Add Financial Planning Services to Your FirmBy: Edward P. Mahaffy, MBA, CFP®, ChFC®
March 5, 2021

Merger and acquisition (M&A) activity between accounting firms and registered investment advisor (RIA) firms continues to accelerate among larger firms. Accounting firms are attracted to the recurring revenue and potential for increased valuations presented by comprehensive financial planning and investment management. RIAs are attracted to the accounting firm’s existing client relationships as well as the potential to attract prospects who may prefer a one-stop solution for tax, advisory and investment management. But adoption rates for these expanded services among smaller accounting firms has been much slower, why?

M&A, especially mergers of firms in different industries with different regulations, can be quite challenging. Also, certain synergies found among larger firms may not be present among smaller firms. Sometimes, it can be overwhelming for the smaller firms to service tax clients, let alone consider strategic options aimed at futureproofing the practice.

AICPA research has referred to financial planning as “a natural evolution” for accounting firms. This makes sense because the tax professional already knows a great deal about the client’s financial situation and has already built a relationship. Many accounting firms already provide advisory and tax planning services.

Comprehensive financial planning encompasses investment planning, such as asset allocation recommendations suggested by certain financial planning software. It also requires additional licensure and affiliation with either an RIA or a broker dealer. Only one three-hour exam, the Series 65, is required to affiliate with an RIA as an investment advisor representative (IAR).

Affiliating with an RIA requires far less licensure than affiliating with a broker dealer. Moreover, the RIA’s fee-based compensation model is much more closely aligned with that of the accounting firm. This is by far the easiest route to expanding services to include comprehensive financial planning. The RIA should provide turnkey support, including training and oversight. The RIA can also provide investment management services and access to specialists in many areas, depending on the client’s needs. Investment management revenue-sharing opportunities can be very lucrative. Under this scenario, as opposed to a referral, the tax professional is the financial planner and client relationship manager.

The cost of a thorough comprehensive financial plan costs anywhere from $1,500 to $5,000 depending upon the level of complexity; $2,500 is a decent benchmark. Annual updates might cost $1500. It is this recurring revenue that can help annuitize income and increase valuations while strengthening client relationships with more interaction throughout the year.

Comprehensive financial planning is worth serious consideration as a means of futureproofing an accounting practice.

Become a financial planner and/or an Investment Advisor Representative (IAR) with ClientFirst Wealth Management, a fee-only registered investment advisor (RIA) and fiduciary, managing over $160M for individual investors. We do not sell products or accept commissions. Our turnkey system provides the training, support and oversight you need to succeed. We provide the comprehensive financial plan, which is always completed by a CFP® professional, who is always a fiduciary. You then present the plan to your client. We support you every step of the way and can assist with presentations as well. We have discounted our standard financial planning fee for your clients. They will be delighted with their financial plan or receive a full refund.

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The best time to update withholdingBy: National Association of Tax Professionals
March 2, 2021

One of the first things taxpayers should do each year is check their federal income tax withholding. As your clients’ trusted tax professional, you can help them review their options and decide what makes the most sense for their financial situation, or at least remind them to review their paperwork with their employer’s human resources department, if applicable.

Taxpayers and tax pros alike can also use the IRS’s Tax Withholding Estimator tool to help determine the correct amount. This online tool helps to avoid having too much or too little tax withheld from a taxpayer’s wages. It also helps self-employed people make accurate estimated tax payments.

Having too little withheld can result in an unexpected tax bill or even a penalty at tax time. Having too much withheld results in less money in their pocket. Remember, the estimator tool is only as accurate as the information entered. This is one area where tax pros can show value and perhaps add additional billings to your practice.

The estimator tool can help determine if someone should:

  • Complete a new Form W-4, Employee’s Withholding Certificate, and submit it to their employer
  • Complete a new Form W-4P, Withholding Certificate for Pension or Annuity Payments, and submit it to their payer
  • Make an estimated tax payment to the IRS
    • Individuals whose income tax withholding from salary or pension is not enough, or those who have additional income (interest, dividends, alimony, self-employment, etc.), may be required to make estimated payments

To determine proper 2021 withholding amounts, tax pros need to know:

  • Their clients’ 2021 incomes
  • The number of children to be claimed for the child tax credit and earned income tax credit (if applicable)
  • Other items that will affect their clients’ 2021 taxes, such as filing status

The estimator does not ask for personally identifiable information, such as a name, Social Security number, address and bank account numbers. The IRS doesn’t save or record the information entered in the estimator.

Before using the estimator, remind your clients that the following information is needed:

  • 2019 tax return
  • Most recent pay stubs
  • 2020 Form W-2 from employers
  • 2020 Form 1099 from banks and other payers
  • Forms 1095-A from the marketplace for those claiming the premium tax credit
  • Form 1099-NEC, Nonemployee Compensation
  • Any other applicable information relevant to the individual’s situation

Most income is taxable, including unemployment compensation, refund interest, and income from the gig economy and virtual currencies. Therefore, taxpayers should also gather any documents from these types of earnings. These documents will help taxpayers estimate 2021 income and answer other questions asked during the process. The IRS also has a Tax Withholding Estimator FAQs to assist with questions about inputting information and the estimator’s results.

