“Read my lips. No new taxes.” is a phrase that will live in political infamy. Former US President George H.W. Bush uttered those words. . .and did not keep his promise. Subsequently, he was not re-elected.
I wonder why.
Here’s a guess; people don’t like paying taxes!
So when you tell them you won’t raise taxes and then you do, you’re toast!
[There’s even a whole movement of people in the United States who have convinced themselves the 16th Amendment to the Constitution –you know, the one ratified by the States in 1913 that allows for the federal government to levy and collect taxes on citizens (foreign or domestic) is illegitimate or illegal. Guess what? The people who don’t believe they owe taxes… still owe taxes too.]
Here’s a promise I’ll make to you: The US Tax Code will change multiple times during your lifetime. Whether you live another five years or 50 years hardly matters. When Congress is in session, everything is on the table for consideration. And when you aren’t at the table, you are on the menu.
I’ve spent over two decades learning about how the tax code works for and against my clients. I also had the good fortune of beginning my career shortly before the introduction of the Roth IRA in 1998. Utilizing this type of account in a comprehensive retirement tax strategy has been and will continue to be a game changer for many Americans. Sadly, most people don’t understand how Roth IRAs work or where they fit. Some people have Roth IRAs that don’t need them, but because their advisor doesn’t understand the tax code, their clients end up paying unnecessary taxes during their lifetime.
When we meet our clients, we ask to see several years of tax returns. We want to meet with and collaborate with their tax preparer. We know and understand the power of integrating investment strategies, retirement planning, and estate planning with tax planning. Most people completely misunderstand their relationship with their tax preparer. Unless you are proactively working with them on understanding your personal financial situation, in nearly every case, their tax preparer is just a tax preparer, not a tax advisor. We refer to them as Historians.
The Problem with “Historians”
Historians take last year’s information, plug it into their software, and tell you if you owe more money or not. And because they are under so much pressure to complete as many returns as possible before April 15, little time is spent telling you what you could have done differently. When they do have that conversation, it doesn’t solve the problem of what you owe for last year. Quite often, there is not a lot of guidance and what to do except, “You should change your withholding so that you won’t owe so much next year.”
That’s not a tax avoidance or minimization strategy.
This approach is problematic. In essence, you are using the IRS as a bank that pays no interest on your money until you file to get it back. And when you withhold too much and get a big refund, that’s money you could have used to pay off debt or invest for profit.
There are many reasons we believe a client is best served by guiding them through creating a holistic, personalized financial plan. But tax mitigation or elimination –both now and in the future- is the top reason to develop a plan. And because the tax code can, will, and does change regularly, smart people want to work with someone who can do this for them. They want their own strategy to follow that makes the most of their situation. Regardless of whether you are older and established, or younger and inexperienced, can both benefit from a holistic, personalized financial plan that embraces proactive, flexible tax strategies.
Read my lips, “It’s not what you make. It’s what you keep!”