Are you still relying on traditional tax preparation methods or software? In this episode, John, Tommy, and special guest Rachel Meredith from Banks Mountain Financial dive into the crucial difference between tax planning and simple tax preparation. They explain why a proactive, year-round tax strategy is key to long-term financial success, as well as how their seamless collaboration helps clients navigate tax challenges with a forward-thinking approach.
Listen in as Rachel highlights the limitations of tax software, the importance of professional assistance, and the value of proactive communication with clients. You'll learn how leveraging IRS portals, e-filing, and a comprehensive tax strategy can lead to more efficient tax filing and fewer costly mistakes.
Listen to the full episode here:
What you will learn:
- How we do tax planning at Mason & Associates. (3:00)
- Rachel’s background and how she designed her firm. (6:45)
- Why you should not ignore your taxes. (18:00)
- The limitations of using software for tax preparation. (24:00)
- The value of working with a tax professional. (33:30)
- What an identity theft PIN is. (40:30)
- The biggest error seen on tax returns. (43:30)
Ideas worth sharing:
- "You can’t just stick your head in the sand and ignore taxes because it’s one of the largest bills that you’re going to have throughout your retirement years.” - Mason & Associates
- "Planning for me is key, and that's why it's such a privilege to get to work with you guys in terms of that collaboration." – Rachel Meredith
- "There's a lot going on that taxpayers are getting from every angle of society and media, and their neighbors next door who have somebody that did this for them that saved them tax dollars, but they really can’t actually explain it." – Rachel Meredith
Resources from this episode:
- Mason & Associates: LinkedIn
- Tommy Blackburn: LinkedIn
- John Mason: LinkedIn
- Rachel Meredith: Website | LinkedIn
- TurboTax
- Free File
- Virginia Department of Taxation
- IRS (Internal Revenue Service)
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Read the Transcript Below:
Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.
John Mason: Welcome to the Federal Employee Financial Planning Podcast. I'm John Mason, President and Certified Financial Planner at Mason & Associates. Today is October 23rd, 2024, and we have a phenomenal episode that we're recording today with my co-host Tommy Blackburn, who you know by now as a CPA, a CFP, and a PFS. And then for the first time, we have Rachel from Banks Mountain Financial, Rachel Meredith, who is a trusted partner of Mason & Associates, who assists us in documenting and implementing our tax plans that we do for clients, meaning she actually prepares our client returns and we work together to make sure that those returns are accurate.
And we even review them before they're e-filed. We're really excited today to have Rachel from Banks Mountain Financial. Rachel founded Banks Mountain Financial in June of 2023 to provide responsive value-added and strategic tax planning and compliance services to a smaller set of clients. She strives to be a trusted advisor who eases the burden of tax compliance on clients who prefer to focus elsewhere in their lives.
Meaning, these clients have chosen to buy back their time by not preparing their own return. Previously, before starting her own firm, she worked as a vice president and tax director for a Richmond-based financial planning firm. And then before that, she was a graduate of Virginia Tech with dual degrees in International Business and French with a minor in Spanish.
And she also has six years of experience working for KPMG. So highly credentialed, huge partner for Mason & Associates. Rachel, thank you so much for being with us on the Federal Employee Financial Planning Podcast.
Rachel Meredith: Thank you for having me.
John Mason: So in this episode, we're going to have a lot of fun. And right off the bat, Tommy let's communicate to our audience why we're doing this.
At Mason & Associates, we have such a big focus on tax planning, not only the 30-year, 40-year strategic vision, but the annual tactical tax planning levers that we can pull. So maybe you can elaborate a little bit more on how we do tax planning at Mason & Associates. Elaborate a little bit more on that relationship with Rachel, and then right off, let's hit everybody right between the eyes on why we think this is so cool and why, if they're working with a financial planner that doesn't do this, maybe why they'd want to switch, or if they're still self-preparing their returns, why maybe that's not a great idea anymore.
Tommy Blackburn: I guess the hitch of right between the eyes, how many people want tax planning advice from their financial planner, but they don't get it, or they just want tax planning advice in general and they don't get it. It seems to be a common theme. So if you're not getting that's what you should be looking for.
We're certainly not the only people out there who do it, but we believe we're one of the few firms that do. Tax planning is a year-round sport, as Rachel can certainly attest. And that's part of the value that we bring to our clients year-round. And as you said, John, that 30-year tax projection. So we're planning for a lifetime of tax planning, but we're making tactical adjustments.
So in that first quarter, we're usually fine-tuning anything as we get ready for tax season and for returns to be filed, and then we're reviewing tax returns along with, we have a great partnership with Rachel. Where we collaborate and we just say, “Hey, does this look right?” She's done all the heavy lifting, but we get to come in with our knowledge of the client situation and what's happened and just do a once over and also see, do we see anything that we should begin thinking about, which launches us into that strategic planning meeting season with a fresh tax return, we'll begin making our tax planning moves for the rest of the year.
And then at the end of the year, we're also making sure, does withholding need to be adjusted? How are we going to take distributions? How are we going to pay for things? Do estimated tax payments need to be made? ROTH conversions? Wrap that up towards the end of the year, do a final look, and I think at least Rachel is a big fan of one thing that we try to do for our clients around here is these we call them our tax letters.
And we wrap these up around the end of the year, beginning January time, and we just say, “Here's everything that we can think of, that we've documented, that happened throughout the year.” One concise document, give it to Rachel, it gives her hopefully a head start on knowing exactly what happened, so there's good communication, good documentation.
