Monthly Archives: April 2012

10 Ways To Make Next Tax Season Better

So tax season has come to an end, but the memories of the last minute filers still burn brightly in our dreams.  The filers who waited because they KNEW they owed.  The taxpayers who had to go on extension because of missing documentation.  The people who cried because there was nothing we could do to help their situation.  Well, this post is for all of YOU!

Next tax season doesn’t have to be like this year.  Nothing pains us more than not being to help someone out of their situation.  To that end, here is our list of the top things you should do right now so that next year is less painful and hopefully easier on your pocketbook:

Start a filing system.  Ask any attorney what the golden rule is and they will tell you “he who has the most paper wins.”  This is the rule that the IRS goes by as well.  Most taxpayers pay more in taxes than they should because of inadequate documentation.  If you give donations to charity, drive your personal vehicle in connection with work, real estate, a medical condition or charity; it’s important for you to log these items.  Unreimbursed business expenses are another area where documenting expenses is crucial.  To ensure nothing is missed come next year, start a filing system to keep all of your paperwork.  This can be as simple as a drawer where you dump everything until January 2013 or as elaborate as a spreadsheet.  The point is make sure you keep all your documentation in one place that is easy for your to find.

If you owed, adjust your withholdings NOW. The amount of the refund you receive or balance due to the government is simple arithmetic.  Withhold enough and you’ll get money back; fail to do so and be prepared to write Uncle Sam a check.  If you owed last year, talk to the fine folks in your HR or payroll department now and have your withholdings adjusted on your W4.  It’s already April, which means you’ve missed out on four months of withholding at the correct rate.  The longer you delay, the greater the probability will be that you’ll owe again next year.

If you recently got married, change your withholdings.  Newlyweds often forget to adjust their withholdings, but doing so can sometimes be detrimental to your bank account.  Married couples sometimes find that their combined income pushes them into a higher income bracket.  However, if you fail to make the necessary adjustments, you’ll quickly learn that you didn’t have enough withheld to cover your tax obligation.  Follow the steps listed above to avoid this painful lesson.

Manage your pre-tax benefits.  The easiest way to pay less in taxes is to reduce your taxable income.  The best way to achieve this is to take advantage of all the pre-tax benefits that your company offers.  This includes 401(k) contributions AND associated match, utilizing pre-tax transit and parking benefits as well as contributing to a Flexible Savings Account (FSA) or Health Savings Account (HSAs).  Money is contributed to these items before your take home pay is calculated.  As your pay will be reduced by these items, so will the corresponding amount for which the associated taxes are calculated upon.  The result?  A reduced tax base and less money paid to Uncle Sam.

Begin contributing to a retirement plan.  If you’re not contributing to a 401(k) or other retirement plan, you’re passing up some of the best tax savings available. Contributions to 401(k) plans are not subject to federal or most state income taxes. Your contributions and employer match will grow tax-deferred until you withdraw them during retirement. You could save between 20 and 40% of your contribution in taxes.   If you’re already contributing to a 401(k) or other employer-sponsored plan, increasing your contributions early in the year will increase your tax savings and your earnings over time.   

Start contributing to an IRA.  If your employer doesn’t offer a retirement plan, contributing to an IRA each year can get you some of the same tax savings. For instance, if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.  For increased earnings on your IRA, don’t wait until April 15th to open it. The earlier in the year you make your contribution(s), the faster it will grow.

Schedule a midyear evaluation.   There is nothing that your tax preparer can do for you regarding your tax liability once December 31st rolls around.  June will be here before you know it which means that half the year will already have passed.  Schedule some time with your preparer to discuss your situation and any changes that you think may impact your tax bill next year (e.g. marriage, new child, job change or loss, etc).  That way you all can begin to plan accordingly and make the necessary adjustments so that neither of you are get surprised with a big tax bill.

Run a tax projection.   Once you’ve had a chance to get your tax situation reviewed, have your tax preparer run a tax projection.  Make sure that you incorporate things such as capital gains from stock sales, mutual fund trades, execution of stock options, bond redemptions, unemployment compensation, medical expenses, etc.  It’s easy for taxpayers to make a few decisions (such as pulling out money early from a 401(k)) and not realize that there are multiple tax consequences (like the 10% early withdrawal penalty).   By having a tax projection run, you can see what those consequences are and prepare for any unintended ramifications.

