Winter isn’t the only season before spring

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 agree.