Taxing Times – Tax Benefits of Acquiring Another FA’s Practice

Tax Benefits of Buying Another Independent FA’s Practice, Plus Business Launch Tax Credits and Is Your New Assistant an Independent Contractor or Employee?

Welcome to our latest Taxing Times column, where I answer questions from WSR readers from the independent financial advisor segment on top of mind tax issues, with broad applicability to the wealth management space.

As I’ve noted before, wealth management entrepreneur-business owners are under unique pressures to dot the I’s and cross the T’s when it comes to ensuring their taxes are managed correctly.  Taxing Times is a resource for independent financial advisors to help accomplish just that.

Part of this month’s column – in keeping with the broader theme of this week’s WSR issue – is focused on the tax benefits for independent financial advisors who acquire a book of business from another independent FA.

Beyond acquisitions, however, I’ve also fielded questions from independent FAs about tax credits in the first year of business operations as well as when it makes sense to classify a new worker as a W-2 employee versus an independent contractor.

With that said, here goes!

Question 1:  I’m in talks to acquire the advisory practice from a mentor of mine. What are the tax benefits of buying a practice? 

  • Sean from Bloomsbury, NJ

Sean, congratulations on venturing out on your own!  Here are some things to think about when buying a practice. 

Acquisition and Taxes – Deal or No deal?

From a tax benefits perspective, one of the most important items to consider is “Goodwill.” And I’m not talking about the thrift shops.

Goodwill is an asset that is an intangible part of a business being purchased. Goodwill may be worth more than concrete assets, such as property, furniture, machinery or inventory. Goodwill is the essence of the company’s value to its customers, clients, and employees. 

There is no set price for goodwill, though it very definitely features in sales negotiations. Goodwill is reflected in the amount in excess of the firm’s total value of assets and liabilities. In well-established businesses, goodwill may be reflected in a price several times higher than the firm’s physical assets alone would be reasonably worth.

For income tax purposes, the goodwill is an asset that you write off for tax purposes over fifteen years. When you are negotiating the purchase price you want to allocate the price between the goodwill and other assets that you may be purchasing. You do not want to miss out on this tax deduction!

Question 2:  I just recently opened my independent advisory business. Are there any tax credits that I can claim for opening the business this year? I will have 3 employees including myself. 

  • Scott from Yorktown, VA

Yes, Yes, Yes…..Definitely ask your accountant about the Employee Retention Credit (ERC). 

The American Rescue Plan Act (ARPA) of 2021 expanded the ERC, a key tax provision in the recent series of COVID-19 legislation, to include new businesses that opened their doors after Feb. 15, 2020. This credit can provide up to $100,000 in credits for 2021.

To be an eligible recovery startup business you needed to begin carrying on a trade or business after Feb. 15, 2020 and have annual gross receipts below $1 million. 

Recovery startup businesses are allowed to claim the ERC for Q3 and Q4 of 2021, subject to a cap of $50,000 per quarter, with a potential benefit of $100,000 for the year. 

This is a very lucrative credit, and as such, you should prioritize speaking with your accounts to see if you qualify. 

Question 3:  I’m taking on an assistant to help with my office. She will be working part time. Is she an employee or can I treat her as an independent contractor?

  • Ken from Atlanta, GA

As an independent financial advisor, you almost certainly already have a clear sense as to how the misclassification of a worker carries big penalties. 

You want to get the independent contractor issue right in the beginning as the penalties are too steep to ignore if you get it wrong. 

Let’s cover a few ways to determine if your assistant is an employee or an independent contractor. Make sure you review these with your accountant before you make a decision. 

Here are three steps that we like to use in our analysis. 

  1. Behavioral Control – Who controls the work?   Your right to control the worker is the crucial test of employee versus independent contractor.  Do you control the assigning of job tasks?  Will you review how the assistant completes the job?  Will you determine how the assistant gets paid?  If the answer is yes to all of the above, then the assistant is your employee. 
  1. Financial Control – Who controls the assistant’s business finances?  Some additional questions to ask yourself, and if the answers are no, then the assistant is your employee:
Looks like a win-win situation!
  • Will the assistant have unreimbursed business expenses?
  • Will the assistant have investment in facilities or tools used in the services?
  • Will the assistant ‘s services be available to other businesses?
  • Will the assistant be paid a flat fee or a per job basis?
  • Will the assistant make a profit or incur a loss?
  1. Relationship of the Parties – Does the assistant receive benefits?  Specifically, will you give your assistant health insurance, pension or paid leave benefits?  And, will your assistant get employee perks, like free parking or free office lunch?  If the answers are yes to the above, then the assistant is your employee. 

More broadly speaking, the IRS looks at how you and the assistant see the relationship. You may say you have a written contract that shows they are independent contractors. That helps, but doesn’t guarantee independent contractor status. 

Michael Cody, Managing Partner, Lieb Body & Co.

Finally, double check your local and state rules.  Why?

Many states have enacted legislation that makes it very difficult to treat your assistant as anything other than an employee.

Michael Cody, CPA, is Managing Partner of Lieb, Cody and Co., a tax advisory firm that serves clients across the country, including independent financial advisor business owners.

Founded 40 years ago and headquartered in Torrance, CA, the firm encompasses seven accounting professionals (both CPAs and Enrolled Agents).

Lieb, Cody and Co are a member of the American Institute of Certified Public Accountants (AICPA) and CALCPA Society. 

If you have tax questions related to your independent financial practice – or tax questions that your clients have raised with you – send them to Michael Cody via

All queries will be addressed as anonymous submissions.

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