I have seen the inner workings of hundreds of tax
strategies. I recently did a study of tax strategies to
reveal the inside secrets of failed tax strategies. I was
searching for common causes of the failures. The most
common causes all centered around cost, but not in a way
you may expect.
- The real cost -
When determining if the cost of the strategy was outweighed
by the benefits, many people miscalculated a very important
cost - the guide, that is, your CPA. The cost of a CPA can
vary greatly. Take for example, the cost of a tax return.
One CPA may charge $750, another may charge $2,500. Now,
on the surface, it's easy to say the $750 return is the
lower cost. But what is the real cost of that $750 return?
What if that $750 tax return doesn't include any analysis
to reduce the amount of taxes paid and the taxes paid with
the $750 return are $5,000 more than the taxes paid with
the $2,500 return?
- Never getting started -
Many tax strategies failed because they simply never got
started. The time that most people think about a tax
strategy is usually the same time they are starting a new
business or investment strategy. A time when cash is
usually tight. The tax strategy then becomes an additional
item to add to the already growing pile of cash
commitments. The tax strategy gets put on hold temporarily
but the temporary status soon becomes permanent.
- DIY -
I often refer to this as the 3 most expensive words in the
English language - Do It Yourself. The people who took
this route were really forced into it. The options
available to them didn't have benefits that outweighed the
cost so they were forced to reduce the cost. The number
one way people reduced their cost was to do as much as
possible themselves. The problem with this concept is that
these people were not leveraging their intellectual
capital. They were relying on their own knowledge and not
that of proven professionals. Because they had nowhere to
turn for professional help that was cost effective for
them, they were relying on what little they could learn
from the IRS website and tax guides in the bookstore.
There was no low-cost, effective alternative to learning
the tax-savings concepts that are critical to paying fewer
taxes.
- No check up -
Do you see a doctor annually, even if you are not sick?
Most of us do, its part of our strategy for a long and
healthy life. The same needs to happen with tax
strategies. Many people set up their tax strategy, work
diligently with their CPA for the first year or two, then
let things slide a little bit. While its true that some
tax strategies can run themselves to some extent over time,
its never a substitute for checking in with your CPA to
determine if there is anything that has changed or can be
done differently. After all, even if nothing has changed
in your world, the tax world changes on a regular basis.
- What should you learn from these failures? -
* Start your tax strategy well in advance of your new
venture.
* Don't let DIY be your most expensive decision!
* Minimizing costs is admirable, but don't give up the
right guide to do so.
* Understand your real costs, which includes overpaying
your taxes with the wrong guide.
* Get your routine check up. Even if you have no new
activity, check in at least 3 times a year - once with your
tax return, once at the end of the year and once during the
middle of year.
----------------------------------------------------
Tom Wheelwright is not only the founder and CEO of
Provision, but he is the creative force behind Provision
Wealth Strategists. In addition to his management
responsibilities, Tom likes to coach clients on wealth,
business, and tax strategies. Along with his frequent
seminars on these strategies, Tom is an adjunct professor
in the Masters of Tax program at Arizona State University.
For more information please visit
http://www.provisionwealth.com
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