Read The Transcript Below:

 

Steven (00:53):

Hello everyone, and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals edition. I’m your host, Steven Jarvis, CPA, and this week we have a really special episode. I was recently asked to be a guest on a RTS Member and Financial Advisors webinar for his clients, Josh Horton, who you’re going to hear from hear shortly. A conversation that I had with him does regular webinars for his clients, including on taxes, and so asked me to come be a guest subject matter expert, and he was gracious enough to let me share that here on the podcast so that we can share examples of how advisors are providing tax education in the real world. He talks through some of the things he does for his clients and then just provides really as an educational opportunity for them. So Josh is one of our RTS Essentials members and just does a really good job of learning from people around him and then applying it and sharing it with other clients. So listen in as we share this recording of the conversation that Josh and I had, that’s for his clients, and then stay tuned to the end so that we can share some exciting upcoming events.

Joshua (01:59):

All right, well good morning everyone. Good morning, Steven. I’m excited to have Steven Jarvis here with us from Retirement Tax Services to talk about taxes tax planning. He’s an expert in the realm as far as tax planning goes. Works with advisors like myself to help us understand taxes better, the tax code better, and what we can do to help our clients. So thanks Steven for coming on and joining me here today to help out my clients and other folks that we’re talking to about tax planning.

Steven (02:27):

Josh, I’m excited to be here. I love being able to share education around taxes because it’s something that impacts all of us and it’s something that most of us never got any sort of instructions on other than, Hey, go ahead and make sure you file your taxes. But the how to guide is the IRS tax code, which is 80,000 pages long and not really helpful for most of us.

Joshua (02:46):

Yeah, yeah, absolutely. You don’t want to dig into those weeds or very few of us want to dig into those weeds. But yeah, speaking of diving into the weeds, before we dive in here, just quick disclosure. What Steven and I talk about here is just general educational purposes. It’s not specific tax advice. If you do find that it resonates with you and works for your situation, please reach out to me. I’ll be happy to talk to you about your specific situation and make sure everyone’s understanding things correctly and nothing gets misconstrued. So we’ll jump in here and I’ll have, Steven, you can start off and tell us a little bit about retirement tax services, what you do and what you’ve been doing for clients and for advisors like myself.

Steven (03:26):

Yeah, so Steven Jarvis, I’m a CPA. I’ve been a CPA for almost 14 years. I wrapped up my education and took the CPA exam the year my daughter was born, so it makes it a little bit easier for me to keep track of. For the first 10 or so years of my career, I worked at big public accounting firms. Whatever you stereotypically think of a CPA doing that was probably pretty close to accurate. I worked way too much and was super nerdy and did a lot of math. And then about four years ago now, I had some financial advisors similar to you, Josh, come to me and basically say, Hey, we see the value of taxes. We have a hard time finding CPAs that will play nice with us, and we think there’s a huge opportunity here. And so for the last four years I’ve been running retirement tax services and I work alongside financial advisors who put an emphasis on tax planning and then taxpayers who are looking for more than just checking the box on getting their tax return filed.

Joshua (04:21):

Awesome. Very nice. And then as you get a ton of questions from advisors, from clients for all of that, I always like to ask what has been the most asked question of 2024 for you this year?

Steven (04:34):

So the most asked question is always, how do I pay less in taxes? We always have a good chuckle because that’s what everybody wants to know. And what I find interesting because one of the other questions I get quite often, Josh, is how do I talk about taxes so often and stay out of politics, which we’re in an election year, so that might be on other people’s minds. What I’ve found personally is that when I’m talking one-on-one with individuals, or I’m talking with a couple, everyone wants to pay less taxes themselves. They might all have differences of opinion on how much taxes other people should pay, but so for me, I just stay focused on the person I’m working with. You had your disclaimers. We kicked this off of, Hey, this isn’t tax advice, and really that’s not because you and I aren’t confident in what we’re saying, it’s because we have to specifically apply this to a given situation. So I always get the question of how do I pay less in taxes? The other question that usually comes along with that is, how do I make sure I don’t have a surprise come tax time? Because taxes are painful to begin with. It’s worse as we go to file our tax return each year. We’re constantly shocked by what the final result is.

Joshua (05:35):

Yeah, absolutely. I know it’s been very enlightening for me as I’ve moved over the past couple of years as my clients know from the brokerage world to the independent RIA space, and I’ve been able to help more with taxes, just how many little nuances there are with the taxes and tax planning and the ability to help save that little bit. But that little bit makes a big difference over a long period of time. So that’s awesome. Great. And then speaking of saving, and that being everyone’s question, you definitely have a magic bullet for taxes, right? I mean, how can people save more money?

