The Get Ready Money Podcast

The Get Ready Money Podcast with Steve Jarvis: Don’t Tip The IRS

• Tony Steuer

Share episode

Send us a text

On the latest episode of The Get Ready Money Podcast, I spoke with Steve Jarvis, Certified Public Accountant and CEO of Retirement Tax Services about changing the way we think about money and tax planning.


In this episode we discussed:

  • Why you shouldn’t tip the IRS
  • Every money decision has a tax impact.
  • The importance of being open to talking about money. 
  • What to look for in a tax professional. 
  • How advisors can provide value through tax planning. 


Steven Jarvis, CPA is the CEO and Head CPA at Retirement Tax Services, a tax firm focused on working with financial advisors to change the world one tax return at a time. With over 10 years of experience (and counting) as a CPA, Jarvis has the hands-on experience to create actionable content for his audience. He has been featured in industry publications including Advisor Perspectives and regularly produces content for financial advisors through the Retirement Tax Services website and the Retirement Tax Services Podcast. His experience covers written content, public speaking at leading industry conferences and 3 years as an adjunct professor in the graduate business school at Whitworth University

Connect with Steve Jarvis: 


Podcast:


Book:

  • Don’t Get Killed on Taxes: 20 of the Most Common Reasons You’re Sending Too Much Money to the IRS (Amazon) 


Mentioned in this episode:

“There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes any public duty to pay more than the law demands.” Judge Learned Hand. 

Support the show

The Get Ready Money Podcast and its guests do not provide investment advice. All content is for educational purposes. Guest opinions do not necessarily reflect the opinions of The Get Ready Money Podcast and Tony Steuer.

Speaker 1:

Are you looking to get ready, be prepared and transform your financial future? Then you've come to the right place. This is the Get Ready Money Podcast with Tony Stewart, where Tony has insightful conversations with financial experts who are changing the way we think about money. Catch up on the latest financial trends and hear practical advice from Tony and his expert guests so you can build healthy habits that work, Be empowered with tips for implementing small changes that can have a big impact on your financial future. So sit back and get ready to hear from today's guest. So sit back and get ready to hear from today's guest.

Speaker 2:

Welcome to the Get Ready Money podcast changing the way we think about money. I'm pleased to be joined today by Steve Jarvis. Steve is a certified public accountant and CEO of Retirement Tax Services. In this episode, we'll be discussing Steve's insights on how we change the way we think about money and tax planning.

Speaker 3:

Steve, welcome to the Get Ready Money podcast. Tony, thanks so much for having me. I'm excited to be here.

Speaker 2:

Yeah, excited to have you. So you know, let's get started. Tell us a little bit about yourself. What is your origin story?

Speaker 3:

My origin story. Well, like every other little kid, I did not grow up wanting to be an accountant. That's one of my favorite jokes to make, because the only people who grow up wanting to be CPAs are people whose parents were CPAs and they say, hey, I want a nice car too. Most of us get into the profession for very practical reasons, which was certainly the case for me. I was going to college because I thought I was supposed to. I had to take an accounting class because accounting is good information to have, and I thought, hey, this seems to come pretty easy for me and there's lots of jobs in accounting. And so I got into accounting, did very stereotypical CPA things for many, many years.

Speaker 3:

But I grew up around financial planning. My dad and my brother are both in that field, and so a few years ago now, when some advisors, some financial advisors, came my dad and my brother are both in that field, and so a few years ago now, when some advisors, some financial advisors, came to me and basically said, hey, we can't find CPAs who will play nice with us I went ahead and left the big national firm I was at to start my own company, retirement Tax Services, really to work alongside financial advisors who want to do more with tax planning, so now I spend all my time working with financial advisors and taxpayers to really help them understand how they can stand off the rough edges of their retirement tax bill, or, in other words, the amount of money of your hard earned money the IRS wants from you over your lifetime.

