Why didn't my accountant tell me?

We frequently hear this when reviewing tax returns. “Why didn’t my accountant tell me that?” Quite often, the answer is that you don’t pay your accountant to tell you that. In many cases, you see an accountant once a year for the express purpose of preparing your tax return. In this case, your accountant is only acting as a tax preparer. While they have the skills and knowledge to provide tax advice and planning, you didn’t engage them for those purposes.

They don’t have all the information.

Have you ever looked carefully at the tax forms you provide to your accountant to prepare your tax return? Have you noticed that those forms don’t say what investments you hold? In fact, unless you have another business relationship like financial planning or tax advice, your tax preparer also doesn’t know how much cash you have in your bank accounts or how much money you have in your employer retirement accounts. And, unless you’ve done a Roth conversion and they specifically asked how much money you have in your IRA account, they don’t know how much money you have there either. Has your tax preparer ever asked you how many years until you retire? Have they asked you how much you intend to spend during retirement? If your tax preparer doesn’t have this information about you and your retirement plans, they wouldn’t be able to make prudent recommendations on tax strategies heading into retirement.why didn't my accountant tell me?

As an executive, you may have equity compensation in the form of stock options or restricted stock units. You may also have deferred compensation or long-term incentive plans. Without information about your employer plans, your long-term plans, and how much employer stock you hold, they can’t make good recommendations about handling these tax situations. They will only report the previous year’s activities on your tax return.

If you’re a business owner, have they ever asked you about the makeup of your employee base? Without this information or an understanding of which benefits are most likely to apply to your employees, they can’t reasonably suggest tax strategies for employee benefits and retirement plans. Have they asked when you plan to sell the business? If not, any recommendation they make about the treatment of depreciation doesn’t consider the future tax implications of a sale. Have they inquired about your projected revenue and expenses for this year and the near future? Without that information, they can only potentially propose strategies to reduce last year’s tax bill, which may actually increase your long-term tax bill.

This is on you.

If your tax engagement does include tax planning, did you remember to consult the tax practitioner before committing to any major financial transactions? When taxpayers get upset that their tax professional didn’t reduce their tax bill, it is often because the taxpayer didn’t give the tax professional the opportunity to recommend strategies or to take required steps before the end of the year.

Most people pay their income taxes on a calendar year basis. Letting your tax professional know in January what you did in October often means that any steps that could have been taken to manage the tax situation are no longer available in the new year.

Finding a good fit is crucial.

Much like finding a financial advisor who is a good fit for you, finding a tax preparer who is a good fit for you is essential. Many tax preparers are overworked and overwhelmed during the tax season. Without knowing your overall tax strategy, they will likely try to reduce your current tax bill as much as possible without regard to the long-term strategy. However, in your long-term strategy, we may be trying to trade off a slightly higher tax bill this year for a much lower tax bill next year and in future years.

Given the amount of work involved in preparing tax returns and the shortage of tax preparers, your chosen tax preparer may even tell you they do not have the time to analyze and complete your tax return according to your tax strategy. 

A tax preparer and a tax advisor

As you can see, most people need two different roles – a tax preparer and a tax advisor. If you are fortunate, you may find a firm that can fulfill both needs.

Setting expectations and understanding your own needs will go a long way toward a smooth and painless tax season. Having a tax strategy as part of your comprehensive financial plan will allow you to recognize when to take additional steps to manage your tax liability. In addition, a comprehensive financial plan incorporating tax strategies helps to ensure that all of the relevant information is provided to your tax preparer so that your tax returns are completed accurately and reflect the intended results. As we’ve said before, having a tax strategy that covers multiple years is often the best way to reduce your overall tax bill over the long term.

With Infinity Financial Strategies

At Infinity Financial Strategies, your financial plan includes long-term and short-term tax strategies. In addition, we will review your tax returns prepared by another tax preparer to ensure that the information pertinent to your tax and financial situation is reflected as expected on your tax return. As an enrolled agent, Kelly also offers tax return preparation services as an additional service for our financial planning clients.

This article is intended to be educational and thought-provoking rather than financial advice. When we work together in a financial planning engagement, we discuss your unique personal situation and your unique goals. We examine these factors and many others during our financial planning process to determine appropriate financial strategies for YOU.

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