And it's pretty rare, we think, for many advisors to do any of that. And let alone be looking at your tax return in detail, take it even further to try to provide the better experience. Our clients have nothing but great things to say about Rachel and Banks Mountain. And they love that they get that coordinated service that you don't find that elsewhere.
We think it is a very valuable experience and clients, usually they want to delegate this to experts and they want to buy back their time. And so through the combination they're able to accomplish that.
John Mason: Tommy, thank you for providing that insight. And I also want to add to this that the reason we value Rachel working with you so much is that we have struggled for 14 years, Tommy and I, maybe not Tommy, because he had you at the previous firm.
So we'll go ahead and throw that out there. But I've struggled for 14 years. There's nothing worse than providing really good tax planning and really good tax advice, and then the client self-prepares and botches the return or the CPA or tax preparer has like some combative relationship with you, the financial planner.
It's like, “Well, I'm the one that provides tax advice and you're out of your league,” and it's, “Hey bro I was just trying to help you do your job really well,” like I teed this up. “I wasn't trying to make this hard for you.” So it's been really awesome having you because the collaboration has been so great.
So if you can share with the audience a little bit about you, your background maybe elaborate a little bit more on your firm, and then if I'm not mistaken, you designed Banks Mountain Financial around not only just serving an end client, but actually working with a firm like Mason & Associates.
So it's almost like from the design, you didn't want to be combative where some of these other firms do.
Rachel Meredith: Yeah, absolutely. For starters, I think it's very impressive that your firm, your advisors are interested first of all in tax planning and going that extra mile for your clients while doing the overall financial plan to make sure that you are incorporating good tax planning in your clients’ overall plans. I think it's a huge value add and really unique.
There aren't a lot of firms out there like Mason & Associates who are providing that level of service to their clients. First of all, kudos to you guys for doing that. But yes, my entire 25-plus year career has been about planning—more than it's been about preparing tax returns, to be honest.
So back in my olden U.S. expatriate foreign national days I was always planning for somebody to go on secondment to Europe, per se. And the more we were able to plan, ahead of that move across the pond, the better and smoother the process went once they got there. And then of course, for the last 18 or so years working with a financial planning company, wealth management company in Richmond, similar to two years in the sense of some of the services that they provided.
I was very used to walking down the hall and saying, “Hey, what do we want to do with this RMD? Does the client need the cash?” They've got to take it for out of their IRA this year for the first time ever. Do they need the cash or is there a way that we can save them time remit withholding through it.
So they no longer have to make estimated payments. Do a qualified charitable distribution. Is that something that is one of their goals and makes sense from a tax-saving perspective? I'm also very used to knowing a lot more than I think other accountants know about their clients. Because when you're working with financial planners and advisors, you have the bigger picture.
So sometimes there are assets and accounts out there that, in a specific year, maybe aren't producing taxable income. So maybe your accountant doesn't necessarily know that they even exist. And that they could be perhaps be a tax savings planning strategy that could be used in the future.
So knowing a client's big picture, knowing what their overall goals are really plays into how I handle tax planning. I wouldn't know how to just pick up a tax return in the middle of tax season with some documents that I don't know, quite frankly, if they're all 100% of the applicable documents that I need or not.
I wouldn't know how to do that. And then I also wouldn't know how to just sign off on a current year tax return, like it's done, go ahead and e-file it, and not already be planning for the following year. Again, planning for me is key, and that's why it's such a privilege to get to work with with you guys in terms of that collaboration.
I always know is this client doing a Roth conversion? Why was that estimated payment made? What are some of the benefits to some of the deductions that they could be taking on their returns? And I really enjoy the collaboration with you guys, because I feel like I can then provide the very best service to our shared clients.
John Mason: We enjoy it too. And I think a couple of things that you mentioned there is like planning versus reacting. And a lot of CPA firms or tax preparers out there, we can look at the H&R Blocks, we can look at Liberty, we can look at Joe Jones CPA down the street, and a lot of them are just set up differently, as you were giving your answer, it was like, you might almost might as well do TurboTax if the extent of the experience is drop off all of your 1099s and W2s and have somebody else type them in and hit print or e-file.
That's really not that valuable. And unfortunately the way the tax industry is moving is that people think they should be getting tax advice or tax planning, but really what they're getting is tax preparation or accounting for what happened last year.
And it's a volume issue. They have thousands of returns they're trying to pump through this office. We have a shortage of CPAs. We have a shortage of qualified professionals. The tax code's getting bigger and more complicated. And what you think you're getting as a consumer is like advice. It's no, that's not what you're getting from most people.
So then the financial planning team is the one hopefully providing it. If they've partnered with somebody like you, Rachel, you're looking at this in the context of the entire relationship. And I think it's similar; we always say that we have a better connection with our clients because we specialize with federal employees.
In or near retirement, 55 or older with a million plus of investments, because we don't have to relearn their benefits package; we just get to learn who they are as individuals. Because we don't have to relearn everything, we just get to learn about them. And the same I feel like is true for you because you're working with a financial planning team like us, because you have this more in-depth knowledge that's what's going on, you're actually able to see the bigger picture; you're actually able to take a step back.
Because it's not a volume issue. It's not a “you're coming into this blind” issue. You've positioned yourself, and I think we've done a good job positioning you to really add a lot of value and get to know our clients better.
Rachel Meredith: Yeah, absolutely. Knowledge is key. And that was the biggest challenge about leaving behind clients that I knew like the back of my hand.
