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AICPA Personal Financial Planning (PFP)
Deadlines, Deductions & Decisions: Year-End Planning for the New Tax Era with Bob Keebler
00:22:52
Bob Keebler joins Cary Sinnett to unpack why this year-end is anything but routine. With shifting tax thresholds and surprise penalties lurking under the surface, every decision matters more than ever. This rapid-fire episode arms CPA...
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- [00:02]
A
I'm Kari Sinnett and this is your personal financial planning podcast. The clock is ticking. Year end planning isn't routine this time, it's explosive. New rules, shifting thresholds and hidden traps mean every decision carries weight. Miss a move now and your clients can pay for it later. Welcome to the AICPA's Personal Financial Planning Podcast. I'm Carey Sinnott. As the manager of the PFS designation, the financial planning credential exclusively available to CPAs, my role is to keep you informed, educated and connected to a premier community of thought leaders delivering trusted financial planning. We explore the full range of planning topics and the current events shaping our profession. If you're an advisor, a CPA financial planner, or simply want an inside look at today's topic of year end planning, this podcast is for you. Bob Keebler is going to guide us through the minefield of year end planning this year. He is a partner at Keebler and Associates, recognized by Forbes as one of America's top 200 CPAs. By the way, there are 671,000 CPAs in America. So Bob, that's amazing. He has over 30 years of experience specializing in family wealth transfer and estate administration. Bob, welcome.
- [01:28]
B
Pleasure to be here, Carrie.
- [01:30]
A
Bob, this year's tax landscape looks very different thanks to OBVBA and a government shutdown. What are the most significant shifts you see affecting year end planning for high income clients and why do they matter so much right now?
- [01:49]
B
Everything we thought we knew about year end planning has changed. We need to shatter that prior paradigm and basically start all over. That doesn't mean there's not. The concepts aren't still there, but all your typical go tos just need to be modified a little bit. I've identified seven things that CPA should be the most concerned with in the next several months. One is charitable giving and itemized deductions. How do we approach that? OBA definitely changes that. Two QSBs making sure we're addressing all those opportunities under 1202. And then we have to focus on SALT in the senior deduction. Very important to look at that the 199phase out has changed. But more importantly the real moral on 199 carry and we talked about this in other classes. There is a window during that phase out where you're getting where you're phasing out for 199 and phasing out for SALT where literally your incremental tax rate on the federal side is over 60%. And if you're in that window and you're a ER doc who's been taking five shifts, maybe you take four because you're giving between state and federal tax, you might be giving 6 or 710 of what you make away to the government. Then Roth conversions continue to be red hot. That's something that we want to look at very carefully and figure out how to address. And the other thing that's changed on the Roth conversion is the IRMAA premiums are probably going to go up. So sticking your foot over that Irma line in a Roth conversion could be just a fatal mistake. And we have to just pay very close attention to that. Every client I meet with on a Roth conversion, I print the IRMAA table and I give it to them because I am not going to have them come back to me upset because their IRMAA premium went up. I want to make sure they understand that gain and loss harvesting kind of the same things we've been doing there. And then I would add one more thing for my CPA friends to consider. It's all of these tax shelters the IRS just issued a missive on. Basically the tax shelters are being promoted in social media and it is what's going on there is terrible and a lot of good people are being sucked into these things and we really do have to protect our clients. So that's kind of seven things where we can start.
- [04:32]
A
Carrie, that is a handful. So many advisors though, they focus on bracket management each year. But with these new provisions, and I love outlining the seven different things, the timing of income and deductions is even more complex. How should planners think? Think through their bracket strategy to optimize both short term tax savings and long term outcomes.
- [05:01]
B
There's a lot to balance here. First of all, software is critical and a lot of my CPA PFS friends have done this for so long, they can kind of do it in their head. And I think that's over. Certainly for me it's over. No one can memorize all these different phaseouts. There are like eight or 10 different phaseouts. And so you have to use your software, balance that out. The two critical phase outs in my mind are the senior deduction and the SALT deduction. You could also add to that how charitable gifts are going to be phased out in that 237s phase out on itemized deductions when your income gets too high. So all that has to be taken into account and that speaks to strategies like Roth conversions or taking money out of your IRAs. My one o' clock today I'm meeting with a gentleman who has $30 million in IRAs and he wants to take it out over time and buy life insurance. It's actually a brilliant mathematical strategy. We just have to figure out how to implement it. Right. So there's a lot here, but software and phase outs I think are the keys.
- [06:16]
A
Year end planning is often treated as a, let's call it a series of tactical moves, but you know, great planning sees the entire picture and it's strategic. How do you approach integrating charitable giving? You kind of alluded to this in your seven things. Capital gains, harvesting and Roth conversions in a cohesive year. End statement. Let's dive into that because I think a lot of people are going to need to hear your perspective.
