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We’re not overpaying. No, we’re not overpaying. We’re not overpaying anymore. The tax code’s complicated, boring, and overrated. You don’t want that, you want a pro. One thing that you should know: this is a radio show. It’s not tax advice, don’t take it that way.

Steven Jarvis: Hello everyone, and welcome to the next episode of the Retirement Tax Services Podcast, Financial Professional’s Edition. I am your host, Steven Jarvis, CPA. And I’m really excited to be here today talking about something that I’ve spent a lot of time working on that’s finally available, and that is my book, Don’t Get Killed on Taxes.

Now, I know that there’s at least some nerd in you, the fact that you listen in every week to a tax podcast, but you might be thinking, “Hold on a second, that’s a whole other level of nerdiness to listen to a tax podcast talking about a tax book.”

And maybe that’s true, but I think there’s going to be some great things that come out of this that are going to be well worth the listen and definitely, worth the read.

A little background on this, this book is written for taxpayers. It’s not necessarily meant for an advisor audience. Although the feedback I’m already getting from advisors and really part of the intention of it, was that it was a guide for how to talk to taxpayers about these topics.

Kind of one of the places of inspiration for writing this book at all is really to fill the gap on the fact that all of us are expected to pay taxes, but none of us were taught what that really even means. But at least I’m not familiar with the high school course or even really the college course that teaches people about income taxes.

Most of what people know about taxes is, “Hey, I want a giant refund,” which we’ll talk about in just a second.

But this book was a collaboration between myself and a great advisor, P.J. DiNuzzo. I was really honored that P.J. would invite me to do this with him. He’s spent 35 years doing financial planning, including tax planning and tax preparation. He’s been a guest on the podcast and just all around phenomenal guy. So, really glad that I could co-author this book with P.J.

We broke the book into a couple of sections because we wanted to make sure that even as tax laws change, which we talked about in last week’s episode about SECURE 2.0 — there’s core principle, there’s core foundation. There’s building blocks you might say, around taxes that are going to be beneficial for everyone to understand ,to be able to learn from. And there’s going to be our starting place for having a framework for doing tax planning within our financial planning.

So, really, what I want to focus on today, especially as we head into this tax filing season, is the first part of the book, which is dispelling tax myths that cost you money.

Again, this is written with a taxpayer audience in mind, but some of these things are going to be things that, especially for your clients or for advisors who are new to tax planning, your clients who are new to tax planning, we’ve got to start with the why of why taxes, why are we talking about this? Why is this getting incorporated?

And what I’ve found at this point, working with likely thousands of taxpayers and hundreds of advisors, is that there are several myths that are commonly believed by taxpayers that hold us back at times from really delivering massive value through tax planning.

So, the book’s available on Amazon. For Retirement Tax Services members, the link for a free digital download was included in the forum. So, you can go out to retirementtaxservices.com and log in and get that code from the forum.

But for today’s episode, I want to talk through some of these myths that we included in the book that taxpayers believe around tax planning and taxes in general. So, the first myth is that taxes are a fact I have no control over how much I pay.

And as I work with taxpayers, this comes up annually, multiple times annually. That really, taxes are just kind of something that happens and just a pain we have to deal with, which I’ll agree that they certainly are a pain.

But if we just let taxes happen to us, that’s when we get killed on taxes. There are choices that we can make. And we’re not talking about tax avoidance here in the sense of we’re going to create accounts in the Cayman Islands and hope nobody notices. Or we’re going to shove everything that we spend money on through a fictitious business, and again, hope that nobody notices — that’s not what we’re talking about.

We’re talking about the fact that due to the nature and complexity of the tax code, we’re presented with a lot of choices. And so, if we have an intentional plan, a proactive plan, we can do something about the amount of taxes we pay over our lifetime. But the first thing we’ve got to get comfortable with is that there is something I can do to control the amount of tax I pay over the lifetime of my wealth.

So, that’s the first myth that we really work to break down with taxpayers, that there is in fact something I can do about taxes. The second myth that goes right along with this is that paying more in taxes is what I should do or this kind of this idea that I just need to pay my fair share.

Now, I get questions quite often since I spend so much time talking about taxes and about not tipping the IRS not paying too much in taxes. I get questions about, “Well, hey, how do I wade through the politics of all of it?”

And the great news is that I have yet to meet the person who, when I talk about their taxes, that they voluntarily want to pay more in taxes. People might have different opinions about how much someone else should pay in taxes, but pretty universally, people themselves want to pay as little in tax as possible.