Our Developing a Tax Plan for Your Clients on-demand webinar is a great resource if you want more information on how to assist your clients with additional financial opportunities throughout the year.

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Your PPP and ERC questions answeredBy: National Association of Tax Professionals
February 26, 2021

The past several months have been a whirlwind of activity! New tax law was enacted and, as exciting as change can be, it can also be frustrating when more questions than answers are provided.

In preparation for tax season, there were quite a few questions circling around by our members related to the Payroll Protection Program (PPP) and the employee retention credit (ERC). Here are a few our research team has received recently, as well as their answers. Additional information and IRS links were provided to aid in understanding.

ERC & 401(k)

The first question concerns the ERC and employer matching contributions to a qualified 401(k) plan. The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows for a refundable payroll tax credit for 50% of wages paid to employees by eligible employers to certain employees during the COVID-19 pandemic, specifically after March 12, 2020, and before Jan. 1, 2021.

On Dec. 27, 2021, the Consolidated Appropriations Act, 2021 (CAA,2021) extended and expanded the ERC until June 30, 2021. The CAA, 2021 increased the ERC rate from 50% to 70% of qualified wages (Sec. 207(a)(2)(b)). Member Paul called the NATP research services with a question about an employer’s matching contribution to a qualified 401(K) plan.

Q: Pero Inc. received an ERC and sponsors a 401(k) retirement plan. Does Pero need to make matching contributions based on wages its eligible employees earned, disregarding the ERC received?

A: Generally, compensation for retirement plan purposes is not reduced by employer credits, including the ERC. The recommendation would be for the preparer to obtain a copy of the 401(k) plan document and determine how the plan defines compensation if the preparer is responsible for determining the match. Otherwise, the preparer should have the client contact the plan administrator.

Compensation generally means wages, salaries, fees and other amounts received for personal services rendered in the course of employment with the employer maintaining the plan to the extent the amounts are includible in gross income [Reg. §1.415(c)-2(b)]. Employees must include qualified wages for purposes of the ERC in gross income.

For the ERC, Pero may treat as qualified wages the amount its employees contribute as pre-tax salary reduction contributions to the 401(k) plan. Pero may not treat as qualified wages its matching contributions to the 401(k) plan. See example 3, question 58, of the IRS’s FAQs about determining qualified wages.


Under the CARES Act, an employer is not eligible for the ERC unless the PPP loan was repaid by May 18, 2020. CAA, 2021 retroactively (effective March 12, 2020) states employers who receive a PPP loan may still qualify for the ERC for wages that are not paid with forgiven PPP proceeds (Sec. 206(c)). Borrowers can qualify for loan forgiveness if certain requirements are met during the 8 or 24-week period after disbursement.

Q: Mexish Inc., a restaurant, claimed the ERC and received a PPP loan. Mexish used wages during the 24-week period when requesting forgiveness of the PPP loan. The restaurant had over 100 employees. Are all the wages in the 24-week period now disqualified when claiming the ERC?

A: No. Only wages Mexish paid with forgiven PPP loan proceeds are excluded. In other words, Mexish, which received a PPP loan and sought loan forgiveness, can claim the ERC for qualified wages it paid that were not treated as payroll costs when obtaining forgiveness of the PPP loan.

Stated another way, payroll costs for PPP loan forgiveness do not includes wages used to claim the ERC. For purposes of the 2020 ERC, it is interesting to note, if Mexish increased the hourly rate paid to its employees during the pandemic to compensate for the increased hazards of working or to compensate for a reduction in hours its employee worked, the increase in hourly pay was not qualified wages for the ERC. (See question 53 of the IRS’s FAQs about ERC and increase in wages.)

ERC & decline in gross receipts

An employer that has a significant decline in gross receipts may be entitled to the ERC. Under the CARES Act, an employer is considered to have a significant decline in gross receipts beginning with the first calendar quarter in 2020 for which its gross receipts are less than 50% of gross receipts from the same calendar quarter in 2019, and ending with the earlier of Jan. 1, 2021, or the first calendar quarter after the quarter for which gross receipts are greater than 80% of gross receipts for the same calendar quarter in 2019.

See question 39 for an example of how a significant decline in gross receipts is calculated for 2020.

For this purpose, gross receipts are gross receipts of the tax year, and generally include total sales (net of returns and allowances) and all amounts received for services. Any income from investments and incidental or outside sources is also included. (See question 40, what are gross receipts, for more information.)

The CAA, 2021 changes the gross receipt test. For 2021, an employer will satisfy the gross receipts test if quarterly gross receipts decline by more than 20% compared to the same quarter in 2019 (Sec. 207(d)(2)B)).

