We’re about to close the chapter on the shortest month of the year. Of course, there’s plenty more winter to endure, but I’d much rather look ahead to springtime activities. Especially baseball. The reports on the Tigers coming in from Florida are a daily reminder that winter will soon be a distant memory.
But there’s a season between winter and spring that’s my least favorite.
Perhaps yours as well. Tax season. Every year I receive more and more
inquiries from readers asking about various provisions of the tax code.
Most of the questions start out something like this: “I don’t have a
complex situation, but I don’t understand why…” The questioner then goes
into depth about why they’re confused.
Let me remind readers that most financial advisers, including me, can
answer tax questions in a general manner. But when you get into specific
detailed information about your tax return, I suggest you meet directly
with your tax preparer, accountant or CPA.
True, there are some financial advisers that prepare tax returns and
some CPAs that are financial advisers. Nonetheless, I suggest most would
be better served by not combining the two professions.
Why? Because I believe using both a tax preparer and a financial adviser
gives you the benefit of checks and balances. Even though the vast
majority of advisers and preparers are people of integrity, if a
financial adviser did something inappropriate it would be relatively
easy for them to hide it if they also filed your tax return.
Over the years, during the financial planning process, I have also
uncovered some tax preparation errors that required attention. That’s
why I often encourage meetings with my client, their CPA and myself
working as a team. This practice has led to many tremendous solutions to
some complex tax planning and investment concerns.
This also works at the corporate level. Some years ago, the giant
company, ENRON, collapsed. Their adviser and tax firm were one and the
same. In hindsight, perhaps the checks and balances might have prevented
or caught the fraud earlier.
In general, I believe most are better served by separating tax
preparation and financial services. That being said, I’m deeply
concerned that our tax system is far beyond complex. If it’s not already
broken, it’s on life support.
For example, most people understand dividends. But there are various
kinds of dividends that are taxed differently. I doubt that most people
know the difference between an ordinary and a qualified dividend.
And how many really understand the difference between tax credits and
tax deductions? There are many more examples of confusing items and
terminology in the existing tax code. For example, healthcare is on the
tax returns this year. I believe that’s going to add to the confusion.
Historically, there have been many attempts to overhaul our tax system
that have never materialized. While there’s no solution that will please
everyone, I believe reasonable steps can be taken to simplify the
system. Persons who don’t have a complex situation should be able to get
through their returns with minimal stress.
Personally, I enjoy various aspects of both seasons. It’s the season
between winter and spring- tax season- that I disdain. I find it to be
long, stressful and tedious. And I’m confident that many others would