Do you enjoy getting a tax refund every year? Do you hate paying extra money at tax time?
I have many clients who love large refunds, and I have some clients who love coming close to breaking even every year. But no one I’ve met loves paying more after filing their taxes.
Recently, I’ve discussed the potential problems people encounter with tax software programs and how to choose the right tax professional, and here I would like to discuss something else of which we all should be mindful.
If you pay someone to do your taxes, do you judge their performance/expertise based on how much of a refund you get?
Come on… tell the truth!! Although we know we shouldn’t, I bet when pressured, most of us would admit that we do.
But guess what? Paid Tax Professionals know this too!
Most tax preparers know that people will think they’re doing a great job if they simply help them get a large refund, and conversely, they know people will think they don’t know what they’re doing if they don’t.
So most paid tax preparers will try to show you how to get a larger refund. Makes sense, right?
But here’s the problem: They usually only tell you to adjust your withholdings!
Every year, when I meet new clients and we discuss the previous tax advice they were given, the most common answer that I hear is, “he/she told me to adjust my withholdings.”
The problem is that adjusting your withholdings has nothing to do with your tax liability.
You may get a larger refund, and it may appear that you’re doing better each year, but you may be paying more to Uncle Sam every year without even knowing it.
The other advice most people receive is to increase their contributions into their 403B/401K/IRA.
This advice is slightly better, and this advice will lower someone’s tax liability in any given year, but there’s another hidden problem most people don’t see: FUTURE TAXES.
Most people know that all the “tax savings” they’re getting now by contributing to their 403B/401K/IRA will be taxed when they begin withdrawing from their accounts in the future. However, most people aren’t aware of how much they will pay in taxes in the future, because it’s not an easy thing to calculate.
Do you think taxes will go up in the future? If you think so, and depending on your specific situation, this may not be the best advice.
So what’s the alternative?
Talking with a tax professional/advisor who will look at your specific situation, and evaluate your taxes today and in the future.
Unfortunately, taxes are here to stay.
So we need to not just think about taxes today and this year, but we need to consider the tax implications for the future as well.
This tax season, I encourage you to find someone who will help you with your tax situation today, and discuss what your tax situation could be in the future.
If you feel you could use some assistance with preparing your 2010 Tax Return, feel free to comment below, email me, or call me anytime.
*Please keep in mind that all the information I post on this site is for general purposes only. I understand that every person’s situation is unique and should be treated as such. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.