Q: Under the CARES Act, the significant decline in gross receipts ends with the first calendar quarter that follows the first calendar quarter in which the employer’s 2020 quarterly gross receipts are greater than 80% of its gross receipts for the same calendar quarter in 2019, This means if an employer had a significant decline in quarter one of 2020, but not during quarter two or three of 2020, the employer is entitled to an ERC for quarter one and two of 2020. Assuming the significant decline in gross receipts occurs in the fourth quarter of 2020, does this mean the employer automatically qualifies for the ERC for the first quarter of 2021?

A: No, the CARES Act guidance does not apply to the first and second quarters of 2021. The significant decline in gross receipts ends the earlier of Jan. 1, 2021, or the first quarter following the quarter for which the employer’s 2020 gross receipts for the quarter are greater than 80% of its gross receipts for the same quarter during 2019. (See question 4, what is a significant decline in gross receipts.) The CAA, 2021 changed the test so an employer that had a more than 20% decline in gross receipts in 2021, compared to the same quarter in 2019, satisfies the test.

For the first quarter of 2021, the employer can satisfy the gross receipts test two ways:

  • First quarter 2021 gross receipts decrease by more than 20% when compared to the first quarter 2019 gross receipts, or
  • Fourth quarter 2020 gross receipts fell by more than 20% when compared to fourth quarter 2019 gross receipts

ERC & decline in gross receipts example 2

ShopYard wants to know if it meets the significant decline in gross receipts test for quarter one of 2021 when determining its ERC for the quarter. Once ShopYard knows its first quarter 2021 gross receipts, they can be compared to the gross receipts from the first quarter 2019. Alternatively, ShopYard can use the gross receipts from the fourth quarter 2020 and compare them to the gross receipts from the fourth quarter 2019. If either test shows a more than 20% decline in gross receipts, ShopYard is eligible for the ERC for the first quarter of 2021.

ERC & wages paid to relatives

The next question relates to whether wages paid to related individuals are qualified wages for the ERC.

Q: Can a sole proprietor claim the ERC for wages paid to their child?

A: No, a self-employed taxpayer cannot claim the ERC for wages paid to the child. Wages paid to the spouse may be considered qualified wages for the ERC. (See question 59 of the IRS’s FAQ sheet on ERC and related individuals.)

Wages paid to related individuals, as defined by §51(i)(1), are not taken into account for ERC purposes. A related individual is any employee who has any of the following relationships to their employer ,who is an individual:

  • A child or a descendant of a child
  • A brother, sister, stepbrother, or stepsister
  • The father or mother, or an ancestor of either
  • A stepfather or stepmother
  • A niece or nephew
  • An aunt or uncle
  • A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law

If the eligible employer is a corporation, then a related individual is any person who bears a relationship described above with an individual owning, directly or indirectly, more than 50% in value of the outstanding stock of the corporation.

If the eligible employer is an entity other than a corporation, then a related individual is any person who bears a relationship described above with an individual owning, directly or indirectly, more than 50% of the capital and profits interests in the entity.

ERC & tax consequences

The final question pertains to the income tax consequences of the ERC.

Q: BreakfastBar received the ERC. Does BreakfastBar include the ERC amount in its federal income?

A: No, BreakfastBar does not include the ERC amount in its federal income for tax purposes. With that said, BreakfastBar is not allowed an income tax deduction for wages that equal the ERC amount. If BreakfastBar paid an employee $10,000 in wages and received a $5,000 ERC, BreakfastBar’s wage expense is not $10,000; it needs to be reduced by the $5,000 ERC received.

It is unclear if BreakfastBar reduces its employer’s deduction for employment taxes. A Joint Committee of Taxation report from April 2020 states the ERC is taken into account for purposes of determining any amount allowable as a payroll deduction for federal income tax purposes. This would seem to suggest the Social Security taxes on the wages used for the credit are not deductible. If BreakfastBar was allowed a $5,000 credit, the Social Security taxes on the $5,000 wages would not be allowed as a deduction. Further guidance from the IRS is needed.

As a reminder, IRS FAQs cannot be relied upon as legal authority. They have been provided to aid in understanding of a concept.

For any specific client-related questions about the PPP or the ERC, our research team is available via phone, email or even chat! Professional level members receive one free research question per membership year and Premium level members receive five.

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About NATP

Whether you’re a tax professional just starting out in your career or an experienced expert, NATP believes in you and the work you do to help your clients. We take pride in providing you with resources you won’t find anywhere else, and helping you succeed in the ever-growing and changing industry.

As tax laws change, you can rely on NATP for professional advocacy within the government, guidance on how to apply updated federal tax code to your clients’ unique situations and relationships with communities of other tax professionals to help foster your career. Explore NATP.

If you’re a taxpayer looking for an expert to help you with your tax planning and preparation, look to the industry’s top preparers. Choose an NATP member.

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