The Tax Whisperer: Lessons from a Bona Fide Tax Accountant

 In Investing, Marriage, Personal Finance

O ur tax situation this year was so bad that the option of divorcing is on the table (it still is; we’re too practical and love vacations too much for this bullshit). The US tax code punishes dual income families and incentivizes a 1950s stay-at-home Mom and breadwinner husband lifestyle which is outrageous to me. I did not bust my chops in life to be hit with dead weight losses! Still, there’s no use tilting at windmills when the energy is best focused on doing all you can to minimize taxes. Enter The Wealthy Accountant, a bona fide tax accountant who unlike last year’s epic tax preparer debacle was worth his weight in gold.

K eith’s bedside manner is excellent. If I needed someone to tell me that I were dying, he would be my top choice. Basically he told us within minute one that we were screwed and yet we hung on to his every word for the next 59 minutes of our tax consulting session. If you need someone to counsel you on how to protect as much of your money from Uncle Sam as possible, make an appointment with him. Unlike our tax code, he will not bullshit you. Hubby really liked him and hubby is a crotchety, judgmental type who pissed off all my friends when he initially met them. Here’s what we learned from Keith.

Sometimes You Only Need A Knowledgeable Tax Accountant Counselor

I did not know this, but W2 income which is what any normal job with benefits provides you, is the worst kind of income to derive because it is apparently taxed the hardest and has the least wiggle room. Unlike say income from non employee compensation or revenue derived through LLCs, S-Corps, and a whole host of other self-driven businesses, W2 income is not your friend. The saving grace is that yes, you get benefits which you wouldn’t otherwise easily be able to service if you were self-employed. But man, you also are put through the wringer when it comes to tax time.

K eith confirmed that in our situation: earning in the $100-$500K range, no dependents, no mortgage, and maximizing all (stingily) available tax shields, there is no point in hiring anyone to prepare our taxes. This honest opinion is what I wish all tax preparers would tell their clients. I am more than happy to pay someone for consulting fees, but don’t charge me more for a service that I don’t need. Our respect for Keith dramatically increased with that evaluation. Anyway, after Mr. Money Mustache recommended Keith in 2016, his business exploded so he is now very selective about who he takes on as clients since he is a financial independence minded tax accountant who values his time and wants to enjoy life.

Tax Loss Harvesting May Be Worth The Effort

I confess reader – tax loss harvesting is not my jam. I understand the theory and practical benefits of the strategy, but it seems like so.much.effort for such minimal upside. Happily, Keith has written an excellent post on tax loss harvesting, so you can learn more from him about whether or not it makes sense for you. His recommendation to us of considering Betterment was solid, but ultimately I realized would not practically work because I have big positions in many of Vanguard’s Admiral Funds which I prefer to keep for the lower expense ratios. Betterment’s portfolios are built from a collection of stock and bond ETFs which work slightly differently.

Non Cash Deductions Make Side Gigs Worth It

I ncome from my side efforts are taxed at a whopping 50% thanks to the W2 income piece. The bona fide tax accountant really made our day when he started discussing non cash deductions as we realized that would be the only way for us to feel like we “got something” from the tax code. Having him explain when establishing an LLC would make sense (haha, I have quite a bit of runway to go) and how to claim non cash deductions in the interim was the highlight of our call (at least for me; hubby seemed to enjoy the conclusive finality of knowing that we were screwed and had done everything we could do to improve our situation). Speaking with a tax accountant or other tax professional to uncover these gray areas in your tax returns is why I wholeheartedly advocate budgeting money for tax consulting sessions.

Children Will Not Save Us

A s we approached the one hour mark, we asked Keith what would happen if we had dependents and the answer was that at most we would “save” $1500 in taxes. This is in line with our experiment this year in which we created a fake dependent on our return and calculated our taxes. The answer via Tax Act was that we would have had to spend $25,000 in childcare expenses in order to pay ~$1,000 less in taxes this year. Keith’s estimate was in line with this projection, though there were clearly other factors we would have to explore should kids ever enter the picture.

A tax accountant should be part of your financial independence plan because he or she will know more than you do about how to protect your hard earned money. Keith’s parting word of advice to us was that we needed to start withholding extra money from each remaining paycheck or get hit with another penalty next year (we are at 0 withholding for both state and federal taxes, and did not realize that you need to calculate how much extra to withhold from each paycheck or be penalized for owing a large balance). It’s small things like this that make a good tax accountant so important. If you need someone to talk to, I highly recommend Keith.

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