As a CPA, I work with external investment advisors who often see me as a resource to help them understand compliance issues their clients should consider. The best relationships I have with advisors, however, are the ones where we work in tandem to provide proactive solutions to our clients’ challenges, as opposed to being reactive. In this handful of relationships, we have come to gain a thorough understanding of each other’s practice, and the unique value that each can bring to the client. I have found that this sort of relationship fuels our desire to make referrals, as we have become invested in each other’s success.

I have spent the past eight months talking with investment advisors about what impact the impending Medicare surtax will have on their clients’ current-year tax filings. In my opinion, this development represents a unique opportunity for CPAs and investment advisors to partner together, add significant value to clients and, in the process, build stronger relationships between their practices. In the eyes of the client, the tax is extremely confusing. The multiple components of net investment income, the corresponding relationship to wage thresholds and the connection to trust investments have filers in need of advice. In the conversations I have had with tax clients, the confusion is only heightened in situations where investments are held by multiple advisors. This complicates the ability to clearly understand how much net investment income you can expect and how to build an appropriate tax-minimization strategy.

When I have encountered tax clients and prospects with high income levels and multiple investment accounts that are producing significant investment income, I have looked to partner with the “key” investment advisor to produce a joint strategy. To do this, we must be aware of all the investment holdings of the client. This leads me to suggest the reverse to investment advisors: You should be asking clients in these situations if you can add value to their tax situation be analyzing all of their holdings. This means they would need to give you recent investment statements from all other accounts, which is an absolute benefit to you in your attempts to advance a proposal for a transfer of those assets to your watch.

I am being presumptuous, but I believe in these instances you will need the analytical support that someone like me can provide. This would surely benefit me and my practice, since it gives me access to new clients. But at the same time, a CPA would also be impressed that you are taking the time to understand what value he or she could add in this situation. Not only are you are generating an opportunity to impress an existing client, whose assets outside of your universe also make them a continuing prospect of yours, but you have made a great stride toward building a deeper relationship with a potential referral source. I suggest that this might differentiate you from your competition.

As you scan your client or prospect list for the best opportunities to begin this outreach, I recommend you keep the following items in mind:

• Make sure that the CPA you are thinking of partnering with has access to appropriate tax planning software, as well as the expertise to manipulate various scenarios of current year pro forma returns.
• Be clear that the Medicare surtax relates to net investment income that might extend beyond the more traditional investment assets that you and your competitors are overseeing in your investment accounts. For this reason, pay particular attention to those clients that you know have passive interests in outside pass-through entities.
• Clients or prospects that also have trust accounts with investment assets present another distinct opportunity. The threshold for application of the surtax on these entities is merely the dollar amount at which the highest tax bracket begins, so the bite can be significant.

If a client is willing to allow for an appropriate analysis, the expectation should be that a pro forma tax return would be generated. This return would effectively aggregate together all net investment income across investment accounts, as well as any other amounts from non-investment account sources. If the tax is applicable, and even if there is nothing strategic that can be done to impact the amount, I believe that the client will appreciate knowing the outcome ahead of the filing of the return. This would allow for effective liquidity planning around this outcome, whether it is in the form of payment of fourth-quarter estimated taxes or simply ensuring that appropriate cash is available to pay the liability. In this instance, you have added real value to the client. You have also helped the CPA avoid delivering a nasty surprise in April, which is never an enjoyable conversation to have. Through this exercise, you have built a strong relationship with the CPA advisor because you have learned how you can work in tandem to grow your practices.

David Martines, CPA, is a Tax Manager at Baker Newman Noyes, a nationally recognized public accounting firm based in Portland, Maine. His practice is focused on income tax compliance and planning for individuals and trusts.