Why The Focus on Tax Returns?

Thursday, Nov. 4th

You may not know the name Willie Sutton. He was born in 1901 and died in 1980. What was his claim to fame? He was a very well-known bank robber in his time. He was very good at it. Records show that he stole over 2 million dollars over a bank robbery career that spanned over 40 years.

He spent over half of his adult life in prison, but he was able to escape on 3 different occasions.

We know his name because of a quote that he is credited for. When asked why he robbed banks, he replied, “because that’s where the money is.”

It’s hard to argue with that!

Sometimes when we ask a question, the answer we get isn’t what is expected, but can make total sense.

Over the last few weeks I’ve been asked the same question from many of my clients. Why the focus on tax returns? My answer, while not as clever as Willie’s answer is simple…because the tax return tells us way more than if you get a refund or not.

Taxes are not easy to understand. In my opinion, the IRS makes our tax code complicated because they don’t want us to understand. For the most part, I believe they have succeeded.

When I ask someone to tell me about their tax situation, 95% of the time, they tell me they either “got a refund” or they “had to pay.” Worse than that, sometimes they even say, “I didn’t have to pay this year.”

They have trained us to ignore the total taxes that we pay, and only focus on the refund. If we don’t get a refund, sometimes we are disappointed to learn that we owe a few hundred or a few thousand dollars. It doesn’t feel good when our accountant tells us that we owe this year. That’s bad news, but it’s not the whole story. What your accountant tells you that you owe goes on top of what you’ve already paid in!

Most people simply overlook this fact. They know it, they just overlook it or they ignore it on purpose.

As your advisor, I can not ignore taxes. In the past, I have just used “ballpark” numbers. It’s better than nothing but we want to make sure we have correct assumptions before we make any recommendations when it comes to strategies that have an impact on taxes.

As a disclaimer, I am not a tax attorney, a CPA, or an enrolled agent. I don’t do taxes. But taxes are a major part of retirement planning.

Years ago, I had a client who retired and later decided he wanted to become a farmer. He called several times to request distributions to buy things. (land, tractors, and other supplies) During those conversations when I asked him about tax withholdings, he just told me not to withhold taxes and he would just “settle up at tax time.” He took huge distributions each time and after a short period of time, his account was exhausted and we closed his account.

About 3 years later, he called me from an accountant’s office. He was embarrassed to tell me that he owed over 100k in taxes and penalty to the IRS. He never paid his taxes. I don’t know why, but he didn’t pay. Had I seen his tax returns each year, I probably could have helped him with the problem.

A tax return doesn’t just show problems. When I look at a tax return, I am looking for opportunities. Opportunities that can help mitigate your taxes over the long haul. It’s all about helping you keep more of what you have earned and saved over your career.

Several months ago we introduced a portal that will allow for the secure exchange of important documents. The number one reason I added this was so my clients could send me their tax returns in a secure way. If you’d like me to take a look at your tax return, you can click here to upload it through our secure portal on the homepage of our website.

If you have questions about your tax situation, you can call the office, or grab 15 minutes on my calendar at www.talkwithlee.com

Have a great week and thanks for the trust you’ve placed in our firm!