And there’s really nothing that says, at least not that I’m aware of … there are no patriotic awards for overpaying the IRS. Everybody has the option to voluntarily contribute towards the national debt. And if you feel so inclined, you’re welcome to do that.

But all joking aside, that can be kind of a little less intense way to get clients to think about this differently, to make that joke of, “Hey, there’s no patriotic awards for overpaying the IRS because we’re really under no obligation to pay more than what we absolutely have to.” And again, if we’re intentional, we can do something about that amount that we absolutely have to pay.

The other thing I usually add with clients as we’re having this conversation if there’s any pushback on, well, I want to do my part to contribute to whatever social cause that it is. Because I do have clients at times who will get hung up on, well, I want to do my part for other people, and that’s great.

I’m never going to try to force a client to save money on taxes. But again, when we present this in the right context, I’ve yet to have someone really push back or refuse to do this. So, the other thing I’ll point out is that by — if giving towards some specific causes is what they care about the most, by intentionally having a proactive plan where we’re only paying what we absolutely have to, that gives us more control over our hard-earned money to do with it what we will to accomplish our goals.

And so, if one of our goals is to promote a specific social cause, then the question I would ask the client is, “Hey, is there an organization, a charity, a nonprofit that you feel is doing a great job of addressing this issue?” Because again, most people I talk to are not giving the federal government five stars on addressing these issues, even if they feel strongly about them.

The correction to those two myths is there is something we can do about taxes, and there are no patriotic awards for overpaying the IRS. The third myth that we’ve included in the book that comes up all too often, I think in large part because of DIY tax prep softwares and the commercials they put out, but this idea that as long as I get a refund, I’ve won.

And if you doubt whether this is an issue at all, in your next round of client meetings, ask your clients how much they paid in taxes last year, and just keep a tally of how many of them say, “Oh, I didn’t pay taxes, I got a refund.”

We’ve been, as taxpayers, conditioned to really just focus on the end result in April. There are so many times that I’m going through a tax return with a client and I stop it where right now, it’s line 24 on the tax return.

I stop at line 24, which is the total tax. And I say, “This is the amount of your hard-earned money the IRS kept last year.” And clients will be blown away by this number constantly and it’ll be $40,000, $50,000, $60,000, $70,000 and a client will still be blown away. And they’ll say, “But I got a refund. What do you mean the IRS kept that much of my money?”

And we’ve all been so conditioned to focus on whether we made a payment or got a refund that we only really think about what happened at tax time and not during the year. And so, if we’re only focused on whether or not we got a refund, it’s harder to have a broader, or bigger picture conversation about tax planning.

This also helps illustrate where some of the friction between financial advisors and tax preparation specialists come in, in that clients are often going to a tax preparer, or CPA or an enrolled agent, and saying, “Hey, give me the biggest refund right now this year as possible.”

And that flies in the face of certain long-term planning strategies. That certainly flies in the face of doing something like a Roth conversion. We’re intentionally increasing our taxable income this year. We’re lowering or eliminating a refund, we’re increasing the amount we might have due to the IRS.

So, if you’re working with a client on tax planning, and then they go to a CPA and say, “Hey, help me get a giant refund right now,” because they really have bought into this idea that for me to win against the IRS, I have to get a giant refund right now, today.

This is where a lot of that friction and confusion can come from. And so, this is one that I reinforce often as I possibly can, that a refund is not the scorecard as to how well we did on taxes. An analogy I use for this that really drives the point home if people are still kind of on the fence of, “Hey, but I like getting my big refund.”

The analogy I use is, “Hey, have you ever gone to Costco, bought $100 in groceries, paid with a $1,000, and then bragged about the $900 refund you got? And of course, everyone would say, “No, that’d be ridiculous.” I would laugh at anyone who would even attempt that.

But so often, that’s what we do with our tax return. That we brag, we gloat about these refunds, we celebrate these giant refunds, but those refunds, with very, very few exceptions, are just the IRS giving you back money that you grossly overpaid.

So, we’ve got to shift our mindset on that so that we can have better conversations around tax planning and focus on what actually matters, which is reducing your tax bill over the lifetime of your wealth.

And I’m saying the lifetime of your wealth and not just your lifetime for a reason because some of these tax planning strategies do carry on to how we’re leaving our money behind when we pass away.