Speaker 2:

Well, fantastic, yeah. So actually my dad was a CPA, so I know what you're talking about. So, yeah, you know it's an interesting story. It's because you know what you're doing is what I did for the bulk of 30 years is I did insurance consulting fee-based insurance consulting for financial advisors, wealth managers and attorneys. So definitely in a similar space where you know for a lot of advisors, I think they realize you know you know for a lot of advisors, I think they realize you know just how far their expertise goes and they definitely, you know, look for help when they need it. So I think that's always a smart thing. So glad you're out there doing that, because there's not a lot of people doing the tax planning working with financial advisors, so you know. That leads to the next question is why is tax planning so often overlooked in the financial planning industry?

Speaker 3:

Tony, I think there's a couple of reasons for it, which it's always struck me as kind of interesting. That does get so overlooked, because all of us are impacted by it and nobody seems to want to pay more in taxes. People might have we're recording this in an election year Everybody has their opinion on how much someone else should pay in taxes, but I've worked with people on a one-on-one basis that are across the political spectrum and what I find is that for a taxpayer as an individual, they always want to pay less. So there's certainly an opportunity there. But from the financial advisor standpoint there's definitely some compliance concerns.

Speaker 3:

I think a lot of those are misunderstood and kind of overblown as far as what those concerns are. Because as a financial advisor you don't want to wade into representing people in front of the IRS, you want to make sure you stay in your lane. But every money decision has a tax impact, and so I think you're starting to see more and more advisors kind of embrace that that there is an opportunity for them to help clients with taxes. So the compliance aspect is one piece of it. I think another piece is just a general misunderstanding about what is possible with tax planning, because for consumers, and for many financial advisors as well, taxes can feel like this unknowable, unchangeable black box of just mystery, and so it can be daunting to want to take the time to understand enough to help a taxpayer make a difference on their lifetime tax bill.

Speaker 2:

Yeah, well, that's great and I think what you said there is so important Every money decision has a tax impact. I think that's oftentimes missed. So would you say, tax planning is for anyone and everyone.

Speaker 3:

Personally, I think everyone should have an intentional approach to their taxes. Now, just like anything else, that's going to look a lot of different ways for a lot of different people. If there's going to be people who are on the simple end of average or maybe even below average W-2 earnings place, where you know what their tax plan might just be making sure they get their tax return filed every year. But as we move up the complexity scale, which does tend to coincide with the income scale, there's more and more that can be done if we're intentional. And so what I like to tell people is that there needs to be someone on your team whether that's you or a trusted advisor who is thinking about the tax implications of your life. And so for the DIYers out there, I totally get it if that's something you feel like you want to take on yourself. But as we move up that complexity scale, there definitely becomes a bigger and bigger case for working with someone who specializes in that area.

Speaker 2:

Yeah, when I think it's so important. It's like insurance. I think people overlook how much of their total income goes to taxes. You know we think about it once a year, we do our income tax return, but you know if you're working W-2, it's deducted. You know. So it's a number on your tax return but you don't really focus in on it. So I think this is a really important topic.

Speaker 3:

Well, tony, that's a really great point, because I think if you were to just kind of generally poll your audience of hey, how much did you pay in taxes last year, what most people would come back with because I ask this question quite often most people would come back and tell you how much of a refund they got or how much they paid at tax time, and most people really have no concept of how much they're paying in total taxes.

Speaker 3:

And so when I review a tax return with a taxpayer so the 1040 on the second page I believe it's line 24, is the amount of your hard-earned money the IRS kept last year. And that's the way I phrase it to people. Because, again, we can lose sight of how much of our earnings are going to taxes, both at the federal and state level. Depending on your level of income and what state you live in, you could be paying anywhere from 10 to 20 to 30, all the way up to 50% of your income in some states and some situations might be going to income taxes might be going to income taxes.

Speaker 2:

Yeah, and it's something that everybody can do is to think about their income taxes. Now, as you pointed out, for most people there's not much planning. That may be involved, but it is an impact for everyone. And I'm just thinking about my tax return. Yeah, I can tell you the amount of our refund this year, but I can't tell you what percentage I paid in income taxes. You know, and I should know this stuff, I'm in the financial literacy community, so it's like I don't even know. So you know. To get back to the topic of advisors is how can advisors provide value to their clients through tax planning? How does that improve the relationship?

