Tom Sedoric

Another hectic tax season is safely in our rear view mirror and we recently hosted a quarterly conference call for our clients to discuss the road ahead. Our client calls typically cover a wide range of topics including portfolio actions, economic commentary, and those pesky, but important, administrative details we call “Administrivia” which increasingly command our team’s and client’s attention. 

Not surprisingly, the issue of taxes is becoming a progressively hot topic for a number of our call participants. Many clients appreciated the opportunity to talk about this past tax season and how we helped them prepare for future tax changes. As our clients know, taxes are often our largest lifetime expense and we put a premium on proper tax planning and tax efficient portfolio construction. In conjunction with our client’s tax counsel, we focus with great detail on the important formula of how and when taxes should be paid (up front or deferred). The 0.9 percent Medicare tax surcharge (courtesy of The Affordable Care Act) on income earners over $250,000 (though it was not assessed on retirement fund and Social Security distributions) and the hike in capital gains taxes (3.8 percent) for 2014 were the points getting the most attention. The Alternative Minimum Tax (AMT) continues as an insidious drain on resources that has far outlived its usefulness. Congress has yet to manage a permanent fix for this “cancer” on earnings and investment.

Our clients, and more frequently the public in general, understand the connection between proper tax planning and retirement income. And many more investors and retirees will “get it” in the future as they attempt to tap their nest eggs. Anyone seeking retirement security should want to know more about what might be coming so that they can keep an increasing percentage of each nest egg dollar. This brings me to the topic that can cause a big yawn in a few quarters but has proven to produce wise returns for investors who make an effort. With an increasing number of boomers beginning their “distribution phase” and entering retirement the importance of working regularly with good tax counsel becomes paramount. As journalist Harvey MacKay put it; “Day in and day out, your tax accountant can make or lose you more money than any single person, with the possible exception of your kids.” 

Good tax expertise often goes underappreciated and insufficient tax counsel is often tolerated for too long.

Our team must stay conversant with tax law changes and we constantly share information with the experts that serve our clients. Most tax practitioners are highly competent and adept at figuring the “ins and outs” of our ever evolving and complex tax code. It would be naïve to expect that the tax code will become less complex in the next century. 

History tells us that bureaucracies organically become more complex as they age. Former presidential candidate and publisher, Steve Forbes, a talented observer and historian who ran on the concept of a fair and flat tax, reminds us that politicians constantly tinker with the gears of taxation to maintain power and control. 

Retaining good tax counsel is the closest thing to having a personal IRS agent because the good ones often understand the tax code better than many career bureaucrats. Good tax professionals can see the implications of even moderate policy changes and, in our experience, are quite proactive on behalf of their clients. Their direct value becomes clear when they translate policy speak into action to put their clients into the most advantageous position. Unfortunately, while remembering that taxes are our largest lifetime expense, the ineptitude of incompetent counsel or inefficient strategies often goes ignored. 

I believe capable tax counsel is often undervalued because accountants sometimes share a reputation with other talented professionals for not being the best communicators. 

Accountants, with their symbolic green eye shades, work in the mines of tax code minutiae for our benefit while still representing their role as agents for the IRS. For the same reason that the seemingly dull issue of the cost of tax deferral often makes the financial press flee to other easier-to-write stories, tax accountants get overlooked because tax planning just isn’t very sexy – except to a fellow accountant or to me. Don’t be fooled by the lack of headlines. Their contributions are invaluable and not just on April 15, but during the months and years ahead. A seemingly unrelated issue worth sharing is the insidious growth of identity theft. Though certainly not breaking news, the recent hacking of medical profession databases has led to a number of people broadsided and shocked to learn that tax filings had been made in their name. It’s happened in Maine, Florida, North Carolina and to an unfortunately large number of New Hampshire tax payers. It’s a sad commentary on our digital times but worth this reminder – our personal data is not as safe as we think and proper vigilance should no longer be considered a nuisance but a necessity. And a strong tax expert may be your best defense if your identity is ever compromised.

 

This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. The views expressed are those of Tom Sedoric – Partner, Executive Managing Director and Wealth Manager and are not necessarily those of Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.