By Megan Abbott
My career as a financial planner was shaped in my annual tax meetings with my CPA. One year I mentioned to her I really liked taxes, but specifically how a person could be strategic in their finances with tax planning.
My CPA encouraged me to investigate becoming a CPA. I did and I learned that it would take another degree to become a CPA, but I also learned that CPAs do a lot more than just the tax I was interested in. The part of the CPA that I wanted to pursue was only about 10% of the total effort to become a CPA.
At the next year’s tax meeting, I updated my CPA and she told me to investigate becoming an enrolled agent (EA). An EA, as it turns out, is 100% of dedicated to the tax components I was interested in! EA’s can prepare tax returns and represent tax papers to the IRS in an audit.
An EA was exactly the designation that I was looking for in my financial planning journey. (And if you look at the fine print on all the H&R Block/Turbo Tax commercials, you will see they advertise that clients will work with a CPA or an EA.)
I have found great value in having my EA and would recommend it to fellow financial planners. There are three reasons in particular:
1) Credibility with clients. In my own experience, I have found that tax is one area of financial planning that can give planners the heebie-jeebies. Not only does it feel like a foreign language, but it changes all the time, and of late it is changing mid-year. With an EA, you will have passed three dedicated exams looking at multiple areas of tax. It will give you more confidence in reviewing a tax return and knowing what to analyze for a client. The required continuing education requirements will help keep you updated on the changes over the years.
2) Better planning and client experience. There are always multiple ways to achieve a desired goal in financial planning. But what if one of the proposed ideas has a significant negative tax component? A planner could give the recommendation and instruct the client to review the plan with their tax professional. The tax professional then tells the client it is not an ideal recommendation and suggests a second plan and bounces the client back to the planner. It is a ping pong match between the professionals with the poor client in the middle.
Alternatively, if the planner is a tax professional, the planner can be evaluating all the potential options with both hats on and come to the ideal recommendation. The client only has to go to one person, and they know the recommendations are vetted from both perspectives. I have also found that my clients ask me questions they see as financial planning that are very tax-oriented, but the client was not sure if their previous financial planner had the expertise to answer. As a result, they had not asked their CPA OR their financial planner these questions before. I can visibly see the relief in new clients when they learn of my tax designation and know they will get an answer.
3) Additional revenue stream. You can become an EA and never actually do taxes. However, the best way to stay sharp and current on the yearly changes in tax law is to do tax returns yourself. This not only gives you regular, on-going tax experience but it can also be a great second revenue stream. There are multiple ways to go about this. You can go solo and take on clients, most likely starting with friends and family.
You can partner with the big box firms such as H&R Block. These companies will often pay for your training. Or you can create a relationship with an independent firm and start working with them. That is the path I took. I partnered with my CPA and started with her doing basic tax data entry for her existing clients and then evolved into bringing in my own clients under her review. Preparing taxes makes for a busy first quarter between financial planning and taxes, but if you can manage your schedule well it is very do-able.
Becoming an EA has been an extremely worthwhile experience for me. I believe I am a better planner by incorporating strong tax strategy into my planning. My clients feel more at ease having a trusted partner to ask any tax question to. And the additional revenue stream is a nice addition to my practice.
Megan Abbott, MBA, MA, EA is the President of Trajectory Financial Planning based in Denver, CO. She is passionate about working with her clients to achieve solid financial foundations to achieve the greatest financial trajectories possible. When she is not helping clients, she enjoys hiking with her husband and their duck toller retriever dog, Banksey.
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