I Love It When A Plan Comes Together

We’ve all said it (or put it in the email subject line), I’m guilty too, “Can I just ask one quick question?” Those words, “quick question”, can make even the most seasoned professional squirm a bit, for they know that more likely than not, the answer most certainly will not be as quick as the question.

There is no quick and easy tax question. Ever. But that is (just) one of the reasons that we love what we do!

By far, the number one question we hear, typically thrown out in almost “hey why not” fashion, is: “What can I do to pay less in tax?”

This question leaves so much room for discussion! First – it is the wrong question… “paying taxes”/ refunds/ amounts due… are all just an outcome. It comes with the territory, if we make money, we “pay taxes”. The question shouldn’t be centered around the outcome but rather what steps can be taken, in advance, to minimize your actual tax liability and preserve wealth. A better question (not quick though) would be: “How can we optimize my tax return?”

Quick Answer:  Through planning! It is much harder to optimize a return when all the decisions are made – if we can only work with historical facts, it is much more difficult to get the best result – when we can work to make the story read the way we want it to we can be much more effective. Think about it – who controls how a story unfolds? The author or the reader? Except for those cool “Choose Your Own Adventure” books we had as kids… 80’s and 90’s kids anyway.

Starting with the previous filed return is a great idea, you can tell a lot from a tax return, it’s a treasure trove of information. Amount of income and deductions, types of income, married, single, kids, college, business performance, investments, real estate rentals, credits, etcetera, etcetera, etcetera. Whether you could be served from maximizing the benefits of your business and investments, deferring income into retirement accounts, efficiency of charitable giving, styling of income type to take advantage of carryforwards, passive rules, credits and so on – a lot can be learned from starting with the prior return – but from that review comes just as many questions as answers. Tailoring the strategy to the facts, circumstances and goals of each “case” (or taxpayer to humanize it) is really the most important part of the process.

As we move through your prior return(s) and work to optimize your tax return, keep in mind that not all financial decisions will be the most tax-efficient ones, but most of those decisions have some sort of tax impact, even if it is down the road. Taxes are uniquely motivating but try not to let the tax tail wag the dog.

Having this type of consultative conversation should take place outside of tax season. As previously mentioned, once tax season rolls around, the story is already written. Further, myself and my team are understandably under the gun with deadlines looming – so being prepared, and removing the stress, by meeting in the summer and fall is certainly the best move.

It is indeed possible to accurately and factually answer a question and still be wrong. We should all keep this mind when throwing out a “quick question”. When being on the recipient side of the quick question, I always try to push back a bit (professionally and tactfully obviously), generally by asking, “what are you trying to do” – by aligning your individual objectives and goals we can help get the best results, for you, out of your tax return.