Alright, the next myth that we cover is myth number four: I use tax preparation software so I’m all set. Of course, this is referring to our DIYers out there. And this is a false sense of security that can come up in a lot of areas, but it’s especially prevalent in taxes.

It can just feel like if something comes out on a nice, fancy-looking report, we put it through a software, it’s this black box we don’t understand but we trust implicitly that hey I’m taken care of. How could a tax software do anything but directly set me up for success.

And the example I typically use to illustrate this for taxpayers is — I guess, I won’t name the specific tax prep software, although you could probably go back and figure out which one it is. There’s a few giant ones out there, but there’s one in particular that always comes to mind for me just because the way it’s laid out.

But it’s seeing these tax returns that have a cover letter on them that says, “Here’s how much of refund you got or how much you owed for this year, and here’s your estimated payments for next year.”

And what blows me away about this, is how often I see those letters for taxpayers who only had or almost exclusively had W2 earnings, and in what world does it make sense to recommend estimated payments when a person could much more easily have those taxes covered through withholding adjustment.

And the world where that makes sense is the world of a tax preparation software that is focused on this idea that getting a refund means you’ve won. So, most tax prep softwares, particularly DIY tax prep softwares are really focused on helping taxpayers get giant refunds, not save money over the long-term.

And so, just having a tax prep software, even if everything’s technically correct, does not mean you got any help whatsoever on tax planning. And so, that’s a distinction that we can help our clients understand so that we can have a better conversation around tax planning and get away from this idea that taxes are a once a year conversation. And that as long as I paid my $20 or $30 to use the DIY software, I’m all set.

Myth number five goes right hand in hand with this for our non-DIYers. And that’s the idea that I have a tax preparer, I’m all set. And especially as this podcast airs in January as everyone is heading into tax filing season, this is an important myth to keep in mind and to start planting the seeds that the conversation might go a little bit differently this year with you and your clients.

That this isn’t about proving you’re smarter or better than their tax professional, but that you’re serving a different role. Because while it’s becoming more common for tax preparers to talk about tax planning, it is not commonly or effectively implemented.

And a lot of times, they’re not even making an attempt. They’re saying, “Hey, I turn out 1040s, that’s what I do.” And so, helping clients understand that taxes is going to be one of the biggest costs, the biggest expenses over their lifetime and certainly, over their retirement — and that reporting a tax return every year really has no bearing on whether we’re getting ahead on how much of that tax we pay over our lifetime, so that we can still work in collaboration with tax preparers.

But we’re separating out that there’s really two distinct functions here. There’s scorekeeping which has to be done, the IRS requires it. And then there’s proactive planning, which most tax professionals are not doing, and something that financial planners can play a great role in benefiting their clients by being proactively involved in that.

The last myth that we covered here before we get to part two of the book, which is then kind of building blocks for effective strategies; providing some of the framework for why tax planning makes sense and the fundamentals that it’s built on.

Last myth: taking taxes one year at a time is enough, especially because I know my taxes will go down in retirement.

So, we kind of combined a couple ideas in here. The first being that really if we take taxes one year at a time, we lose. That’s how the IRS gets ahead, is if we only think about taxes every year in March.

Because as listeners to this podcast, you’re very aware that there’s so little that we can do proactively to reduce a client’s tax bill if we only talk about last year in March. So, if in March of 2023, we’re barely having our first conversation about taxes in 2022, really we’ve missed the boat on nearly everything.

These have got to be proactive and intentional conversations. They’ve got to be multi-year conversations. That’s when these things start getting really exciting. Some tax planning strategies, even some of the ones we include in the book, if you just take a one year at a time, they might feel like, “Well, what was the point? That was a few hundred dollars, a few thousand dollars. That’s not going to change my retirement.”

Well, maybe in one year, it won’t. But over 10 years, over 20 years, over 30 years, these things start really adding up and having a big impact. The other thing I would say on that is that in my experience, taxes are much more emotional than investments. They’re much more emotional than money in general.

In fact, I get advisors, I get RTS premier members who come to me all the time, and thankfully, we can kind of joke about it because we collaborate and work together. But they’ll share these stories of clients who come to them and say, “Oh, RTS is so great. They corrected this $100 penalty we had to pay last year.” “Or did you see the RTS did this and saved us $500 in taxes?”