Steven (06:15):

 So we got to talk about some other things that aren’t going to be magic bullets. They’re not going to be these wonderful fix alls. But for me, and this is really a reflection of the types of clients that I typically work with, which Josh, I think it’s pretty similar for you. I’m working with people who have done, have worked really hard, they make good money, they’ve saved really well. They probably don’t consider themselves to be extremely rich or extremely wealthy, but they’ve done well for themselves and they’re looking at how they can sand off the rough edges of their lifetime tax bill in a way that the IRS isn’t going to get upset about. And so the things that I focused on are the consistent things we can do over time that lower our lifetime tax bill because I want to pay every dollar I owe.

(06:57):

I just don’t want to leave the IRS at tip. So that looks like understanding where we can make choices, because for most of us, the tax savings that we can confidently count on are proactively making choices about timing of income. A really big one, one I consider for all of my clients is Roth, whether this is deciding whether to make pre-tax or Roth contributions to begin with, or when we strategically do Roth conversions potentially looking at doing backdoor Roth contributions. And the reason Roth gets so much attention is because this is one of the only ways we have to create a tax-free bucket where we have to pay taxes to get the money in that bucket. But once it’s in that bucket, the IRS leaves it alone and says, yep, Steven, that actually is yours. We’re not going to sit around with our handout waiting to take our piece of it.

Joshua (07:44):

Yeah, yeah, absolutely. And the more you can do on that front, the more you’re going to have and the more you can use or pass on depending on what your goals are.

Steven (07:53):

You’re absolutely right, Josh. One of the things that I’ve realized in talking to thousands of taxpayers at this point is that most people have done a pretty good job of getting money into some kind of pre-tax account. This is a 401k an IRA 403b, TSP, depending on the employer you work with, and they’ve been told, Hey, that’s how you need to save for retirement. And those aren’t bad things. I’m always excited when I see people who’ve done a diligent job saving. What usually doesn’t get included in that conversation upfront is, Hey, when we say pre-tax, we mean pre-tax for now that the IRS is only going to be so patient. And so one of the ways I think about this and I explain to other people is that when you have a pre-tax balance, you have a 401k or whatever retirement account you might have, you need to think about this.

(08:41):

You have a mortgage on that account and that the IRS is the one you have the mortgage with. And oh, by the way, it’s a variable interest mortgage, and they get to decide what the rate is. And a lot of times, Josh, I’ll go through and do the math for someone to say, Hey, if you have a million dollars in that 401k, depending on the state you’re in, if you needed to use that money all at once, you could pay between 30 and 50% of that to taxes, which means that million dollars that you thought was yours might only actually be $500,000. And that’s where we start having the conversation of, okay, this is why we want to proactively and intentionally make a plan for how we start getting some of that money into Roth accounts or how we’re at least intentional about when and how we use that money in conjunction with our other sources of income to make sure that we only pay what we absolutely have to and we don’t tip the IRS.

Joshua (09:32):

Yeah. Yeah, absolutely. And for those that are watching, I know I pound on taxes and getting your tax return to me every year and those sorts of things, but I do have a Roth conversion calculator and the software and the ability to run those equations and figure out if it is a good and a right fit for you. So don’t think of that as something that’s outside the realm of possibility that we can do here. So yeah, thank you for that. That’s great, Steven.

Steven (09:55):

Josh, the other thing I’ll comment on there that I was really intentional when I said this is something I consider for all of my clients. It’s not a magic bullet. Roth isn’t the answer in every situation and every single year. This is going to vary depending on where we’re at in our earning years, where we’re at getting into retirement, whether we’ve started social security, and I’m sure this is the reason you pound on taxes so much. Taxes for most people is the single biggest expense for their life and in retirement. Second tends to be healthcare, which is also impacted by taxable income as we get into retirement because how much we pay for Medicare is tied to our income.

Joshua (10:30):

Yeah, no, absolutely. And speaking of that, and again, everyone’s situation is different, but I did just run a Roth conversion calculation for a client that retired. They earned very well throughout the course of their life, but because of their age and their circumstances, it actually didn’t make sense to convert to a Roth. So again, everyone’s situation is different and yeah, it matters. If they hadn’t looked at it, they would never know if they could have saved money or not doing a Roth conversion.