And I knew what they would forget to give me. And and what their trigger points were in terms of, do they like to break even on their tax return? Are they okay with doing that? What are their kind of preferences and goals? But yes, I think that in this industry right now, a lot of the newer clients It's one of the biggest complaints that I have, that maybe aren't coming through an office like yours.
Some of the biggest complaints that they have about their previous accountants are simply, “They don't respond to my emails in a timely manner.” If at all they don't tell me why I owed and why I had a penalty. They never tell me what I can do to save tax in the future. And these are very typical for the industry.
And quite frankly it comes back to what you said. There's a shortage of accountants. There was what was called the Great Resignation back during COVID where within the United States, we lost a huge amount of CPAs and EAs and accountants who did tax work simply, I think, from burnout from just too many clients.
And so now you've got a smaller amount of clients out there trying to serve, I'm sorry, of accountants trying to serve a lot of clients. And so what I don't ever want to become is somebody that doesn't respond to emails timely or at all, that doesn't explain and educate my clients on why they owe, how we can avoid that penalty going forward, how we can plan again for them to break even, that there are no surprises.
So absolutely, it's definitely an issue in our industry. And again, I'm focusing on a smaller subset of clients, so I don't end up one of those accountants, but I much prefer know my clients well and speak to their planners to make sure that we're covering all of our bases during tax season.
John Mason: For our audience, what's good for them to realize if they haven't already learned it about us and some of the other guests we've had on here is that, we charge maybe a fee that's higher than normal, right? So if the industry says they charge X and we charge X plus a little bit, then yes, we're maybe a premium fee for a premium level of service, but we respond to emails.
We have a live human that answers the phone. We have an awesome client event coming up this week. We add tremendous value. Like at the end of the day, the lowest fee may result in the lowest quality of work. And if then it's why are we even doing that? If we're getting a terrible service, it's not excellent.
They're not providing any value. Then we would argue that the fee you're paying that person for a terrible experience and terrible value is a waste of your money versus a premium fee for a concierge premium type service. And I just want our audience to hear this loud and clear if you're frustrated with 1800 Custodian, if you're frustrated that your financial planning team or your investment management team, you're getting a phone tree or your tax preparer is not giving you these advice and generating, estimated tax payment coupons that are completely unnecessary because they're not taking the time to understand why there was a liability this year, but not one next year.
There are people that charge reasonable fees and deliver exceptional service. I guess just don't sit back and think where you are is where you have to be there. There's more out there. Tommy, how about if you're a financial planner, or you're a client who doesn't have a financial planner, you're DIY, we know a lot of people on our YouTube channel as well as this podcast are possibly DIY, and they're either, the financial planner is not giving tax advice, or not doing tax planning, or the client doesn't have in-depth tax experience or tax planning knowledge. What ends up happening is, guess what? You're giving tax advice, and you're doing tax planning. It's just reckless and careless because literally every time you do something with your money, it involves taxes. So if you're not intentionally providing this value or this service as an advisor, you're almost negligent.
And as a consumer, I don't know, I don't think ostriches actually do this, stick their head in the sand, but you can't just stick your head in the sand and ignore taxes because it's the largest bill that you're going to have throughout your retirement years.
Tommy Blackburn: It's absolutely one of the largest bills you're going to have.
Taxes are pervasive in all things financial, which is why it's such a big focus for everybody, for all of us on this podcast, because it's just a recognition that you cannot ignore it, and in fact you should try to. It's one of the few things that we can control to a degree, which is why we put such a focus on what we can control.
This is an area we know we can add value. We can flex a bit of control over it versus, if you decide to put your head in the sand, that's exactly what I was thinking, or your financial planner does, that is making a decision, and it's not a good decision. So we should make a proactive decision to take advantage of this.
A couple of thoughts, John, as we've been talking to maybe just go further into how important this is to us. John and I were recently talking, and even with other advisors at this study group that we're a part of, and I think almost unanimously. We all identified that tax planning was the most valuable, one of the most valuable areas we focus on.
And if we had to give up, if we could only keep one of our technologies. It was almost unanimous that we would keep our tax planning software. Because that is how much value we place upon this. And another recent interaction, sorry as I put some anecdotes in here, but I think it just hopefully drives it home, is we were meeting with our subadvisor recently, and as we were looking at rebalancing clients portfolios, making some portfolio changes before the end of the year, doing our investment management duty, we really came at it with an eye of, I understand from the portfolio this is perfect, but what are we doing from a tax perspective?
Cause that's probably going to outweigh minor portfolio ramifications with huge tax ramifications. And our chief investment officer one told us a story like I wish my mother would have had an advisor like y'all because they just kicked off gains recklessly without thinking about things, and it's great that you guys are focusing on it.
And it also at times makes us feel like we're unicorns because to us it seems like this is, everybody should be focusing on it. They're oftentimes not as was the cases we were looking at our portfolios, but our clients can certainly get a peace of mind that we're not passively thinking about this.
We are very active from a tax planning perspective.
John Mason: Yeah, maybe it's more important not to rebalance a 62-38 portfolio back to 60-40 if it triggers Aunt Irma and your Medicare premiums go up or you leave the 0 percent long-term capital gains bracket or what have you. Just blindly rebalancing, which is what a lot of people do.
“Hey, I have an idea.” This is what the industry most, you want to talk to 90 percent, I'm making up a number of people that special that do tax planning. As financial planning, I'm doing this in air quotes for those of you that are watching on YouTube as well as just listening, air quotes “tax planning”—their idea of “tax planning” is to throw some municipal bonds into your portfolio.
