The tax filing deadline is upon us. If you are like many Americans, your initial thoughts are that you managed to get your 2018 tax return done without any big surprises. You might have taken advantage of the tax cuts that everyone was talking about. You probably even promised yourself that next year, you will be more organized and proactive about managing your taxes.
However, if you are like many of us, that moment of organizational clarity never quite arrives. As John Lennon once said, “Life is what happens to you while you are busy making other plans.” He might have been talking about getting your finances in order.
If you look at the lives of those who are financially savvy, you might find that their financial success is due not simply to being smart or hiring the right advisor. Instead, most individuals who excel with their money are extremely organized and proactive.
That’s not a surprise. When looking at those who are considered financially resilient, two characteristics are clear: an individual must be both proactive and organized.
The key to this is actually quite simple: meeting with your tax professional at the right time to organize your financial life. For the financially savvy, this is the magic that makes the difference.
“Proactive tax planning means meeting with your tax professional to discuss your financial goals and opportunities to achieve these goals with the lowest possible tax cost,” says Brian Streig, CPA and Tax Director at Calhoun, Thompson + Matza, LLP, in Austin, TX. “I find that clients who meet during the year are more confident in making financial decisions than clients who don’t have any meetings.”
As we come upon the tax filing deadline, here are three ways to start on the path of being financially savvy.
Meet with Your Tax Professional
When most Americans think of meeting with their tax professional, it’s usually during tax season. There couldn’t be a worse time to meet.
“Tax season can be a bad time to have a planning meeting with your CPA because we are so laser focused on getting tax returns prepared,” says Streig. “In fact, many tax professionals don’t schedule these meeting during tax season because we know our resources are dedicated to getting tax returns prepared.”
Tax season is about the production of tax returns, not about the planning. In fact, most of the planning that can occur during tax season are last-minute items such as funding an IRA for the prior year. While it can help the bottom line, it is not being strategic in maximizing your finances.
Instead, there needs to be a mental shift to understanding that true tax planning occurs during the year. What many financially successful people do is use the April 15 deadline as the moment to schedule a planning appointment with their tax professional.
Develop A Philosophy
When individuals think of tax planning, they assume it only centers on maximizing tax benefits. While that is true, it is more nuanced.
You often hear people say that their tax professional got them a refund. No one gets you a refund. You get yourself a refund. But for most people, being in a refund (or liability) position is merely passive planning. If you ended up with a refund, it is simply because you made no decisions about it either way.
What is your tax philosophy on refunds? Many Americans like getting a refund as they don’t have excess cash flow to handle a liability. But there are others who firmly believe that being in a refund position means you are making an interest free loan to the government. Their preferred position is to pay in enough to be penalty proof.
Streig agrees. “These tax meetings help our clients make strategic decisions to lower their taxes and give them a good estimate of what their tax liability will be at the end of the year. This helps relieve the anxiety that comes from wondering whether they’ll get a tax refund or how big their tax payment will be on April 15th of the following year,” he says.
Regardless of your position, actually making a decision is helpful for your tax professional. This gives them the insight into ensuring you end up in the position you want to end up in.
You should develop a philosophy for more than just the refund issue. Going through the 1040 and the various schedules, financially successful individuals can articulate their positions on issues ranging from charitable giving to why they don’t think the mortgage deduction is worth carrying the debt.
This knowledge creates organization of your financial plan. It also allows you to actively engage. Philosophy is key to developing strategy.
Utilize Expertise and Experience
Like therapists, tax professionals have seen everything, which enables them to share examples of what other clients have done to maximize their returns. Working with someone with experience is invaluable. In the tax planning process, you are trying to make decisions that might have a long-term impact.
“Topics that can be discussed include purchasing or selling assets, selecting the best type of retirement account, and adjusting your financial strategies due to changes to the tax law,” says Streig.
A seasoned tax professional will walk you through the pluses as well as explain some of the potential pitfalls. Usually they are aware of the pitfalls from working with other clients. As a result, a steady hand can help smooth the experience when you’re considering certain planning opportunities.
It’s in Your Hands
You must be proactive when deciding you want to organize your financial life. It requires patience and taking the time to develop your thoughts on how you want your tax experience to be. But by taking control and actively engaging in the process, you create accountability for your financial life. You can better judge what years were better for you financially and how you rebounded from financial mistakes.