Shift income if you make over $70K.  If you are single and make over $70K, consider shifting your income via some of the following strategies to reduce the amount of taxes you pay:

  • Rearrange your investments to reduce taxable income. You want investments that generate interest income inside retirement accounts, and investments that generate capital gains and losses outside of retirement accounts.
  • Realize capital losses to offset capital gains.
  • Bundle expenses to maximize itemized deductions.
  • Increase retirement plan contributions as limits rise. Each October the IRS announces the new contribution limits for 401ks, IRAs, and other retirement plans. Check the 2012 contribution limits, and be sure to adjust your payroll contributions to put the maximum amount into your plans.

If nearing retirement, check to see if your retirement income will be taxable.  The downfall for most retirees is that they begin to start receiving income from their investment vehicles but aren’t necessarily having taxes withheld (due to how the accounts work).  If you are nearing retirement, be aware that the following income is typically taxable:

  • Withdrawals from Traditional IRAs, 401ks, or other retirement plans.  If a plan was funded with pre-tax dollars, whether by you or your employer, it will result in taxable retirement income when withdrawn.
  • Pension income. Most pensions are a source of taxable retirement income.
  • Interest income, dividend income and capital gains inside of after-tax accounts.   Interest, dividends and capital gains that occur within tax-deferred accounts, such as IRAs, 401k plans or variable annuities, are not taxable in the year they occur. Instead, all gains are deferred and you only pay tax when you take a withdrawal.
  • Withdrawals from an annuity.  When you take withdrawals from a fixed or variable annuity (one that is not owned by an IRA or retirement account) the IRS rules say any gain must be withdrawn first, and this gain is taxed as ordinary income. Once all gain has been withdrawn, you would be withdrawing your basis, or principal. Withdrawals of basis are not counted as taxable retirement income.

My Time As A TurboTax Ask A Tax Expert

October 2011.  There I was staring at Craigslist searching for roles, projects, gigs and jobs that I could use to supplement the income from tax work that would soon begin with our new office.  One role in particular struck me; one where you would be giving tax advice remotely during tax season.  This sounded right up my alley but I was skeptical.  “This is on Craigslist?  Is this legit?  What company is this for?”  Long story short – it was legit and it was being offered by the fine folks at Intuit, the same company behind the TurboTax brand.  So now what?

I applied for the role and shortly after Christmas I got the call that they would like to speak to me.  After what I’ll call a “challenging” computer assessment (which I thought I crashed and burned in) I got the call inviting me to join the team.  I happily accepted and got ready for a month of training and then a month of working on the floor taking calls and chats from customers.  Boy, was the fun just about to begin!

Our training cohort (Wave 7) had about 30+ individuals in it from all walks of life, geographic locals and disciplines (Attorneys, CPAs and Enrolled Agents).  Some were like me who were “relatively” new to the tax game while others were battle tested veterans who had been in the industry for 20+ years.  Want to talk about feeling like a rookie?  I can say that I truly appreciated learning some things from the people who had seen it all, knew the specifics of the IRC regulations and could rattle off IRS publications and forms as easily as someone who is fluent in a second language.

Training flew bye with the blink of an eye and before I knew it, it was time to jump into the pool and either sink or swim.  The first few days were a little stressful as I became acclimated to how the phone and computer interface operated with my equipment (in particular my headset).  Yet after a few days, taking calls was pretty seamless and that’s when I began to really experience what the role had to offer.

When it comes to operating a tax practice, every office is a unique animal.  What I mean by this is that the nature of the clientele AND the preparer are usually interlinked.  If you are a newer preparer such as myself, the chances of your client base containing a significant amount of retirees is probably not high.  Thus, the number of returns that I would work on that would involve retiree topics (e.g. annuity payments, required minimum distributions, IRA to Roth conversions, etc) would be limited.  But what happens when you are connected to taxpayers who have questions from all over the country, across varying social economic groups and from all ages?  You learn!

During my time on the floor, I handled numerous questions ever single night.  Some would come in that I had an “expert” working knowledge of while others made me want to scream in terror as I had no idea how I was even going to tackle it.  Yet, the questions that terrorized me in my initial discussions with customers proved to be my biggest learning moments.  I remember the question about an individual who had bartering income and needed some help figuring out where to report it.  There was the question from a New Jersey taxpayer on why their Federal NOL wasn’t showing up on their state return.  And then there was the one about the mixed use property and a Section 208A ordering of expenses.

In each one of those interactions I had to learn something in a short amount of time.  Sometimes I was learning about the tax law, sometimes tax forms, sometimes the software itself.  In addition to learning, I had to ensure that the guidance I provided to the taxpayer was sound and grounded in fact.  Lastly (but certainly not least) I had to ensure that the taxpayer understood what I was conveying and agreed that I had actually solved their issue.  Individually none of those things are complicated nor stressful.  However, when you combine them all and repeat the process several times within a few hours, let’s just say that you have to stay on your toes!