Speaker 3:

Yeah, so for most people, taxes are going to be one of the basic expenses they pay throughout their lifetime and certainly throughout their retirement. Depending on the specific situation, health care might come close or might even surpass taxes, but taxes are going to be a big one. And so for me, the starting point is getting tax returns from every single client every single year, because we've got to be working with real data. Because, while I think that somebody on the team needs to understand taxes, most of the time that's not gonna be the taxpayer. And so if all you do as an advisor is either give kind of the catch all of hey, you should double check with your CPA which newsflash your clients aren't actually going to their CPA. They're intimidated to ask those questions since they just don't ask them. Or if you're just asking the client to relay the information from their tax return, they're going to get it wrong most of the time, and that's not an insult to your clients.

Speaker 3:

I work with very, very intelligent clients that just don't understand taxes. Taxes aren't intuitive, they don't have a logical sense to them. They're arbitrarily made and enforced, and so it just doesn't come naturally to people. And so if you ask someone just to anecdotally tell you about their tax situation, they're going to get some key things wrong, so you need to be getting tax returns from every single client every year and then, to make this practical as an advisor, you need to review tax returns. You need to get your hands-on tax returns, get the reps in to understand the things that are most applicable to the clients that you serve. The tax code is 80,000 pages long. I have not committed it to memory, nor do I have any intention of doing that, but I have a very deep understanding of the tax rules and tax strategies and tax planning opportunities that are applicable to the people that I most often serve, and that comes through putting in the reps and understanding real world experiences.

Speaker 2:

Yeah, I think we could talk about the immense length of the tax code. It is incredible and I mean, I'm sure you know the statistics, of course when you call into the IRS, and how often, what's it? 50% of their responses are wrong, or even higher than that when you call their helpline.

Speaker 3:

if you can actually get through, yeah, I don't know those statistics off the top of my head. I try really hard to. Sometimes I even have to have this like pep talk with myself before I call the IRS or write a letter to the IRS, that whoever's receiving that communication this is not their fault, like I have to remind myself that the IRS is staffed by real people trying to do their best. But yes, it is Just. Within the last two months, I've worked with multiple clients where we're sending letters to the IRS, explaining to the IRS how their own rules work, because the clients got letters from the IRS saying, hey, you owe us more money, which is just not the case. In fact, it's just blatantly wrong and it's based on information the IRS already had and rules the IRS wrote.

Speaker 3:

But the IRS is staffed by real people and so, yeah, these mistakes certainly happen. And so when we talk about adding value as a financial advisor, it's not just trying to think of some clever way that no one's ever come up with before to sneak one past the IRS. In fact, that's not what I'm ever doing. I don't. I'm not trying to sneak things past the IRS. I'm helping clients make sure that the great planning I'm doing gets reported correctly. And then I'm looking for opportunities to be proactive in ways that we know are allowed under the tax guide, because tax planning isn't, again, isn't about sneaking one past the IRS, it's about understanding the choices available to us and, proactively, making the right choices at the right time.

Speaker 2:

Well, I think what you said in there is so important for people to understand is one is the IRS is staffed by humans who are trying to do the best they can with the information and training that they have and they're not infallible. And so, just like with the rest of your financial services and products is, you know, take something to an expert if you don't understand it, research it, like you said, is if you get a response back and I know I was working with the IRS on an issue trying to get clarification private letter ruling which I was never actually able to successfully get. But I can interpret something which I was never actually able to successfully get, but it was. I can interpret something and I wanted them to actually commit to the interpretation. And you know it's hard because there were multiple ways to read the tax code and conflicting things. So actually, what do you tell people when there is something that's conflicting?