Steven (10:55):

Josh, you might be similar on this one as well, but one of the questions I like to ask taxpayers as we’re having this conversation about how do I save on taxes is, Hey, are you concerned at all that tax rates might be higher in the future? Normally the look I get when I ask that is kind of this shock. Why would you ask that? Of course, I’m concerned that tax rates are going up. Okay, great. If you are concerned the tax rates are going up, which by the way I am as well, then would it make sense for us to work together to take the IRS out of our future for a portion of the hard-earned money that we have? For me, that’s the framing around why we do this.

Joshua (11:28):

Yeah, yeah, absolutely. And that leads in perfectly to my next question, Steven, with obviously for us, maybe not for everyone, but the tax code, the 2018 Tax Cuts and Jobs Act comes up for renewal in 2026, right?

Steven (11:40):

Yeah. So it’ll expire at the end or sunset is how they refer to it at the end of 2025. So if Congress does nothing, 2026, the tax code will look very different.

Joshua (11:49):

Yeah, absolutely. And we all know how Congress works days, but yes, with the potential for changes coming down the road 2025, 2026, what do you see as far as currently the estate tax is very high, tax rates are low. Historically, if nothing gets done, income tax does increase across the board at all levels. But what do you see happening in 2026 using the magical crystal ball that I know you have hiding that somewhere.

Commercial (12:17):

Pardon the interruption. But as excited as we get to bring you the podcast, we get even more excited about our live events, our virtual online power sessions that have now been intended by thousands of advisors who are looking for a chance to engage directly with me, Steven Jarvis head, CPA, here at Retirement Tax Services alongside incredible advisors who are doing these things in practice. Go out to retirementtaxservices.com/powersession to get signed up for the next event so that you can take your tax planning and your tax value you deliver to clients to the next level. We’ll see you there. Retirementtaxservices.com/powersession

Steven (12:56):

Josh, ironically, I do have a crystal ball sitting on my desk. I think it’s a fun prop, but I thought I usually hold it up and tell people, Hey, it’s broken. In fact, I have it right over here. I hold it up and shake it kind of like a magic eight ball and say, you know what?

(13:13):

Still broken. If someone has a magic or a crystal ball, I would love to know about it. My thought on tax law changes is that the tax code is written in pencil, and by that I mean Congress can change it anytime they want and they take advantage of that, particularly in an election year. This gets a lot of emphasis. It’s a favorite bargaining chip of all political parties to say, Hey, here’s what I’m going to do with taxes, and this can lead to unwillingness to take action on tax planning because it’s, oh, let’s wait until the tax code is clear, until it’s stable, until it’s set in stone. But unfortunately the news flash on that one is it never will be. There are times where it’s more uncertain, but we have to make the best decisions we can based on the information we have and the laws as they are today, which is why I still go back to the same question of, Hey Josh, are you concerned at all that tax rates might go up in the future?

(14:02):

And tax rates can go up for a couple of reasons. It can be because your income got bigger because we have a progressive tax rate system. So as our income goes up, which might look like us earning more, having bigger bonuses, it could also look like social security starting required minimum distributions, a pension kicking in. There are a lot of reasons our income might go up. Tax rates also might go up because of something like the Tax Cuts and Jobs Act expiring. It might go up because a new congress takes over and says, here’s what we’re going to do different, but you made the comment that tax rates are at historical lows. And so for what I do personally and what I do with my clients is still do this analysis of does Roth make sense for this current year and this current situation? And I’m going to do that whether I’m completely convinced that the tax cuts and Jobs Act is going to expire or not, because Roth gets a ton of emphasis on tax savings and less emphasis on tax flexibility.

(14:57):

And that’s one of the things I try to highlight for people as well. Yes, the biggest savings come if tax rates go up in the future, but we also get this tax flexibility that even if tax rates stay the same, I’m still going to be better off by having some portion of my savings in Roth because it creates flexibility for when unexpected expenses come up. Hopefully that might be for something fun like going on a trip with our family and our grandkids. It might be for something not fun like a new roof or an unexpected medical bill, but having this tax-free bucket where the IRS doesn’t have a say in how much of that goes to them is going to be to our advantage when we deal with the uncertainty of the future.

Joshua (15:38):

Yeah, yeah, absolutely. And you’ve said it a few times, but I always reiterated with my clients, the more options you have or the more buckets you have, the more options you have as far as which bucket to pull from for the type of income you’re getting or not taxable income that you’re getting. And it makes the world of planning a lot easier when those circumstances arise is whether they are positive or negative.

