Death, Taxes, and This Class: Only One Is Fun
One of the courses I currently oversee is PFPL 530, Income Tax Planning. This is the tax planning course in our master’s program. It uses many of the same materials that are found in our CFP® tax course. However, instead of offering students multiple choice questions, graduate students are given case studies, then asked to perform the various calculations. Participants are expected to arrive at the correct answer on their own. For that reason, the masters tax class is decidedly more difficult than our CFP® tax class.
The purpose of the course is to provide students with a fundamental overview of the individual income tax calculation process. The course then delves into investment vehicle taxation including life insurance, annuities, and other securities. Tax reduction techniques such as charitable contributions are subsequently discussed. Next the income tax implications of various types of businesses are covered. The self-employment tax is analyzed. Additionally, property acquisitions and dispositions are discussed in depth. Passive activity rules are explored. Finally, several compliance and tax penalty issues are evaluated.
Most CFP® students find the tax courses challenging because they are not tax professionals. They are investment professionals. Nonetheless, we teach this material because it is important for investment advisors to be aware of common tax traps. Some of the more common tax traps that advisors often fall into include:
- Triggering unnecessary taxes on Roth conversions by not calculating income levels
- Triggering unnecessary taxes on 401(k) rollovers that could have qualified for NUA treatment.
- Incorrect RMD calculations, especially for inherited IRAs under the SECURE Act
- Failing to account for capital gain timing, such as harvesting capital gains in a high-income year instead of a low one, etc.
- Improper handling of annuity or life insurance withdrawals
FINRA does not normally handle tax complaints. However, unnecessary tax consequences often become part of larger suitability complaints, especially if a client suffers financial harm. If the client believes the advisor failed to explain tax implications clearly or acted beyond their expertise that could spell trouble for a well intentioned advisor. To help our graduates avoid unnecessary tax related complaints during their career, we stretch students far beyond their comfort zone in the classroom. We teach them to spot and avoid common tax traps. Stated another way, the best way to win an arbitration case is to not get into one in the first place! An ounce of prevention is worth a pound of cure.
As you reflect on your learning journey so far, take a moment to share any questions you have, topics you feel confident in, or areas that still feel challenging. Your thoughts matter and sharing them will help me support you better. Whether you are feeling strong or uncertain, your voice is important. Please comment directly below this post so we can start a thoughtful and helpful conversation. I look forward to hearing from each of you.