Speaker 3:

Yeah, so just with the types of things I typically deal with, I've personally never tried to get a private letter ruling, and so I'm not diving into those kinds of uncertainties. Those are things I refer out to other people because that's an area where, if you're going to go that route and try to get the IRS to issue a private letter ruling or PLR, that's a very involved process. But I definitely deal with situations that maybe feel less complex. That certainly aren't an area where we're going to try to get a private letter ruling. But there's some subjectivity in or, at the very least, there's not a consistency from the IRS, and so even when we're doing things that I know in and out how the rules work, I'll set the expectation with clients on a regular basis of hey, at times the IRS is going to reach out and send love letters. Sometimes these are system generated, sometimes there's an actual person behind this, but it is altogether possible. We work with dozens of taxpayers every year who receive letters from the IRS, and when you get those, they're going to feel really scary. The IRS hasn't updated their font in about 40 years, and so those letters look like they were pecked out a typewriter in someone's basement. But the great news is that we only recommend strategies to you that we feel confident we could sit down in front of an IRS agent and explain with a straight face. And so if the IRS does ask questions, we're going to help you answer those questions and we're going to move on.

Speaker 3:

There's a specific example that's coming to mind related to the exclusion of gain on a sale of a primary residence that happened within the last couple of years where, just because of the facts and circumstances involved, we did get into just a little bit of a gray area where it was okay, this probably doesn't meet the letter of the law how it's currently written, but I could make an argument for how this situation wasn't clearly addressed and we can see what the IRS has to say. And so in that case, the conversation I had with the client was very clear was hey, we're taking a stance here that's not well-defined by the IRS If they ask questions. Here's how we're going to document and support the approach we took, because this wasn't just willy-nilly. Let's hope we can get away with it. We had a supportable logic to what we were doing but again made it really clear to the client that the IRS could disagree with us, at which point you would owe taxes on the gain. You would also most likely owe interest and penalties if the IRS disagreed with our treatment of this.

Speaker 3:

And so if we're going to take this approach, you need to understand the risk involved and that this could come up. And that's not a conversation I'm going to have with every client, because I'm only going to do that if it's a client I feel really will understand and appreciate the risk that they're taking on, and we're only going to do that in a situation where there really is a gray area. I tell people all the time that nothing I share with them is like wink, wink, nod, nod. Let's hope nobody notices. I sincerely mean that I'm only going to file tax returns where I feel I can support the argument we're making on that return.

Speaker 2:

Yeah, I think that makes sense and I think sometimes people don't realize that with the IRS is that there are these gray areas. You know, the tax code is so voluminous and there's so many different possibilities that those gray areas are going to exist and that's a good reason to work with a tax professional. So you know, speaking of which, if somebody is out there looking for a CPA, what should they consider when looking for a CPA?

Speaker 3:

Yeah, finding a tax professional is challenging these days, and I'm going to say tax professional pretty exclusively, as opposed to saying CPA, just because I know a lot of great enrolled agents out there which is the EA designation, and especially if you're looking for help on taxes and tax preparation. Cpas actually do all sorts of things beyond just taxes. So you're looking for someone you're looking for someone, ideally, who is licensed, who is registered with the IRS, who is willing to sign your tax return, and that might seem like a silly distinction to make, but that's actually on the IRS's dirty dozen list when they send out red flags every year for fraud to look out for. Unfortunately, there are just like any industry, there are people who are playing fast and loose with the rules, and one of the indications that that might be the case is if the tax professional is unwilling to put their name on your tax return Because there's a space for tax preparer, for paid professional or however it's worded to go on there. So my name goes on every single tax return that I help a client file.

Speaker 3:

The other things that I would be looking for if I want to work with a tax professional, or and so the way I would approach this is. I would just ask them what can I expect from you and your team outside of the filing season? Because a lot of times when people make the transition from DIYing their taxes to working with a tax preparer, it's because they've moved up that complexity scale and they're looking for help beyond just February and March of the calendar year. But you need to make sure you're asking those questions and understanding what the expectations should be, because there are still a lot that I would say. Probably the majority of the industry is still built around billable hours and grinding out as many returns as they can.