Dude, that is not tax planning. Just because it's a non-qualified account doesn't mean you should own municipal bonds. If you're in a 12 or 22 percent tax bracket, municipal bonds in a non-qualified account probably doesn't make sense, but if this is the value that we're getting from tax planning from a professional it's actually tax drag.
It's actually hurting you in many regards. Another fun story, Rachel, I don't think you've heard this yet, but we all three are Hokies on this channel right now. And Tommy and I had the privilege of going back to Virginia Tech and we shared some stories about our passions and what we're doing.
And the same thing, we shared with them that our favorite software, the only thing we would not discontinue. If we could only pick one, it was our tax planning software. So then, I posed a question to a hundred students, or however many were there. I said, whose favorite subject in the room is tax? And Rachel, how many people do you think raised their hand?
Rachel Meredith: There might have been one. One.
John Mason: I think there was exactly one.
Rachel Meredith: I think there was exactly one.
John Mason: There was always one. And our message to them was like, okay, so for the other 99 of you, you're either in the wrong profession or you need to buckle up and get ready because tax planning is where you're going to provide your biggest and highest value over the course of your relationship with clients.
And you should have seen their faces, Rachel. They were like, “What? Like what? You don't talk about investments during your client meetings? You talk about tax? I hate tax.”
Rachel Meredith: Yeah, no, it's a dreaded, thankless thing sometimes. And but something I think that would really benefit those students to invest more of their collegiate years and getting more experience.
I think at the end of the day, the tax education comes with just doing it and getting into it and understanding the weeds of it. But yeah, no, it does surprise me how many planners come out of college with such little understanding of the tax side of things. I think that is something that I see a lot.
John Mason: The focus. And we can pick on Virginia Tech. The focus is wrong. We're teaching modern portfolio theory and spending all this time analyzing, “Should I buy the Schwab or Vanguard S&P 500 Index ETF?” And it's we should be focusing on using Holistiplan and doing tax projections and doing things that actually matter.
Spending countless hours determining which ETF is better. That is not going to be the reason that your client stays with you, over a 30 or 40 year time frame. So yeah, I think the focus is wrong, and that's CFP board probably coming down on programs and making them do things in ways that don't make sense.
So it's not the professors; it's not the teachers; it's probably like anything higher up. We could have debates on standards of learning tests and all kinds of stuff on this podcast, but we won't. So maybe let's transition to everybody's favorite tax software, TurboTax. I would love to hear everybody's thoughts on TurboTax.
Do we like it? Do we love it? Do we— hate is a strong word. Do we hate it? Like how do we feel about it? And then I want to hear from both of you cause you both have—I've never prepared a tax return other than probably myself 2010 through 2012, and it was a W2 and I was renting, so it was pretty easy, but I've never actually prepared like a real client tax return before.
I've reviewed thousands but never prepared. As a professional tax preparer, which both of you are, when do people cross the line? When should they think like TurboTax is not for me anymore? I need to do something else. So when do they cross the line? What are the limitations with TurboTax? What don't you like about it? What do you like about it?
Rachel Meredith: Tommy, you want to go first or do you want me to take a stab at it?
Tommy Blackburn: I'll let you take a stab.
Rachel Meredith: I don't want to knock TurboTax. I certainly think that there are taxpayers out there, like you mentioned John, who are taking the standard deduction. And simply have a job where they've got a W2.
And the huge millions of questionnaire that TurboTax puts in front of them, usually they can pare those questions down pretty quickly because their situation is not so complex that they don't know how to answer the question. I think that's how I view TurboTax in the sense of, it's as good as the user who's using it.
And if the user doesn't understand how to answer the questions on that initial questionnaire that all software uses to pare down what's now applicable. If they don't know how to answer that, then they're already making mistakes and in the wrong areas of the software. And so it's really about how much education do they have to understand what they even have. Again, if it's something as simple as a W2 and a standard deduction then absolutely.
I recommend TurboTax over overpaying someone else in that situation in life. But the second you've got a more complex situation, I think it is beneficial to at least understand the questions that you're answering that will then lead you to the actual pieces of the software that you're using.
Tommy Blackburn: And I can't even say that, from us, even as professionals who know where we need to go, those questions are sometimes very confusing. Even with a trained eye, you're like, “What? I know what the answer, I know the answer I need to get to, but the way they've worded this question is confusing me.”
I agree, Rachel. I think TurboTax serves a good purpose. Although we probably should keep in mind, perhaps we can even use a service like Free File if it's that simple. May not even need to pay for a TurboTax. It's good for self preparation. Things I dislike about it is it's gamified the experience.
What's my refund? What do I owe? Am I happy? Mad? And it's disconnected people from the questions can be confusing, and they very rarely see the return. Very rarely do people actually go seeing like, “Where is this actually—what are the mechanics? Where is this really lining up on the tax return and making sure that it's correct?”
I think it's very frustrating for us as professionals when you try to help people in these TurboTax situations like, get the questionnaire out of here and just show me the return, and I can make sure this is correct. I think John and I very much despise the wrong word, but we do not enjoy coaching people through TurboTax.
Which is why too, it's so awesome to have Rachel in our corner now. We're just like, here's a very simple solution here. It's go work with Rachel, and I'm not going to spend hours trying to walk through TurboTax and get it correct. We're all going to save some time and have a better experience here. So that's that's at least my quick to—it has its place but by and large from a professional's perspective and it's just disconnected people too much from the reality of the tax return.
Rachel Meredith: No, I can—
Tommy Blackburn: Go ahead Rachel. Sorry.
