TaxCoach Briefs:    October 15, 2009

Volume 4, Number 43

• Client Alert: Roth IRA Conversion
• Member Resource: Member Call-In With Ed and Keith
• Did You Know: Audio Guides
• Member Q & A: Reminding Clients of Your Value

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CLIENT ALERT (EAL)
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ROTH IRA CONVERSION OPPORTUNITY

Keith finds it in extremely bad form that the IRS would allow a deadline like October 15 to fall on a Thursday. Don't they know we have Briefs to write? Of course, Keith couldn't prepare his own taxes even if you held a gun to his head. (Hey, now . . . - Keith) So why should we expect him to know the IRS's mysterious ways?

We're both constantly preaching that communication is the key to establishing value to your clients. Communicate how much more they'll pay without your brand of proactive tax planning. Communicate what your services are worth. (While you're at it, lucror vestri dignitas!) Communicate special opportunities as they become available.

Starting January 1, 2010, clients will enjoy one such opportunity. Specifically, they'll be able to take advantage of new rules making it easier to convert their existing traditional IRA balances to Roth IRAs. And this gives you the opportunity to communicate your value in helping make that decision.

Under current law, there are two kinds of IRAs:

• The regular IRA lets clients contributions they make today and defer tax until they withdraw funds in retirement.

• The Roth IRA, on the other hand, gives them no up-front deduction, but lets them take money tax-free during retirement. And there are no required minimum distributions as there are with regular IRAs.

Right now clients can convert regular IRAs to Roth IRAs -- but only if their "modified adjusted gross income" is under $100,000. Starting in 2010, however, they can do it regardless of how much they earn. What's the catch? They have to pay tax on the full amount they convert now.

Given today's economy, with trillion-dollar deficits already the reality, it's clear that taxes will go up. But that doesn't mean the actual tax your client would pay on IRA distributions will be higher than the rate they would pay to convert.

Even calculating the actual rate clients would pay today to convert today is harder than it looks. Taking the full amount they convert and adding it to the rest of their income produces ripple effects they need to consider:

• Convert a large enough account and they'll land in a higher tax bracket.

• Clients who currently collect Social Security will report higher "provisional income" used to calculate how much of their benefit gets taxed. (The extra income can also raise Medicare Part B premiums.)

• The AGI amount used to phase out itemized deductions and personal exemptions will be higher, thus costing them part of those benefits.

• The 7.5%-of-AGI floor used to calculate medical deductions and 2 percent-of-AGI floor used to calculate miscellaneous itemized deductions will be higher, thus costing part of those deductions.

There are also investment issues worth considering. Most clients have been battered by falling markets. If clients believe their assets will bounce back, it may make sense to convert now, even at equal or higher rates than they might pay tomorrow, before those values bounce back.

Here's the bottom line. Deciding whether to convert a regular IRA to a Roth IRA shouldn't be a "do-it-yourself" calculation! If clients have significant IRA balances, the stakes are just too high to rely on online calculators or magazine worksheets. If they're curious about this opportunity at all, they should be calling you.

So, speaking of communicating -- especially communicating special opportunities as they become available -- we've just prepared a new Client Alert to help highlight your role in making this important decision.

When you click on the 'Client Alerts' button in TaxCoach, you'll see a list of alerts, with this latest on top. The file 'RothConv10' contains letters addressed to each of your clients who indicate they manage traditional IRA accounts.

You can download the file to your computer, and print on your letterhead using MS Word, or any word processor. You'll find instructions on the Client Alerts page.

We'll also be adding a new module discussing Roth IRA conversions in detail to the TaxCoach system. Look for this module later this month.

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MEMBER RESOURCE (KAV)
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MEMBER CALL-IN WITH ED AND KEITH

Wow, we had another great call and record attendance yesterday. We'll be travelling the next two weeks, for the first Certified Tax Coach™ Academy in San Diego, and the last 2009 Roundtable in Tampa. So we won't be able to host another Call-In until November 4, but we hope you'll join us then.