And the advisor is thinking one, I mean, that’s on the low end of things that we do. But two, they’re thinking, “Hey, wait a second, here’s our investment returns. Here’s these things I was able to do with you that are thousands and tens of thousands of dollars over the last year, the last few years. Why are you so stuck on this little thing — relatively little thing — that the tax team did?”

And it’s because of this emotional attachment to taxes that most, if not all of us have. And so, as the advisor, if you are proactively involved in that tax planning, if you’re proactively involved in this multi-year conversation, then you start to get some of the credit for those great tax savings.

The second part of this myth that we threw in there is especially because I know my taxes will go down in retirement. And there are certainly people out there whose taxes will go down in retirement. That’s not just going to be across the board. But really, this typically comes from an overly simplistic way of thinking.

The idea being, “Oh, I’m guaranteed to make less money in retirement, so my taxes absolutely will have to go down.”

Now, there’s two pieces to that. One, a lot of people, especially people who have done a really good job saving, when they get to social security age, when their pensions start, when they start taking RMDs, when they’re at full retirement, suddenly, find that they actually are not suddenly making less than they did during their career.

So, there’s, for a lot of people, this kind of almost surprise that, “Wait a second, I’m making more than I did before.” Might not universally be the case. But the other piece to it is that the tax code is written in pencil, and Congress can change it whenever they want. And even if Congress doesn’t change any rules between now and 2026, we already know the tax rates are going to go up when the Tax Cuts and Jobs Act expires.

So, question that I commonly ask clients is, “Hey, are you concerned at all that tax rates might go up in the future?” And I have yet to meet the person who says, “Nope, I think tax rates are getting slashed in half.” Well, we can have philosophical debates about how much taxes will go up by or when will they go up. I don’t know the answers to those things. My crystal ball is just as broken as yours.

But my expectation, the decisions that I’m making from a planning perspective are based on the assumption that taxes will go up in the future. One, because we already know that they’re set to go up. And when you look at the tax rate environment that we’re in, we are at historical lows.

And so, I am not guaranteeing my clients anything. I’m not promising them anything. I’m just taking a step back and making an observation about what I personally am doing as far as taking an approach to taxes.

So, that gives you six myths that you can be using to have these conversations with your clients, to start having better discussions about why taxes are important about starting to break down some of these misconceptions so that you can lay a more effective framework for having tax planning conversations.

Obviously, we go deeper to it in the book. Again, it’s available on Amazon. For Retirement Tax Services members, go to the forum at retirementtaxservices.com and get your free link to get a digital download as a bonus of being a member.

We go into a lot more depth on these myths, and then we go into building blocks for effective tax strategies, and then cover 20 different tax planning strategies to help people avoid getting killed on taxes.

So, of course, this podcast is all about action even when it’s me just talking about my book I’m so excited about.

So, action item number one is to make sure that you have intentional communications with your clients every year about taxes. This can come in a lot of different forms, and for a lot of our listeners, you’re probably already doing something. And so, this is about taking a step back each year and saying, “What do I add this year?”

An advisor I know that does a lot around tax planning, one of the things they expanded this year was just updating what’s included in their 1099 letter or their year-end tax letter that they give to their clients to help them with tax filing season.

There’s always additional things that we can be doing. So, if you’re new to tax planning, this could be as simple as including it in a newsletter or including it as an agenda item in your next set of client meetings.

But if you’re already doing tax planning, just take a step back and say, “Okay, what can I add this year? What more can I do?” And maybe SECURE 2.0 is an easy answer there as far as what you’re going to do to expand your tax communications in 2023 for your clients.

Action item number two is to make sure you’re getting tax returns for all of your clients every single year. As soon as everyone is doing that, I promise I’ll stop adding that as an action item on this podcast.

But that’s how important it is, that I’ll keep bringing it up every week indefinitely because it makes all the difference on being able to do effective tax planning. Getting clients past these myths are great, but to get to specific actionable plans for individual clients, we need to be able to see their tax returns.

Last action item: if you’ve made it this far through the episode, you’re clearly enjoying something. Take time to go and leave a five-star review, leave a comment wherever you listen to podcasts so that the podcast can continue to grow. We can keep helping advisors and their clients not get killed on taxes.

For everyone listening, thanks for being here. Until next time, good luck out there. And remember to tip your server, not the IRS.

We’re not overpaying. No, we’re not overpaying. We’re not overpaying anymore. The tax code’s complicated, boring, and overrated. You don’t want that, you want a pro. One thing that you should know: this is a radio show. It’s not tax advice, don’t take it that way.