Rachel Meredith: I completely agree. You're working in those worksheets, and then you just get a result letter at the end. You have no idea how the numbers really flow. There's no understanding of the actual tax forms, but also that planning part is missing or it doesn't even exist, actually. Why do I have this huge refund? Why am I using Uncle Sam as a savings account this year? Do I even realize that's what I'm doing or am I just so excited that I have this huge refund? I'm not a big refund proponent. I like to plan to keep your money throughout the year. But there's no education on the why behind things.
And so if you're continuing to use something like that year after year and you think you've mastered it, then you might not necessarily be doing the best for yourself or your situation, but then there's zero planning aspect; there's no, okay, perhaps you should be itemizing, but you didn't answer the questions about the types of deductions that you may have.
There's no one kind of looking at that in the background and providing advice over what you should do going forward. So yeah, it's not just a current year user concern. It's a future-year user as well, I think.
John Mason: Yeah, I have a couple of thoughts as well to piggyback on what y'all were saying is the thing that I despise the questions that they ask, because if you're going to ask me questions, let me see all of the questions.
And I spent, we don't do this a lot, but occasionally we're guilty. I'll have to hop into TurboTax for one or two clients every year to fix something. And it was like the fourth year in a row that we're not picking up the long-term care deduction in Virginia. And by now I'm just getting irritated.
I'm like, okay, this has happened too many times. I'm going to show you in the software and to save a dollar in taxes, I probably wasted a thousand dollars of advisor time trying to find out how to do this, but because almost everybody's taking the standard deduction, TurboTax skips over the part where it asks about medical expenses.
And then in TurboTax, you have to go to the medical expense line; you have to navigate all the way through there, and then finally, maybe you'll find long-term care premiums, and then finally, if you do that, it'll make its way to its Virginia return. But if you click one wrong button, an entire slew of questions just evaporates from thin air.
And then, hell, you're never going to find them again unless you basically start over from the beginning. So I'd almost rather like the software, maybe AI is not the right software, but it's like I'd love to give TurboTax a five-minute summary voiceover that says, “Here's everything about me.”
Give me the questions that I need to answer appropriately rather than sending you down these wrong paths if you answer one question wrong. So that's one thing that frustrates me. On the gamifying, I think this is so funny because it's green and then it turns red. If you, oh, I had a client last year who had some self-employment income. Self-employment income is 15% social security and Medicare plus marginal rates plus Virginia.
You could be 40% pretty easy if not higher. So he plugged in 1,000 or 2,000 of self-employment, and he saw his tax bill go from green to red. And he was like, “That was like 40%.” So he just changed it. So it went back to green again. He was like, “I'm not doing that.” And it's because it was just like insulting to him.
And then, we ended up catching that during our strategic planning meeting. And he was like, basically confessed, like as soon as that number turned red, he wasn't having it. So it can also, through the gamification, through gamifying, through making it a game can cause you to do things that you wouldn't otherwise do if you were working with a professional or had somebody else's eyes on the return.
I would suggest, and I know we have clients listening, so disclaimer clients, if you're doing your tax return in TurboTax and we've blessed it and you're doing a good job, this message doesn't apply to you, but if you're like a typical client of ours, 55 or older, who has a million dollars or more, is a federal employee, in or near retirement, and you're working with a financial planner like us that is delaying social security.
You have a non-qualified account that's kicking off dividends. We're doing Roth conversions. To me, that's the line. If you're working with a firm like ours that's at least a time to say, maybe I'm out of my league on tax prep. And I'll give you a few examples why, Rachel, and you do a great job on making sure our clients don't miss this, but we do a Roth conversion in Q4.
We help the clients make the estimated payment. They generate their own tax return. They don't do a 2210, they get dinged with a penalty and an 8 percent interest charge. They go to Rachel, that doesn't happen. Or Rachel makes sure that it all lines up. Or we do a Roth conversion; the client doesn't populate an IRS 8606.
We do a backdoor Roth, and we don't do that correctly. And then the clients literally—some of them say, they're scarred, but “I'm not going back into TurboTax for at least 365 more days.” Like it doesn't matter what you're going to save me. It doesn't matter what the amendment could do.
I'm emotionally and physically drained from this experience. So then they just don't even amend the return because they have this fatigue. That's why Rachel, I think if you're working with a financial planner, it's probably a good chance that you should be also be working with somebody like you.
Tommy Blackburn: A couple things I wanted to add on. One, you said 2210 so that one whenever I've had a client ask, I'm like, “You got to work with Rachel or because I'm not gonna even bother trying to walk you through a 2210.” That's where you break out your income in deductions throughout the year to report the time periods that things are happening. It's not for the faint of heart. Like if we've gotten to that land, you're out of your league in my opinion, I will say, again, I have had one or two engineering clients that they just, they're wired that way and they've got to figure it out and they went through and did it.
I would bring back, John said, if you're working with us and we do these things, but I almost thought you could stop at, if you're working with us, because it means you have a certain fact pattern to your life. You have certain financial means. That it becomes a question of what's the value of your time?
And I realize that you say you can blow through it pretty fast, but it's like you had to compile your documents, you had to mentally prepare, you had to sit down and, at least, say a few Hail Marys, hope that you got it correct, and send it off and just stress around it. So there's a huge value to just letting professionals run with this, particularly when you've built that situation.
John mentioned 8606. That's for reporting; really, it's for reporting Roth conversions and distributions. We also can track Roth basis on there. So there's those forms. And you just can't put a value on the peace of mind and the value of your time around this. So that's at least a few things.
