A Taxing Occupation

It’s tax time, meaning more work for me both personally and professionally.  This year more than ever, I find myself talking to – and about -- tax preparers.

Tax preparers are a little bit like financial advisors, in that some are better than others, and credentials matter.   If you need help doing taxes, you probably get what you pay for.

Alternatively, though, most tax preparers are alike in one major way.  That is, they are concerned with minimizing their clients’ taxes in the current year.  Seems like a good idea for everyone, right?

The thing is, not everyone should be worried about minimizing taxes now; they ought to be worried about minimizing taxes later.  While always subject to change, it’s a fact that the current tax law expires in 2026.  Without changes, this means tax rates will go back to the higher 2017 brackets.

In this environment, tools like a Roth IRA can be of great use, where you pay taxes now in return for not paying taxes later.  Unfortunately, when tax preparers do suggest an IRA, it’s almost always a traditional IRA, since they want the immediate tax deduction.

Part of this is that some tax preparers are compensated in part by the amount of refund they generate.  Gosh, imagine that, doing something that’s better for them than for the client.

This is why many people would be better served by a credentialed, fiduciary, financial / tax planner instead of the run-of the-mill tax preparer. 

Old Business / New Business

I’ve taken the last month off of blogging because I’ve been a little busy with something else.  Over the past month I've started my own financial planning firm.

This is something I’ve wanted to do for a while, but I didn't until now thanks to a need for medical insurance.  In this case, Necessity was truly the Mother of Invention.  (That's a long story, and maybe one good enough for a separate blog entry another time.)

Thanks to a lot of planning, I only had about 10 different things that needed to be done in the last month, down from a list of more than 20 when I began.  While I probably had a few more things to do than other start-up businesses thanks to state and federal securities regulations, I have new respect for anyone who starts their own organization.

In my case, I'd compare starting your own business as similar to building a new house rather than moving into a nice existing house.  It doesn’t take anywhere near as much time to buy an existing home, and frankly, you get more bang for your buck with fewer problems. The house has settled, the landscaping is done, the window treatments are in place, etc.  It’s just a much simpler process.

But that existing house isn’t going to be exactly what you want.  Maybe it isn’t quite in the right location, or maybe the layout isn’t exactly the best, or maybe it could use new appliances.  In the end, if you really want to customize your lifestyle, you have build your own house, and that comes with a lot of extra time and expense and contracting headaches.  For all that work, however, you’re going to have things the way you want them, or at least very, very close to it.

When I joined another financial planning firm in the past, it was analogous to moving into an existing home. The branding was completed, the accounting was set up, the compliance work was done, and so forth.  It could have used a few updates (people), but it was really only a matter of moving in the furniture in getting started.

Starting my own firm, though, I had to build or re-build all of those things from scratch, and it takes a lot of time and effort.  I fully expect it will be worth it.

In the future, I’ll probably write more specifically about a few of the decisions I made -- some that worked, and some that now only seemed like a good idea at the time.