Speaker 3:

I would ask what the ratio of preparers to tax returns is, because this can be a huge range and there isn't one specific right answer we're looking for, because if you're a business owner and you're looking for someone who can help business owners, geez, there might be a preparer you work with who's only preparing 50 or 100 returns because they're preparing these complex business returns and they're going to charge accordingly. On the flip side of that, I know CPAs who will personally do 1,000 returns, which I think is high, but they're probably doing simpler returns. They're probably working way too many hours, but that's also a way you can gauge of what kind of service can I expect? Because if somebody is preparing, they're working with 600 or 700 households. If I'm OK submitting my documents, getting a return back and never having a conversation with someone great more power to you If you'd like to be able to ask questions and have an interaction. That's probably too high a ratio.

Speaker 2:

Yeah, well, that makes sense, Because how can they get to know 700 households is, you know, thinking about the financial planners? I know usually they carry a client load of 100 to 150 clients and you know, because they feel that's as many clients as they can really get to know. So that's really helpful. You know that's helpful. And I'm glad you mentioned enrolled agents because you know I personally that's something that I like in a tax advisor is because they can represent me before the IRS. That's a good thing.

Speaker 3:

So, yeah, there's a lack of awareness around enrolled agents, and so I, even though I'm a CPA and not an enrolled agent, there's really not a need to have both. I really try to to shop on behalf of enrolled agents because I don't think they always get the credit and the tax base they deserve.

Speaker 2:

Yeah, I'm glad you brought that up. So can CPAs, and CPAs, of course, can represent people before the IRS right? Yes, that's correct. Okay, just want to make sure we have that for the viewers and listeners out there so that they're clear on that, that CPAs can also represent you before the IRS. So that's an important point. So, steve, let's move into the get ready questions. The first one is what basic money concept do you wish people knew?

Speaker 3:

If we want to stay on topic for this conversation, we can just go with. Every money decision has a tax impact. I think oftentimes people really aren't consciously aware of what their tax situation really is.

Speaker 2:

That's awesome and you know it doesn't hurt to reinforce that for people. We can even say it a third time to make sure everybody hears it it's every money decision has a tax impact. It's good stuff has a tax impact. You know it's good stuff. So what is one simple thing people can do each year to set themselves up for financial success?

Speaker 3:

Review your tax return. I know it's daunting, it's scary, it's not fun, but quite often when I work with a new client they have never had someone go through their entire tax return with them. You don't need to become an expert Like I'm not encouraging everyone to become CPAs themselves but you should at least be able to look down the tax return and either for yourself understand what the key inputs are, or have someone on your team a tax professional, financial advisor who is walking alongside you to make sure those things are taken care of.

Speaker 2:

That's great advice. You know to review it either with yourself or with you know, a trained professional, whoever that might be. What is one habit that people can change when it comes to their money?

Speaker 3:

That's a really good question, tony. There's so many little things that come to mind, but the word that's really sticking out for me is intentionality, and that probably goes right along the lines with discipline. But whether we're talking about taxes, or investing, or saving or spending or whatever aspect of money we're considering, the people I see get the furthest ahead are the ones who are intentional with how they approach money, as opposed to reactive.

Speaker 2:

I love that and I think that's something a lot of guests talk about on the show is being intentional and thinking about the choices that you're making, and that's an easy habit to well it's easier to say it's a simple habit, it's not easy.

Speaker 3:

Yeah, it's simple, it's not easy.

Speaker 2:

But it does help in the end run. So what money myth are you trying to break?

Speaker 3:

That there isn't anything you can do about taxes. I think this is a really commonly held myth that taxes just are what they are and I just need to accept it and move on. Now there is a certain level of taxes that we're going to pay as we make money. You know, the easiest way to reduce your tax bill is to just not make any money Not my preferred way. But there are things that we can proactively do.

Speaker 2:

Yeah, that's great advice and I think you know it's a reminder. I think you and I may have talked about this. I think it was a judge learned hand quote about that. It I may have talked about this. I think it was a judge learned hand quote about that. It's every taxpayer's obligation to pay their taxes, but they also can pay as little as possible.