Oh, another one. Actually, Rachel, I think this is a really cool value and very creative, I thought, on your part. Speaking of software last year, for some reason, the tax software has decided that they wouldn't automatically compute a penalty on Virginia. And if you did a Roth conversion, that scenario you outlined, John, and you paid the estimate, but if you didn't annualize it earlier, with that correct form to show it, you would have by default, would be in a penalty.
Now, granted, you can present a case that, no, I wasn't; I paid it on time, but you have to go through that exercise. But if the software doesn't produce the penalty, there was nothing to clue you in that you needed to go through that exercise. Rachel caught this and she even got in front of it because she realized the software had missed it and worked very proactively.
This was the state of Virginia case and resolved this behind the scenes for many clients. I thought it was just really a part of your value prop, how you handled that. And otherwise what you'd be doing is you'd be getting notices afterwards, Virginia saying, “Hey, like you didn't put the penalty on there, et cetera. Let's go through this exercise.”
So the amount of the amount of stress that you probably save clients. By going that extra mile and getting creative kind of going outside of the playbook and just saying, “Let me talk to Virginia and see if we can get around this.” And I think a few clients were pretty excited even as you were talking them through what had happened.
So that's at least one small example, but just you'd never know what's going to be thrown at you in having somebody like Rachel in your corner.
Rachel Meredith: Thank you. Yes. No, Virginia, fortunately is, I'm sure some people have some complaints. People don't like to pay tax, but Virginia Department of Taxation has a lot of really capable agents who are very responsive and also willing to think outside the box as well.
I was fortunate enough to be able to work with one specifically to help resolve that issue.
Tommy Blackburn: But you took the initiative, you spotted it, you took the initiative, and you took the burden off of folks.
Rachel Meredith: I hope I did. Yeah, that's the goal.
John Mason:And you took the burden off of us. It was awesome at tax time, like when we knew it was being taken care of, we didn't have to go back and fix it.
So thank you for saving us a bunch of time and our clients a bunch of time. So Tommy, you mentioned buying back your time, and yes, like our clients have financial resources that many people don't have. People listening to this podcast probably find themselves in the same camp. So it goes back to the idea of outsourcing.
Yes, you're probably capable, many of you, to generating your own return. You're capable of cutting your own grass. You're capable of changing your oil. There's all kinds of things that you're capable of doing, but we also have the ability to allow ourselves not to do it if we can buy back our time and pay somebody else to, so maybe Rachel produces the exact same return that you would produce on your own, but you don't have to anymore.
That's worth something. It's probably worth a hundred percent of her fee. And then she's probably going to catch something that even makes that fee like a win for you. Like she found something in an excess of that. So I have one good client. I need more than one good client, but I have one good client who I'm thinking about who does an RV trip every year.
And I don't think they're hiring Rachel this year, but they've hired a professional tax preparer in the past. And if anybody's RV'd before, you know that internet can be spotty. You may or may not receive all of your tax documents. You're hopefully not on campground Wi-Fi trying to do TurboTax.
That's not good. That's cyber issues, and you should be enjoying your camping trip. But I just think about this couple and they're RVing throughout the United States. January, February, March, April. The last thing they need to do is stop on that RV trip and prepare a tax return. It's just not a good use of your time.
You're in your go years. You're seeing the country, and the last thing we need you to do where you should be out by a campfire is drinking wine, trying to pound through a TurboTax return. This is not something we want to do. So if that client's listening, I would actively encourage you to have a professional do your return again as well.
Rachel, let's transition to a few quick-hit items that maybe you can help me. And maybe Tommy, you already know this, but help me have a better understanding on IRS Identity Pins, whether or not everybody should have one of those. How about an irs.gov account? Is that valuable?
I'll go ahead and throw this one out there. Filling out returns on paper and mailing them in is not the route we should be going. We should be using, at minimum, we should be using some version of software, and we should be e-filing, or if you paper file, it's going into the deep, dark abyss. Let's go ahead and throw that out there.
If you happen to be doing paper filing and you're listening to this, we would encourage something different. But help us understand, Rachel, identity pins, IRS accounts, and any little tips and tricks that you think would be helpful.
Rachel Meredith: Sure. Yeah, so the identity theft pin that the IRS offers is an annual six-digit pin that you can easily go on to the IRS's website and apply for.
I would say that if you at all have even a thought that maybe your identity has been stolen in any way, then this is worth five minutes of your time. Now the key there is if you're preparing your own return, you need to hold on to that IRS letter that you've printed off of online or that you got in the mail, whichever way you requested it.
And you need to make sure if you're having somebody prepare that return, that you're providing that accountant with that. Because what it does is if somebody gets a hold of your social security number, they can actually file a tax return as you. And you don't know it until you go to e-file your tax return and it's rejected, and it's rejected immediately because the IRS system already shows that a return has been filed on your behalf with, I'm sure, very fraudulent figures and a huge refund coming your way.
That can take months to even a year to unravel. A lot of horrible phone calls to 1 800 829 1040 where you're online, on hold for hours, if you get to speak to somebody at all. Again, it's a very simple step to help avoid that. So basically, when you go to e-file the return, that six-digit PIN has to go in to allow that e-file to be processed and accepted.
I think that more and more taxpayers are starting to use that. You used to see one out of every 100 a couple of years ago, and now I'm seeing 20 out of every 100. I myself have one. Absolutely. In terms of the portals, I am a huge fan of the IRS online and Virginia, for that matter.
I don't have a lot of experience with other states because I live here in Virginia, but I am a huge fan of those online portals for a number of reasons—estimated payments and tax payments. Huge. You can make them online. You can have immediate proof of payment. You see exactly what your account has credited to your account.
