Stories from '23 Tax Season

One of the wisest men in the history of our society said, “The hardest thing in the world to understand is the income tax.” And I will agree with Albert Einstein. Over my tenure advising clients, I have realized that there are few sources of actionable advice that help individuals improve their income tax outcomes. And while I believe that making smart tax decisions is the most important part of building wealth throughout your lifetime, the reality is that not everyone can devote the time that is necessary in order to make the best financial decisions possible. After all, you have a life to live and that includes enjoying everything you have worked hard to earn. And so it’s truly worth your time to have an experienced financial advisor in your corner who is looking out for you and your best interests. As an advisor, I take the time to review every client’s tax return, produce an income tax analysis report, and implement strategies to provide better tax outcomes in their future.

Here are just some of the ways I helped my clients during the 2023 tax season.

Filing Long-Term Gains as Short-Term Gains

The best outcomes usually do not involve procrastination. On April 12th, five days before the end of tax season, I was alerted to a client’s tax situation. (I was on spring break with the family in Gatlinburg, thinking all of my tax conversations were complete, but when duty calls – I get to work!) I received a phone call from a client asking for help resolving an issue on her 1099 with an unreported basis for a couple of stock sales. With her permission, I called her CPA directly and provided the exact details needed to file their return. I was shocked when they called later that week to explain their taxes were filed with a significant tax due because her CPA filed the return using a short-term capital gains rate vs. a long-term capital gains rate. This is a massive discrepancy as short-term gains are taxed at ordinary income rates while long-term capital gains would be taxed at a much lower rate. The tax rate difference led to a tax savings of $1,241 once her tax return was fixed!

Saving a Client from Being Audited

Working as a Financial Advisor for the past 17 years, I have received many calls from panicked clients worried about the IRS Letter they received leading to a small paper or mail audit. Typically, this is because of a missing W-2 or 1099 income that the client did not include on their tax return. These sorts of audits are pretty tame and are resolved by filing an amended tax return to claim the income and pay the appropriate tax. I have found that avoiding these letters in the first place leads clients to much lower stress levels! I received a phone call in late March from a CPA regarding a client’s tax situation where the CPA stated the client did not need to file based on income. I knew this was incorrect as I helped the client pay off a significant home improvement in January 2022. This distribution alone would require the client to file and pay a small income tax. In this case, the client misplaced the form and forgot about the distribution, given that it occurred at the beginning of 2022. I called the client to update them on the situation and provided the CPA with the correct form to prepare the tax return, which saved the client from being audited down the road. In this case, the story isn’t about a significant tax recommendation. Instead, it’s a reminder that sometimes simply listening, knowing each client’s personal situation, and being proactive is what creates the best outcomes for the individuals that I serve.

I received a phone call in late March from a CPA regarding a client’s tax situation where the CPA stated the client did not need to file based on income. I knew this was incorrect as I helped the client pay off a significant home improvement in January 2022. This distribution alone would require the client to file and pay a small income tax. In this case, the client misplaced the form and forgot about the distribution, given that it occurred at the beginning of 2022. I called the client to update them on the situation and provided the CPA with the correct form to prepare the tax return, which saved the client from being audited down the road.

In this case, the story isn’t about a significant tax recommendation. Instead, it’s a reminder that sometimes simply listening, knowing each client’s personal situation, and being proactive is what creates the best outcomes for the individuals that I serve.

Implementing Good Real Estate Advice

When I bring on a new client, I take the time to understand their life goals, financial needs, and investing objectives. Through these conversations, I discovered that a particular client was running a rental property for a family member. The client had no intention of selling the property in the next five years, was charging rent, and had an agreement to terms on the living arrangement. We reviewed their options for managing this property as an asset, and I helped them find a CPA and implemented (with the CPA’s blessing) that this property should function as a rental property from a tax perspective. This change in the client’s tax return led to an income deduction of $4,500 per year, saving them over $1,000 in taxes.

Easy-to-Understand Advice

A financial advisor can be an invaluable resource for avoiding setbacks and maximizing your savings. As a CFP, I work as a Fiduciary to provide timely, actionable advice that will enhance my client’s lives and help them achieve greater financial prosperity. It’s important to me that my clients understand their financial situation and why implementing these tax changes can help them have a better outcome. I use tax reports from Holistiplan and partner with each client’s CPA to ensure that I add value to each client’s results.

If you’re looking for unbiased, actionable financial advice – today, during tax season, or at any point during your financial journey – I’m ready to help. Contact me directly at (859) 203-1414 or Chris@EnryPointWM.com and we’ll discuss all of the ways that I can best serve you and your goals.

CHRIS WARD, CFP®

Chris has been helping clients as a Financial Advisor since 2007 and established EntryPoint Wealth Management as an opportunity to offer clients access to his best partnership for financial advice. He works as an integrated partner with you and your financial life, to help you better your financial situation and achieve your goals.

CONTACT CHRIS DIRECTLY:

(859) 203-1414

Chris@EntryPointWM.com