Speaker 3:

Do you remember the full quote? I don't remember the full quote because I've kind of co-opted it. To what?

Speaker 1:

we've shortened to don't tip the IRS.

Speaker 3:

But the judge learned hand. He took it a little bit further to basically say that there's no patriotic obligation to pay more than you owe, and that's not quite the right wording. And so, yeah, no patriotic awards for tipping the IRS is how I look at that.

Speaker 2:

Well and I think that's the key point is you know that you don't have to pay more than you owe, and there's not an expectation to pay more than you owe, but you have the obligation to pay what you owe. So I think that's an important point.

Speaker 3:

If we get real nerdy here for a second, there's another quote by Judge Learned Hand that I think is relevant to this conversation. He talks about how there's basically there's two tax systems one for people who understand it and one for people who don't. So I'm getting the wording wrong, but he's basically saying that if you're informed about the tax code, it's going to feel like you have a different tax code than everyone else because you know what decisions you can be making.

Speaker 2:

I am going to look up that quote and include it in the show notes. Please do. That's a great quote, just making a note here. So the next question, steve, is let's get out the time machine. A note here. So the next question, steve, is let's get out the time machine. What advice would you give your younger self if you go back in time, knowing what you know now about money? And we'll say taxes to you.

Speaker 3:

Yeah, so I'm laughing as you ask that, tony, because a regular comment I make to my family and to my team both is hey, my time machine's broken, and so I honestly, I don't go down that route too often. I mean these things that we've been to. I would love to know any of these things we're talking about decades ago, so there isn't one that stands out. More than that I really try to focus on hey, my time machine is just as broken as everyone else's. What's important is what we do next.

Speaker 2:

Well, I think that's great advice. What's important is what we do next, because I think people do oftentimes well, especially their money on things that they've done in the past.

Speaker 3:

If only I wish I regret all those kinds of things and I get it. I have those emotions too, but I can't. My time machine's broken.

Speaker 2:

Well, that's okay, you know. As soon as your time machine gets out of the shop, let me know we. Well, that's okay, you know, as soon as your time machine gets out of the shop, let me know we'll do another episode. I'll let you know. Yep, so you know. To wrap up, what is your number one tip on changing the way we think about money?

Speaker 3:

Number one tip on changing the way we think about money is changing the way we talk about money. It's being willing to have these conversations, listen to these conversations, participate in conversations. Money is still a pretty taboo topic, especially at a personal level, and I get that, and there are definitely things that I don't openly share because I don't want to have the conversations with my friends or family about particular things. But the more we hide behind not wanting to talk about a topic, the less likely we are to improve how we interact with it.

Speaker 2:

Awesome, awesome. Well, that's great advice. So, steve, where can people learn more about you? We didn't really get a chance to talk to your book, so I'll shout out your book title Don't Get Killed on Taxes. 20 of the Most Common Reasons You're Sending Too Much Money PIRS and your Company.

Speaker 3:

Retirement Tax Services. Yeah, I have a podcast, the Retirement Tax Services podcast. It's really intended for financial advisors, although I hear all the time from consumers who listen to it as well. I'm also very active on LinkedIn. Stephen A Jarvis, you can find me on LinkedIn. The least boring CPA is how I'm listed on there. Those are the best ways to follow along with what I'm doing.

Speaker 2:

Awesome, awesome. Well, thanks so much for joining us today.

Speaker 3:

Yeah, it was my pleasure to be here. Thanks, tony, awesome, awesome. Well, thanks so much for joining us today.

Speaker 2:

Yeah, it was my pleasure to be here. Thanks, tony. Yeah, so, and as always, thank you everyone for tuning into this episode of the Get Ready Money podcast. If you learned something today to change the way you think about money, please be sure to subscribe and tell a friend. Until next time, let's change the way we think about money.

People on this episode

Head Shot

Tony Steuer

Host