And one of the biggest errors that I see, or it's just issues with tax returns are when people need to make estimated payments or prescribed that by their accountant or TurboTax at the end of the return preparation they forget. They forget to make them. Or they do make them and then don't remember whether they made them or not by the time they get all the way back around to the following year.
Or they make three and then forget that fourth one in January, or don't even realize that because that was made in 2020 in the following year, so this year would be 2025, that it applies to the 2024 return. So what happens is one of the biggest errors I see on tax returns are misreported estimated payments.
So you report that you paid too much, and then maybe you even apply some of that refund to the following year. And now you have a two-year straddled issue with tax returns that are wrong. So having that immediate proof of payment and then having that ability to log into your account, if there's any doubt.
So for example, I have a new client this year, and I can pick on him because I went to school with his daughter at Virginia Tech and see him at a lot of tailgates, but yeah. He had made some Virginia estimated payments, none of which were aligned with the actual quarters. He just thought he should make these, and that was my first concern is let me make sure that I know which payments belong to which quarter.
And then he believed that he had an overpayment credit from a previous year's return, but I saw nothing that supported that. And the last thing I want to do with a brand new client is put an overpayment credit on a tax return that then comes back. Because who's the bad guy? Me, right? Because all of a sudden they're gonna owe that amount plus interest and late payment penalties.
So in this case, I recommended that he go on to the Virginia Tax Portal, set up an account, took under five minutes, and just double check for me. And sure enough, that overpayment credit does not show up, but those other estimated payments do. They line up perfectly. We still in this case think that there is some sort of straddling years issue with this overpayment credit, but it's October.
So now we have time. We have the next two months to contact Virginia and double check and verify that this credit does exist or doesn't exist and why. It's a really proactive way to, just make sure that you have everything. Now on the IRS's side, a new bit of technology that they're starting to explore, that I think will become the norm in the future over the next decade.
There's a notice tab. That notice tab is a much more efficient way to notify clients if something's wrong with their tax return or the IRS is asking questions. In the near future, client, taxpayers will be able to respond to those notices through their portal. Imagine the time that is saved.
Right now, if you respond to a notice via a letter, the IRS has 90 days to respond back. And sometimes the response that taxpayers get back is a letter that says, “We need another 60 or 90 days.” You've got a refund that's held up for whatever reason. The last piece that I think is beneficial to the portal is when people are due a refund, they want to know, like, when are they going to get this refund?
And they can log into their portal, they can see the exact date that their return was e-filed. They can see that the refund is in processing, and usually they can see exactly when that refund is going to hit their account. I'm also a big proponent of using direct deposit instead of waiting on a check.
And hoping it actually shows up to your mailbox. All of my clients hopefully are using direct deposit mostly because I'll bug them to get that information to do so. I'm a huge proponent of the portals. And then lastly, e-filing. E-filing is really no longer a choice at my level. Accountants prepare, paid preparers; we have to do it for our clients.
But certainly if you're preparing your own return or somehow still managing to use paper forms that you get from the public library and mailing those in you're just putting yourself in that queue. And last year coming out of COVID, at one point, there was a 9-million return queue within IRS, waiting to be processed, that, again, does include e-file tax returns, but mostly includes paper that’s just sitting. So when you e-file, you have a record. You have a trail that the IRS has accepted the return, received, and it’s processing it. So I think that we’re now in the modern era that that should be a norm.
Tommy Blackburn: Can we, on the e-file, you said, I didn't even think I would go here. And we want to go back to a lot of other good stuff you said, or a different track John wants to take us down.
But, accepted the e-file. I feel there is a big misconception out there that, “Hey, I filed and the IRS accepted it. It must have been right, I'm good.”
Rachel Meredith: Yes. No, you're right. That is definitely a term that can be misunderstood or miscommunicated. I do always send an email out to my clients to let them know that their return was accepted.
And that's the term that we use as paid preparers and accountants. And yes, when you e-file the return, the manner in which that happens in the background, the IRS or any other taxing authority state has to actually acknowledge they received it, and so that's the acceptance. You have two choices.
It's either going to reject or it's going to be accepted and then goes into the processing queue. So you're right. The term acceptance does not mean that within 24 hours of e-filing your tax return, the IRS has already reviewed it and said it's acceptable and everything on it is correct and you're good.
That is not what it means. Really good point. I should probably be a little more clear when I send out those acceptance emails, but really what I'm doing is letting the clients know, “Hey, I got your e-signature e-file. I have e-filed it and it has been accepted. So the next step is hopefully you'll get your refund within the next three to six weeks or make sure you make that payment that you have to make with it.”
Tommy Blackburn: It's great communication on your part, and the comment wasn't directed at you. John and I sometimes have to work with other tax preparers or even when people file on their own. And sometimes when we spot egregious things, and we can put all of the evidence, the law, the case, the regulations, whatever it is, like this is wrong, and you shouldn't do it this way.
Sometimes you get the pushback of what was the, if the IRS took, the IRS is good with it, and it's no, they haven't audited it, they haven't blessed this, they just accepted it, they may or may not look at your return closer. I think it's just worth saying just because the IRS accepts an e-file doesn't mean that they have blessed your tax return.
Rachel Meredith: There you go. That's a great way to put it.
Tommy Blackburn: Yeah.
John Mason: Except does not mean agree, right? These are two different things and you may not find out whether or not they agree with you for two years.
Rachel Meredith:Yeah, absolutely.
