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Getting Control Over Your Taxes

Partners' Network Blog

Income tax payments are one of most people’s three largest expenditures, yet the only way they measure it is through the refund or balance due annually on April 15th. The reality is that a refund or payment is a function of the inefficiency of the withholding or estimated tax payment methods. If too much is withheld or paid in, a refund results; if too little, an extra payment is due.

I believe all taxpayers should understand how their taxes are computed and what their total taxes are including state and local taxes and Social Security and Medicare payroll taxes. This understanding would make taxpayers better able to participate in an effective tax reduction plan for themselves. However for those that use a preparer, very few would have the time for such a detailed review during tax season.

The reality of the time pressure for accountants during tax season is a fact, but there can be great benefits and value of an unrushed tax planning meeting afterwards. Let’s assume that the taxpayer pays a total tax of $50,000. Let’s also assume that the extra meeting would cost about $1,000. Question: Is it worth $1,000 for a taxpayer to know that the $50,000 is the absolute lowest tax they can pay? A better question is: Is there value in spending $1,000 to review a $50,000 expenditure to determine whether it could be reduced?

I have been doing this a long time and there is value for that 2% onetime payment. I can tell you that my clients do not pay more tax than they need to. That’s a fact. I am good and knowledgeable and understand the client and know how to communicate with them, and I do save them money.

I can also tell you that I do not know everything there is to know about my clients. I know a lot when it comes to their taxes and what they tell me that they think will help me do their returns, and hopefully save them some tax. A one on one meeting to review their tax return presents an opportunity to ask them many questions that are not necessarily limited to their tax preparation. For example, looking at the interest and dividend income allows questioning the client on how they feel about risk, particularly with their investments, and what their short term and long term goals might be. It also is a segue into whether they allocated their 401k or IRA investments the best way for them.

Going over the tax return line by line presents a wonderful opportunity to help clients get a better perspective with their personal financial situation in addition to taxes.

Some of these meetings can also help clients understand why they should participate in their employer’s 401k plan or flexible spending medical benefits plan. If the client is sufficiently higher up at their employer, discussions can also center around whether they qualify for stock options or restricted stock, or should, or the tax advantages of working abroad for a year.

A line by line tax return review is actually a financial planning meeting, and the potential benefits far outweigh the cost. These meetings present opportunities for clients to talk about, and even articulate, their longer term goals, how they feel about their present career track, and even household finances.

I’ve had many such meetings turn into discussions about clients’ parents and how they can afford to help them financially, or how the parents are managing their own finances; or even about their own life insurance coverage that will go to their children or be used for the comfort and security of their spouse.

Some clients have hidden desires to start a business. When that is expressed it opens up the door to help them accomplish that when we explain financing methods, cash flow needs and actual lost cash flow from a job they might quit, how to engage with a partner, the uses and benefits of a business plan, and a step by step process of how to get started.

These meetings are open ended in that there is no set agenda and everything is on the table for discussion. All that is needed is the venue and opportunity, and these tax planning meetings provide that. This blog started out with a suggestion of the importance for clients to fully understanding one of their major expenditures and ended up with the potential for helping clients with life changing planning. As far as I am concerned, it doesn’t get much better than that.

I am available to meet with anyone, whether a client or not, and I would suggest so is most every other accountant and tax preparer. So pick up the phone and schedule an appointment, or fill out the form below. The worst that can happen is that you will have better control over your taxes.

If you have any questions, I am available for your questions at emendlowitz@withum.com or by filling out the form below.

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