Steven (16:02):

Josh, I’m sure you have very discerning listeners, and so they probably listened to that response and thought, wait, Steven’s probably running for office. I don’t think he actually answered Josh’s question. So I will come back and answer your question. Mostly as I’m sitting here today, I’m making tax plan decisions assuming that the Tax Cuts and Jobs Act will expire. And from my perspective, it’s because the way that law was written is that it will expire if Congress does nothing. A lot of times tax cuts or tax changes aren’t set to sunset like this. They don’t take an act of Congress to reinstate. And so the comment I always make is that if Congress does nothing, which is what they’re best at, then these tax rates are going to go up at the end of 2025. So that’s how I’m making decisions right now.

Joshua (16:47):

Yeah, no, and that’s a great way to look at it. It’s the worst case scenario planning. If they do happen to get their act together and pass things through and taxes stay lower, then you’ve planned for the worst case and now it’s just a better case scenario. But we’re still on good footing regardless. Absolutely. Awesome. I did want to speak with you a little bit, and again, I talked with all of my clients about getting their tax returns to me so we can review their taxes. It’s been a two year process and I’m about halfway there, so half of my clients are now giving me their tax returns a little less than half this year, but I want to get everyone across that finish line so that we’re reviewing everyone’s taxes. Out of half of my clients this year, there were only two tax returns that we looked at reviewed for clients that didn’t have some kind of benefit for planning or saving money on taxes down the road.

(17:35):

So we were able to find something across the board for everyone, even if it was tens or a couple hundred dollars. But that couple hundred dollars happens every year moving forward because of the planning that we did working with all the advisors you talk to, the CPAs you work with, do you find it’s, I mean, I found it’s beneficial, but wanting to hear it from you, do you find it’s beneficial to have a third party review your taxes, work on tax planning outside of your CPA if your CPA is bogged down and just trying to get everything compliant for the tax return year in and year out for their clients?

Steven (18:11):

So Josh, I’ve got a couple of different thoughts on this, so if I missed the core question, just bring me back to it. I was a little all over with that too. You’re good. So a couple of thoughts on this. So I think just for context, I’m still in active CPA. I still do tax returns for clients and at this point, all of the taxpayers I work with have a financial advisor that they work with, not the same financial advisor, work with dozens of financial advisors in this capacity. And I love having the financial advisor review the tax to return when it’s still a draft before we filed it. And it’s not because I’m not confident in my technical expertise, it’s because there’s so much context that goes into a tax return and the default tax reporting from custodians and retirement plans and pensions and things like that isn’t always really clear.

(18:58):

And I mentioned it earlier, all of us as taxpayers, unless you went and got your CPA, like me, really never had an opportunity to learn the intricacies of the tax code. And so a very well-intentioned and intelligent hardworking taxpayer might come to a CPA like me and say, Hey, I think this is all the information you need. And they might’ve done a pretty good job doing that. And the CPA with their years of experience and thousands of returns they’ve done says, okay, great. Let me take all these documents, let me put it into my software and let me prepare a return for you. And the taxpayer did everything they could and the CPA might have done a perfectly good job based on the information they had and the tax return could still be wrong. I’ll use one really specific example because it just irritates me to no end the form 1099R and anyone who’s approaching or into retirement, this is going to be a very prevalent form.

(19:48):

It’s how pensions get reported, it’s how withdrawals from your 401k or IRA get reported. There’s a lot of things that get report on this form, and there’s this irritating box on this form that says taxable amount not determined. And it’s a checkbox that the investment company can just check and say, you know what? We didn’t have all the information. And for the typical CPA, if they’re doing hundreds or thousands of returns during February and March, they’re seeing that box, but they’re also seeing the other information in that form and they’re trying to go quickly and they’re trying to move through and get things done, and my team knows that they see that box. They need to ask the advisor and say, Hey, what else went on? Because this could represent a qualified charitable distribution. It could represent a backdoor Roth contribution. It could represent a rollover that shouldn’t have been taxable at all, but the company distributing that money didn’t know that.