As I write this post, April 17th 2012 is coming to a close and the clock is swiftly ticking towards the deadline to file on time.  Over the next few days I will begin to transition out of the Ask A Tax Expert role as well as wind down the office for the offseason.  Yet in looking back, I think I have to admit that I was fortunate to find that ad on Craigslist that one October day.  Through this experience I had the opportunity to meet some really nice professionals, challenge my tax knowledge and learn about things I might not have touched for years to come.  And just like the work I do in my practice, I had the opportunity to really and truly help make a difference in the lives of several individuals. 

The work I did was not life or death surgery.  Yet if you ask the callers whom I helped resolve their issues, you might get a different take on what they think I did!  To all my ATE colleagues, it was a pleasure working with you and I hope our paths cross again in the future. To all the folks at Intuit, thanks for allowing me the opportunity to participate.

Until next time.

Our 1st Tax Season

Okay, so the title is a little misleading given that we’ve been around since 2005.  But this post is supposed to be a look back on our first “retail office” tax season.  As posted earlier, we had a pretty eventful time getting the office set up once we decided we were going to launch it this season.  We outlined some goals for ourselves, plotted the course of action and set off on our journey.  So what happened?

While the season still technically has a few days left (returns aren’t due until April 17th) we think we have a pretty good read on the past three months.  While we didn’t hit our target numbers on a few fronts, we didn’t do too shabby given that we were essentially starting this location with zero brand recognition and it was its first year of existence.  In the end we engaged roughly 55 clients, processed 65+  individual and business returns (not including accompanying state returns), secured two recurring accounting clients and performed a host of accompanying services.

What Went Well

Delivering exemplary customer service.  Without having a major brand name on your office, you’ve got to figure out a way to differentiate yourself from all the other tax shops.  While CPAs prepare and review the returns that come through our doors, for most customers this isn’t that much of a selling point.  But what we did find out is that if we upped the service level by doing a few simple tasks (e.g. explain the return to the customer line-by-line, display a genuine interest in their situation, promptly answer any post filing questions), the customer felt that they got more from us than their past preparer.  Result?  A happy customer that tells us they’ll be coming back!

Leveraging our networks.  We all know someone.  “You need your car fixed?  We’ve got a guy for that!” The most successful marketing for a financial services firm is word-of-mouth; preferably from satisfied customers.  When you’re looking for services from professionals such as accountants, doctors, etc. you tend to ask the people you know who they’d recommend.  Thus, we continually engaged our network to let them know this was our first season with the new office.  We also asked them to mention us to their friends if they liked us, thought we were competent, liked our work, etc.  Remember, it’s not always what you know but who you know.

Sourcing alternate work from Craigslist.  Craigslist has a reputation of being a mythical land where everyone is a scammer looking to take your money.  While there is some truth to this, in reality there are plenty of people who are just looking for a deal and someone who can provide it for them.  We didn’t get any tax work from Craigslist ads, but we did get some quick bookkeeping, business plan and other types of one time work.  We’re not talking thousands of dollars here, but the income did help keep the cash flowing into the bank account between tax clients.

Being persistent.  This is pretty simple.  You’re new, you need revenue and you’d better not give up.  Sales don’t just fall from the sky, they take time and cultivation.  This is particularly true if you are a new business and customers don’t know who you are.  Someone might want to come into our office because they are dissatisfied with their current provider.  However, they might have some concerns as this is the first year they’ve seen our office.  For us this may mean a few phone calls, a face to face and ultimately a follow up visit where the client finally engages us.  Point is it often takes multiple contacts to seal any deal.  Be persistent and professionally pursue all potential clients until you either 1) win their business or 2) they decide you’re not a good fit for their needs.  Reaching either of these two outcomes is the ONLY acceptable option.

 What We’ll Change

Marketing efforts.  For the 5000 door hangers we distributed in the neighborhood, only one client was generated.  In general, we started our marketing late in the season (i.e. January), probably didn’t do enough “multiple contacts” with community marketing and didn’t spend enough to generate a meaningful ROI.  With that said, we’ll start our community efforts around September in 2012, but will also do more “year-round” marketing (e.g. newsletters, client recognition, etc) as well as increase our marketing spend.

Independent sales force.  One thing we employ in our company are independent sales reps.  These fine people generate leads and get a commission for doing so.  While we had good results with this program, we fell a little short of expectations.  The main reason for this was we didn’t recruit a big enough sales force nor did we do it early enough.  Come mid 2012, we’ll change this which should help us hit our marks next year.

