As we were going through the statements and receipts, she looked up over her reading glasses and said “why do you do it?” Do what, I asked back. “Everybody hates doing their taxes why do you like it? Why do you want to sit here and go over all this stuff, fill out the forms, or go do battle with the IRS on an examination? Why? Her question surprised me but a few very simple words came out of my mouth, “The tax code is so complicated and congress keeps changing it so as to affect social policy. In the end, the taxpayer has a huge job trying to take advantage of most incentives and tax saving strategies” I then said, working with people and their taxes lets me see a side of them few others get to see. I asked her back, “Why do you come here like this every year instead of mailing in your information? “Because, I sleep better knowing it’s all done and I can focus on other areas of my life!” That’s another reason why I do this, I said – “filing taxes is very stressful and I like to make the process as stress free as possible!”
A seasoned tax preparer builds a special bond with the client and for that hour or two the preparer is focused on easing the tax burden of the client. Thousands of profitability dollars can be found during this process. Profitability dollars are expense savings discovered by more efficient methods of operation or cost savings generated by better planning strategies. Savings from tax planning would be the latter.
Here are a few of the basic planning strategies that one can use to reduce their tax burden or gain financial peace of mind:
· Use of timing strategies for accelerating income or expenses. Taking in more income this year and pushing expenses into the next year may end up saving taxes. This is contrary to the normal approach but with tax planning software and knowledge of upcoming changes in the tax code this strategy can prove beneficial.
· Making an informed decision on whether or not to take accelerated depreciation in the current year. Sometimes the situation would call for taking less of a deduction this year and deferring the depreciation deduction for later years. Again, a contrarian approach
· I may consider suggesting changes in a client’s insurance coverage: many clients have tons of life insurance but have little disability insurance; even fewer have long term care insurance. When I notice a client is underinsured I use my best efforts to discuss the merits of cost effective solutions.
· Many people place their life savings into investment vehicles they do not understand. This is a big problem and tremendous stress causing situation. Trying to accomplish future financial goals with complicated investments and at the same time not taking into consideration their risk tolerance levels. Simply stated, risk tolerance means can you tolerate losing your money and do you have the constitution to deal with the volatility and instability of the security markets. I like to make sure clients are in investments they understand and in investments where the risks are appropriate for their situation.
· Let’s look at medical expense deductions. Many people are not aware that the costs of certain weight reducing programs can be tax deductible. I am currently losing weight using such a weight reducing program for medical reasons and the government is sharing the cost. If I take care of my health through preventative measures like reducing my weight I will most likely not be a burden to the Medicare system when I am eligible.
The U.S. Congress passed the Tax Reform Act of 1986 (TRA) (Pub.L 99-514, 100 Stat. 2085, enacted October 22, 1986) to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences. In 1987 I became a tax specialist because the law made things even more complicated. A new tax simplification law is in the works for 2010. The law is supposed to be bi-partisan. Brace yourselves!