(20:35):

And so that’s why I love having the advisor review it because they’ve got context that I don’t always have. Now, I’m a little bit of a unique CPA because I work so proactively with advisors for taxpayers and advisors who aren’t working directly with CPA like me. It definitely takes a very intentional set of communications to set this up in a way that’s going to be a positive for everyone and not make the CPA feel like you’re saying, Hey, you know what? I want someone to double check your work. I’m not confident in what you’re doing. Really not the intention. The intention is, Josh, from your perspective, the way I’d be looking at this, and this is probably the way you already think about it, is, Hey, as an advisor, I’m telling my clients to do things that have a tax impact. And because I’m a responsible advisor, I’m going to ask all of my clients for their tax return so I can make sure that the work I did with them got reported to the IRS correctly because it only counts if it gets reported correctly. And so this isn’t about checking the CPA’s work, this is about checking your own work.

Joshua (21:29):

Yeah, absolutely. And yeah, everything we do or I do here has an effect on taxes.

(21:34):

So being able to put it from my side of the table into that context where there’s other moving pieces, there’s money coming from the bank, maybe there’s an inheritance or a property sold or something outside of what I’m working with, it makes a great deal of difference to have that context and be able to work with that CPA. If there are CPAs watching, now you know that I’m pretty good at communicating with you, but if there is anything more that you need from me, we are sending out the 1099 tax letter. Steven and I should have shared this at the beginning, but Steven is a mentor of mine and it was one of the creators along with a few others of the 1099 tax letter and helping us push that out to our clients and our CPAs so that when they get the 1099 and that box is checked, they can refer to that letter and say, oh, this client had a QCD or they had a rollover or some of those items. So we are doing that for all of our clients every year, which has been extremely helpful and welcomed by the CPAs we work with. That wraps up the main questions I had for you, Steven. Is there any just kind of parting advice that you have for the taxpayers or CPAs listening here or anyone else?

Steven (22:39):

The parting thought for me is that the taxes happen to all of us. It’s just that for a lot of us, they just kind of happen by default. We’re not proactive or intentional, and if we let taxes happen by default, we’re going to get killed on taxes. The tax code is not set up to help taxpayers save on taxes, so you’re going to pay them either way. You get the choice of whether you’re going to be intentional and work with someone who’s going to put an emphasis on taxes and make sure that these things are taken care of. Because the CPA industry as a whole is more focused on tax compliance, what happened last year, what happened in the rear view mirror because that’s what they’re being asked to do. You need someone on your team, Josh, like the role that you are filling of who’s going to look through the windshield and make sure we know what’s coming next.

Joshua (23:21):

Yeah, absolutely. And yeah, and then having those conversations with everyone, making sure we’re all on the same page. And what I found is having that good communication with the CPAs, we’re looking through the windshield going, okay, we could do this. We could do this. And again, having the conversation with the, CPA what you’re seeing, does this make sense? And a hundred percent of the time they’re honest with me. Whether it’s, no, you’re crazy, that doesn’t make any sense and here’s the reason why or, oh, yeah, that sounds great. Go ahead and go ahead and do that and move forward and then I’ll make sure to log it here on my end and it benefits the client, which is what we’re here for. So is helping people again, pay less taxes in the legalist way possible. Thank you for the time today, Steven, for those who are listening and aren’t tax experts, but want a little bit more detail on taxes, Steven’s not going to push this himself, but there is a little book behind him called Don’t Get Killed on Taxes that Steven did help.

(24:14):

So you can find it, I believe on Amazon anywhere books are sold, but don’t get killed on taxes. Steven Jarvis, it was one of the first books that I read on taxes when I was making this move across the board, very straightforward. It does get a little technical and nuanced, but it is understandable you’re not diving into the 80,000 or 800,000 pages of the IRS tax code. 80,000 is the number I throw out. I’ve never counted. I think that’s close. Probably close enough. Well, yeah, thanks so much, Steven for being here, and thank you everyone for watching.

Steven (24:44):

So there you have at one of my recent and really kind of pretty high on my list of opportunities, I’ve had just great conversations around taxes. These are all things that you should be communicating with your clients, whether that’s in a webinar or in a newsletter. Josh briefly touched on it in the webinar, but in my conversations with him, a lot of the things he’s sharing with his clients have come from things he’s learned from being an RTS Essentials member. So if you haven’t already get signed up for our live webinar this Wednesday, October 30th, it’s at 9:00 AM Pacific, you can go to retirementtaxservices.com or send an email to advisors@rts.tax. That webinar will also kick off your next opportunity to become an RTS member to get access to education resources and content that are going to help you elevate what you’re doing for your clients. And we’d love to welcome you to the community, again, retirement taxservices.com or send an email to advisors@rts.tax and Jen on our team will help you get signed up. Until next time, thanks for being here. And remember to tip your server, not the IRS.