Hours of operation.  If the theme of the previous two points was we didn’t start early enough, then this one would be we didn’t stay late enough.  Due to the transition from Corporate America to Main Street America, the office hours designed maybe weren’t as good as they could have been.  While the office was open until 6:30PM during the week and 5PM on both weekend days, it could have been later.  This would have allowed us to potentially capture more of the “after work” crowd who just couldn’t get to us before we closed shop.  We’ll probably move to later hours in 2013.

So what does 2013 hold?  Well, we’ve already executed our lease renewal option for the remainder of 2012.  This means the office WILL be back in 2013!  Hopefully some of those potential clients who wanted to visit us but thought that we were “fly-by-night” will see we’re here for the long haul and stop in next season.  Through making the changes outlined above, we’ll attempt to double in size and continue what we hope will be a pretty sustainable growth trend.  Lastly, we plan to make our client engagement even more frequent, more personal and more value additive.  Will 2013 be more successful that our 1st season?  Only time will tell but we’re thinking so.

Until next time.

Relationships and Money

 Q:  My girlfriend and I are in a rather serious relationship and I am thinking about asking her to marry me.  One thing that bothers me is that we tend to argue a lot about money – our views are just different.  I’ve been told that money can ruin a marriage so I’m just not sure what to do at this point.  Any ideas?

 A:   It seems like most people in relationships argue about money to some degree.  Some argue about spending too much, making too little, not saving enough – the list is almost endless.  Yet, at some point you’ve got to stop and ask yourself, is it the money that’s the problem or is it just the result of another issue?

          The primary reason that couples argue about money is that they fail to gain “alignment” regarding a particular situation.  He wants the Chevy Camaro and she wants the Lexus IS – the two items aren’t aligned so let’s start WW III to see who wins!  Arguing in general isn’t healthy, and it sure won’t solve any money problems that you’re having.  The key is to figure out what the problem is and solve it.  In the above case the problem is: we need a car without too hefty of a monthly note.  Once the focus is shifted to addressing that problem, then we can address what car we can afford.

          Here are some ways for people to constructively talk, not argue, about their money:

 Is it really the money?  As stated above, the cause of most “money arguments” isn’t really the money itself.  It could be related to one person making more than the other.  It could be that you all are sharing expenses but not in a way that is “even” according to how much you individually make.  When you figure out what the real problem is you should address it and not the money.  For example if you make 55% of the monthly income and she makes 45%, why not try splitting the joint bills that way?  You’ll both be shouldering your appropriate amount of the expenses and it may make you feel as if you are really being treated as equals.

 Don’t shout, talk it out.  Shouting gets you nothing but a night on the couch and some high blood pressure – both of which are unnecessary.  When you have differing views about a particular item, ask some questions to find out what the issue is.  Make sure that you listen to what the other person has to say before you respond.  Most of all just make sure that you are respectful of the other person’s views.  No one likes to feel as if his or her opinion isn’t important.  Besides, you wouldn’t yell at your boss so why would you yell at someone you love?

 Set the goals and then put them on autopilot.  Let’s say you both want to buy a house and agree that you should be saving up for that gigantic down payment.  But when she gets your joint credit card bill she sees that you charged $500 on new stereo components for your car.  Then you all argue about who is dedicated to the goals and why one person is holding you both back.  Sound familiar?  The easy fix is once you set goals, automate their funding so neither of you has to worry about it materializing.  Set up a separate bank account, have the money deducted from each of your checking accounts and call it a day.  Automate to eliminate the arguing.

 Make it a family affair.  Family finances are not the sole responsibility of one person – no matter who the breadwinner is.  Couples have to make it a priority of discussing THEIR finances TOGETHER – this can’t be stressed enough.  So once a month the two of you should sit down and go over the money earned, bills paid, expenses incurred, progress towards goals, banking statements, etc.  If you all see something that starts an argument, take a step back and look at your long tem goals.  How does whatever you all are arguing, excuse us, talking about fit into your long-term goals?  By putting your finances into the open, you all shouldn’t be surprised by something when you see the bill for it.

 Work out the kinks BEFORE not AFTER the wedding.  Don’t think that the words “I do” will solve anything that you have a problem with now – it will just make you committed to those differences.  If you have concerns about your partner’s approach to finances, or vice versa, make sure you all realistically confront those differences.  If one person is a spend thrift and the other person is Ebenezer Scrooge, you all need to figure out if there is some type of middle ground between you two.  If the other person doesn’t want to change, you might want to reevaluate the relationship.  Simply thinking that not discussing the issue will make it go away is like hoping that a bill collector just forgets your phone number – it ain’t gonna happen!  Besides, if you don’t address the problem now and you all do have very different perspectives, then you are setting yourself up for one stressed-out marriage – we know some good therapists if you want the numbers.