Tax season is upon us! And with it comes the stress of trying to make heads or tails of the myriad documents. Oftentimes, employers, banks, mortgage servicing companies, investment companies, and more will send various documents with tax information. With all of that, then there is the tax code; it is an ever-growing behemoth of rules (and changes to the rules) that has grown from 1 page to 174 pages since 1913! The categories are growing and include things like employment taxes, a trust fund code, interest taxes, and gambling winnings taxes.
There are a few ways to deal with all of the mess. The first is to try to be a “do-it-yourselfer”. This requires spending the time tracking down the documents. And then finding the most suitable online tool and entering all of the information correctly. This is followed by a hope that the software has correctly accounted for every detail of your personal situation. The online tools can provide an inexpensive way to go about filling returns. It’s a cheap way to file, but the long-term costs of not using a professional might not be evident.
The next way to file is to hire an accountant. They are a professional and will likely find any loopholes they can to lower the tax burden for the year. If you find the right accountant or tax preparer, you can rest assured that it will be done right and you will get the best outcome for the year. But what about next year? Accountants are trained to lower your burden on a year by year basis. But planning for the long run usually isn’t their focus.
The last way to approach minimizing taxes is to consult with a financial advisor. While a financial advisor should not prepare your tax return, they should be there to plan for the long run. If a financial plan is set up correctly, it can save hundreds of thousands of dollars in taxes over the course of someone’s retirement. Imagine setting up a plan earlier than that and being able to benefit from proper planning and tax minimization.
Whomever you decide to consult with about your tax situation, it’s important to remember to consult with a professional. If you wonder whether you are set up for the best possible situation, make sure you are working with a fiduciary: someone who puts your best interest first.