- [06:48]
B
And this is open for debate, but I think you begin with goals and objectives. And those goals and objectives are often more crystallized when a couple gets to be 65, 70 years old. And at 30 or 35 the goals and objectives are, well, we have little kids, there's not a lot of money, we want to survive to the next day and. But as you get older, you might be able to better define what you're trying to achieve. And then this is hard and people should think about this. But in an Excel spreadsheet we will very often do a 15 year projection. So run with me. If somebody is 64, I'll go out to 79 or 80. I want to see what happens when they start RMDs. Because a lot of our planning with Roth conversions, taking money out to buy insurance, harvesting gains, might be predicated upon what happens down the road. For example, I had a guy come to see me. He was a chemical and his doctorate in chemical engineering. So I knew he was super brilliant. And he proudly told me from age 55 to 70, he hadn't taken any money out of his IRA. He had kept himself in what used to be the 15% bracket and he now had like $9 million in his IRA. I didn't have the heart to say to him that his plan was a plan of fools, right? Because he let too much stack up in his IRA and he let that.
- [08:29]
A
Opportunity just go by. If he was only in a 15%.
- [08:34]
B
Tax bracket, he absolutely did because he was now looking at a 30% bracket going forward once those RMD started. That's why we like to go out 15 years now. Then the other thing we want to do is understand what the client has defined as their estate planning goals. They die tomorrow. Where does the money go? So if they say half to charity and half to their Family, that's great. But why don't we try to accelerate that charitable giving during their lifetime? If you as their financial planner say they're fine, they, they could give that money away. Now I want to get that accelerated into their lifetime so that we get the income tax benefit. So we need to integrate that together. Now we also need to make sure we're integrating the charitable planning with the estate planning. Those are two slightly different things, but very important. You have to play the long game with most people. Now, the fifth point was look at Roth conversions first via a tactical lens, filling up a bracket, absorbing a carry forward, absorbing a charitable carry forward or an nol. That's very tactical. And then you have to pivot to more strategic. Now, on the strategy side, Kerry, this is really fascinating. Part of what came out of OBA is we refreshed our look at. When I started dealing with this 237s issue, I started to ask how is that going to affect the income tax deduction for the estate tax paid, commonly called the 691C deduction? And has I dove deeper into that and a quick shout out to Alan Gasman down in Florida, who actually used an AI tool to look at this on a state by state basis. But here's what we learned. In a state like Maryland or Connecticut, you have to pay a state estate tax and you're paying state income tax, okay. And you do not get a 691c deduction for the federal estate tax you pay. So at the end of the day, the math says people in those states, there's a handful of others should be doing more Roth conversions, not less. And this is what this is. The next excited, exciting thing I have to deal with is how to get this out to our CPA colleagues so they can use this, you know, in the real world. But we want to look at those Roth conversions through a tactical lens and then through more of an estate planning lens. I think where I have failed since really 1998 is properly teaching the more strategic end of the Roth conversions. We've always touched on it, but we've never emphasized it. We've spent so much time in the trenches with filling up brackets and things like that, we could do a better job there. So, I mean, that's kind of where we are with more strategic year end planning.
- [11:48]
A
I know you have mentioned in the past a kind of layered strategy that I just love, and that is looking at filling up the bracket via a Roth conversion, but then being able to dial it up or down up with a Roth conversion down with philanthropy. So using your charitable strategies to keep it back down into the bracket you want to utilize and that marries well with the overall estate planning strategy, philanthropy and, and you're managing within that tax bracket. I love how all of those things overlay each other and come together well.
- [12:32]
B
To serve the client, knowing we're going to continue on that track. And if you want to effectively navigate all this, we have to look at software we can do. Our charitable giving and our Roth conversions in December mean we could take stock of where exactly where income is on November 30th. You know, use those statements to come up with a projection and then very specifically focus in on bringing income up with Roth conversions or dialing it down with charitable giving.
- [13:09]
A
Brilliant. And Bob, I am pretty sure you're going to be in San Diego in January. And if you're listening now and you want to join the nation's top CPA financial planners at the aicpa PfP symposium January 21st through the 23rd, it's in San Diego. So you can sharpen your expertise, earn 17 CPE credits and connect with industry leaders like Bob Keebler. Just go to the AICPA website and look for the PFP symposium. Bob, with so many new deductions and phase outs in play, how can CPA financial planners effectively navigate the uncertainty and avoid last minute surprises, especially for clients near those income thresholds? Especially when you take into account the phase outs.