Here are some excerpts from the log of the questions raised by callers this week:

• Yesterday we discussed Roth conversions. Is there a good lesson somewhere with information to get a basic understanding?
  (This was a discussion on the All-Stars/Press Club monthly webinar on Tuesday. Ed's answer BTW was the TaxProf Blog, administered by Paul Caron, a lawschool professor of his, and currently the Associate Dean of the University of Cincinnati College of Law. www.taxprof.typepad.com.)
• Who would you describe as your perfect tax planning client?
  (What an awesome question!)
• What planning are you thinking about with the Obama Health care tax?
• You've said that you built your practice by working with Real Estate Agents. Can you talk a bit about the opportunities that you find for R/E Agents?
• Where can we get a list of the top real estate agents?
• When you have completed a client questionnaire and are ready to confront the client with the mistakes they are making, do you provide a written summary at that point, or keep it verbal?
• Can you talk about the success the Press Club members have had with all the client contact increase?
• Do you set up the 105 plan yourself, and if so what do you charge? Who is the "provider?"
• I noticed a Real Estate Investors Powerpoint on your web site. Is there one for Agents that are not R/E investors?
  (We have used, and recommend using, the Small Business Owners seminar kit, which is in the Playbook.)
• Would a CPA help a client incorporate or setup LLC and if so are we taking on any unusual liability?
• Can a 401k owner roll over after tax contributions to a Roth and pre-tax contributions to a regular IRA
• Can you have a Roth 401 k, an IRA, and a defined benefit plan?
• What kind of bribe would you take to allow more people to attend the Tampa Roundtable?
• How do you establish value in your marketing materials?
• Any thoughts on regional variations in marketing techniques? I am based in New York which is a tough crowd!
• I have heard that we need a 60 second "what do you do" statement. Any suggestions on what we should say?

If you're looking for pointers on tax strategies or profiting from TaxCoach too, join us for the next call, on November 4, at 1pm Eastern. Enter a question or just listen in on the repartee. Check the "Contact Us" button within TaxCoach for registration instructions.

Members occasionally ask if we can record and archive these calls. The answer is that we want to keep them as informal and uninhibited as possible. We’ve discussed specific tax-planning clients and cases, for example – but we don’t want to put ourselves on record as offering individual tax advice. We’ve also discussed outside tax software and marketing services (both good and not-so-good), and we don’t want to put ourselves on record with those comments either. Member Call-Ins are intended to be casual discussions among peers – and we don’t want recording them to threaten that chemistry.

Please note that while our elite members (All-Stars, Press Club, and Hall of Fame) can still schedule time directly with Ed as part of their coaching programs, we simply cannot answer marketing and tax-strategy questions via email or unscheduled calls. We'll have call-ins as many Wednesdays as we can, and we'll talk to you then.

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DID YOU KNOW . . . (KAV)
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AUDIO GUIDES

. . . that TaxCoach contains a number of Audio Guides? You'll find a button for them on the left (blue) side of the Home Page, once you sign in to the TaxCoach system. Audio Guides allow you to listen to tips for using TaxCoach while navigating through the system yourself.

Most importantly, there's a series of tracks which duplicate the Audio CD, which new members receive in the Welcome Kit. This CD contains a conversation between Ed and Keith on the philosophy behind TaxCoach — why it was created, how it came together, and what it's designed to do for a tax business. Included are conversations on target marketing, closing the planning engagement, and delivering the plans — to give you the best boost in fees and client loyalty.

Not sure how you're going to take advantage of all TaxCoach has to offer? Not sure how you're going to distill the strategies down to what you'll present to clients? Tune in! TaxCoach recommends that all new members listen to the CD before scheduling their marketing consultation with Ed. The audio guides provide an easy way to do so in manageable pieces.

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MEMBER Q & A . . . (EAL)
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Here's one more question that came in on the Wednesday Member Call-In that seemed ideal to discuss here:

Q:How can remind clients of our value after we've delivered a tax plan?

A:Truthfully, we couldn't have planted a better question!

The answer here is to quantify the savings you create through planning, then constantly remind the client of the return on their investment in your fee. Let's say you help a client convert a sole proprietorship into an S-corp, then you prepare their taxes for the first year the client operates as a corporation.

When you finish their return, you might duplicate it in your software, then prepare a "what if" version revealing what the tax would have been without the corporation. Your client will see a dramatic difference, in as real a fashion as possible on an actual Form 1040!

That sort of tangible demonstration goes a long way towards establishing and reinforcing your value. And that, in turn, helps lock clients into your service and stimulate the referrals that are the best way to grow your business in today's economy.

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We're happy to answer your questions on TaxCoach content or features. (Save marketing and tax strategy questions for Member Call-Ins.) For best response, email support@taxcoachsoftware.com. If we think the answer will be useful to all of our members, we'll publish it (anonymously) here in the 'Member Q & A' section of TaxCoach Briefs.

Regards,

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