much? Is there a better way to put those extra dollars to use in a pretax or tax-deferred investment option?
FPA members, access the complete 1040 Planning Guide on FPA Connect. Go to Connect.OneFPA.org, visit the Tax Planning and Tax Strategies Knowledge Circle home page, and click on “Library.”