The Proverbial Blind Spot: What CPAs Need to Know

As tax season ramps up, CPAs are looking to their old standby: the business owner with a need for a knowledgeable sidekick. In years past, the proud, heroic duo could navigate the complexities of Dodd-Frank, offshore accounts, asset protection, quarterly earnings, and inefficiencies. It was a natural progression for the trusted CPA to triumphantly morph into the revered financial advisor, coaching the C-level executive, Partner or Owner at every juncture, ultimately reaping the benefits of repeat business and glorious referrals.

As the term “trusted advisor” gets volleyed, reused and recycled, we should take a moment to remember that the heart and soul of the term stems from this evolving relationship. At most CPA firms across the U.S., certified professionals are filling in the gaps missing from their initial job descriptions. At these firms, managers are kicking performance metrics into high gear, cultivating a new kind of tax culture that may require unconventional thinking.

It’s here that our sidekick is at risk of reverting to the attainable, comfortable routine. “Let’s talk about your ETFs, mutual funds, stocks, property investments, and IRAs…” It is a somewhat stale conversation and ultimately a missed opportunity. It’s the proverbial blind spot that can stifle relationships and stymie the potential for new connections.

But there are exceptions. Alternative risk management tools, such as captives, are rapidly growing because middle market business owners are seeking comprehensive business solutions.

In part, captives continue to gain momentum because many CPAs, insurance agents, and advisors are taking the initiative. The broad scope of captive insurance is enlivening business strategies. Mid-market businesses with substantial risks and that have the financial standing to qualify are looking to form captives as a way to address not only tax issues, but ongoing, annual business planning. Ultimately, when a CPA talks to a client about alternative strategies, the heroic, dynamic duo shines brightly. It's what CPAs need to know. They have the power to solidify relationships and embark uncharted, worthy territory; a chance to save the day.

By forming a captive insurance company, business owners can supplement their conventional policies and cover legal expense reimbursement, equipment breakdown, cyber risk, worker’s compensation deductible buyback, pollution, and much more. Rather than self-insure for those risks with after-tax dollars, business owners can choose to form a captive as a way to obtain insurance that is otherwise too costly or not readily available in the commercial markets to fund prospective losses. Some businesses find commercial coverages overpriced, possible a particular industry has catastrophic loss potential or because the conventional insurance market is not competitive.

It’s important for tax professionals and others who work closely with mid-market clients to educate themselves and their clients on the benefits of forming a captive. Several captive insurance domiciles (jurisdictions) exist within the United States. More companies are taking the plunge. Now, more than ever, decision makers who are monitoring revenue, risks, and other elements of their business operations are keeping their ears to the ground. It’s up to the “sidekicks” to see past their blind spots, and discuss alternatives that can address client concerns. It is essential to work with a true turnkey service that can provide ongoing tax and legal support. Coming out on top means being informed about what is needed to form and maintain the captive as well as the client. Today’s corporate culture demands it.