- [14:08]
B
I think you have to run some projections now, fine tune those at the end of November and then operate from there. The key thing to watch out for is somebody that's between 5 and 600,000 because we demonstrated this in our earlier classes. But the effect of tax. If I made exactly 500,000, Kerry, and I do a Roth conversion of 100, I'm going to pay tax at 45 and a half percent on that conversion because of the phase out of the salt. And that is so critical to understand. And there's a similar anomaly when you're in that 199 cap, a phase out. And I know the CPAs listening won't believe me. So yeah, they have to run the numbers themselves. That's just part of the CPA training. But run the numbers yourself. Just ask yourself. You had 500,000 at 35% rate. If you added 100,000 of income, but your income went up by 130 because of the phase out, the effective rate of that is 45 and a half percent. And at that point in time it makes no sense.
- [15:20]
A
Thank you for just Kind of walking us through the minefield of all these different changes. The seven things that you gave us to think about is ideal. Now once we've made it through that, and really because we've made it through that now advisors can maybe think a little more big picture, deepen the relationship. So how can advisors use this year end season as a springboard for deeper client conversations going beyond just year end planning or tax moves to then address legacy goals and wealth transfer strategies and even positioning for future legislative changes?
- [16:09]
B
Yeah, there's a lot there. So we, I think if you can demonstrate value and earn some trust and confidence with this year end planning, that'd be a springboard. And then try to dig deep on goals and wealth transfer objectives. What I've done and clients seem to like it, I ask husband and wife to sit at opposite ends of a table and write down their 10 goals without whispering in each other's ears and then come up with 10 common goals, meaning look at each other's lists and negotiate what 10 things do you want to accomplish? And I think it's so important. I want to hear what my wife has to say, especially with regard to our children, because her insight is going to be much different than mine. Most of the time I think better. And I also want to understand charitable goals overall thoughts on legacy. And then get that. Then you look at those goals and you say, how do we apply the income tax law and or the estate tax law to achieve a better result? For example, Carrie, I come to see you. 55% of my net worth is in one stock. I'm 68 years old, but I want to leave a third of my estate to charity. This is not a hard thing. Right. We should look at does a charitable trust make sense? And for the practitioners, it's just a matter of continuing to educate yourself so that you have those 50 or 100 different strategies in your head. And when you're meeting with somebody, they percolate to the front of your mind. And then you can weave that into the conversation. I think that's what's so critical. But you truly have to understand what they're trying to accomplish from an income tax and a wealth transfer perspective. What do your clients want to do? Terribly, if anything. And then you kind of go from there.
- [18:17]
A
It's a little bit unspoken why that is such a good strategy if somebody has 55% in one stock. But I'm going to infer from what you're saying there, they would have some capital gain expense by putting into a charitable strategy, they avoid that capital gain, get a current income tax benefit by structuring it that way. You know, Bob, you mentioned though, writing down the 10 things, having each spouse do that, that's a great technique and I love it. Now, do you need to make sure that there is a marriage counseling office nearby if that doesn't go well?
- [18:57]
B
Well, I've never had it not go well and it's just important. The when I started doing that I'll just share with the younger CPAs is that what would happen is we would do these things without having them write up their goals and then we'd make recommendations and they would go to their lawyer and their lawyer would change absolutely everything because he would change their goals. And I saw it was incredibly critical to have those goals be concrete by the time we made recommendations because otherwise you get into this. Every advisor wants to change the plan situation and CPAs are guilty of that too. And that hurts the client because you want to have a nice smooth process. So usually if you can define the goals, the techniques just speak for themselves because that's the critical thing, is just to know what people really want to achieve.
- [19:56]
A
That's really the client writing the plan. My conversations with you are so enjoyable because you bring such a high level of expertise, but you understand the big picture of helping the client to feel valued, helping them be the center of the plan. We bring the technical expertise, but we shouldn't be the center of the plan. Just like you were saying, we shouldn't restate their goals, the client should. And so that's what I love about what you bring, is that balance of client centered technical expertise. It's amazing. So thank you for sharing with our community of listeners. And if you're an advisor who wants to deliver premier financial planning with confidence, you might want to consider everything the AICPA PFP section has to offer at aicpa.org PFB for 269 a year, AICPA members get access to a library of technical guidance, webcasts, planning tools, and expert insights like Bob's. So valuable. Thank you. All designed to help you serve your clients at the highest level. And this one's kind of near to my heart. If you're a CPA with 3,000 hours of financial planning experience already, consider showing your expertise next to your name by obtaining the PFS credential@aicpa.org PFS. This is our podcast together. If this episode helped you in your practice, which I'm not sure how it can't, Bob's insights are amazing, but we'd be grateful if you shared it with your professional community. With almost half a million downloads so far, the AICPA PFP podcast is helping to advance the profession one listener at a time. Mainly because of you. This has been Kerry Sinnott for the AICPA Personal Financial Planning Division. Thanks for listening, and until next time, keep earning trust with clarity, guiding with compassion, and delivering premier planning that elevates.
- [22:09]
C
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