John Mason:For whatever reason, it takes a year or two for them to come back and be like, “Hey, you remember what you did two years ago?
We think it's wrong.” Prove us why. And then to Rachel's point, they send you these beautiful IRS notices, and they're like, “Oh, by the way, your response is due tomorrow.” That's I thought I had time, so hopefully the online portal will give us a little more ability to respond to those notices, not under fire.
If you're a client of Mason & Associates, and you receive a notice, we help you respond to those, which is awesome. If you're using Rachel together, us and Rachel will help you respond to those. So don't freak out if you're a client of ours, we'll help you respond to those. And yes, they happen because we do creative tax planning.
And when you do creative tax planning, the IRS sometimes needs to see into the situation or have a little more clarity.
Tommy Blackburn: They may not have all the information.
John Mason: So a couple of things opm.gov, servicesonline.opm.gov, the socialsecurity.gov, probably medicare.gov, and certainly irs.gov all want you to log in now through login.gov. So just be aware that maybe this is going to be a little more painful for you to create an account and then link it to your login.gov. And certainly make sure you set up multifactor authentication using something like a Google Authenticator, a YubiKey if that's available, or any sort of like true multifactor app that you can have on your phone.
At the end of the day, text message and email is also better than nothing, but we would certainly prefer more of the advanced multifactor authentications. Tommy, note for us, I don't know where we make this, is I think every strategic planning meeting season we have a couple value ads or talking points that we want to share with clients.
So for me, I'm going to get an identity pen, and congratulations if you're listening to this podcast. So we normally say, “Congratulations for tuning into the Federal Employee Financial Planning podcast.” Congratulations. You've been hacked. All of us have, we've all been hacked. So my son, I got a letter that my son, less than a year old, his information was compromised from the hospital he was born in.
He didn't make it one year on the planet before he was compromised. So chances are. The three of us, plus everybody listening, plus most people in the country have been compromised. So let's make this a point to talk about identity pens, irs.gov portal, Virginia portal. I think that'd be a really good value add.
One more thing, and then we're going to transition to some closing comments and thoughts, I think, and maybe action items, is that the value of working with a financial planner and a financial planner who's either doing taxes in house or works with somebody like Rachel is if we help a client make their estimated tax payment, we immediately download the receipt, store it in our online document storage, and then guess who we send it to?
We send it to Rachel. And then on the tax letter, guess what we put? We did these estimated tax payments on these days for these quarters, and it goes on the tax letter. So if you're working with us and we're assisting with those payments, we're putting it on your tax letter to remind you if you're preparing.
We're putting it on your tax letter for your tax professional to review. It's a new thing, so if you're a client of Mason and you haven't received a tax letter before, it's a lot of work and we're trying to scale it up so that everybody gets one. But the future is that you, yourself, your tax preparer has the data, whether it's the estimated payment receipts or the tax letter.
It's also very helpful that if you're doing this on your own because you're good at that, great, upload the receipt to us, upload it to Rachel immediately after you've done it. You don't have to wait, Rachel, right? We don't need, clients can send you stuff all year long, you would prefer that.
Rachel Meredith: I would, absolutely, yes.
So I have a year-round available portal that does track and notify me of all documents uploaded. And then, just to throw in this point with our shared clients and the collaboration that we're doing, obviously one of my goals is to ease the burden of taxpayers and from all angles. And one way that I think that we do that well with shared clients is that Mason & Associates provides me directly 1099s. You guys get those.
You know that they've been uploaded to your system the second they come out. And you turn those around within hours and forward those to me securely. And same with estimated payments. If it's something that you've recommended on your end, you're providing me with that documentation.
When I go to ask for the client's documentation in January, I don't use an old-fashioned 30 page printed-out tax organizer that has 25 pages that don't apply to that specific client. I use a single checklist. And that checklist is very mindfully has been gone through. I've looked at your Mason tax letters in the fall, and I've made some comparisons, and I've tried to nail down exactly what I need from the client during tax season and only what I need.
So tsometimes cumbersome 20-page long 1099 composite forms that half of those are instruction pages. Clients, our shared clients, do not need to scan those in or download them and upload them to the portal. We are handling that directly with each other to get that. It really does knock off, I think, a number of documents for the client to have to be responsible to upload as well.
But yes, charitable contributions, personal property taxes, all the things that you've lost or forgotten or have no idea where you filed them come January, February, upload them to your portal now. And we don't have to worry about it in the springtime.
Tommy Blackburn: A little bit of a—hopefully it adds on to this of sharing of information and being proactive.
You never know these random cases. So there are things like the 1099s every year that we're gonna share. Some typical, there's a cadence to things and that's going to happen and it's going to make everybody's life easier. But Rachel, I was thinking about the other day I uploaded a document to you, which is also funny because we get busy.
I noted it in the tax letter we'll give to Rachel, but I didn't say anything else. And she was like, “Why did you upload this 2020, 1099 to me?” And the reason was, is that a client was taking a distribution under 59 and a half from their Roth IRA. So at this point, we know we're fine as long as it's basis.
However, their Roth IRA was formerly in a Roth 401k. So I just began to connect the dots, like Rachel's going to get this and we're going to have to go through this in the spring. If we don't just do it now. And so I reached out to the client was like, Hey, before one, before we do the distribution, we'll double check.
They found that 1099 showing the basis inside of the old Roth IRA, their after tax contributions, which then rolled into the Roth IRA said, “Yeah, client, we're good. There's no tax, no penalty. We'll get it out.” And now Rachel has it. So she knows very much come tax time what's already happened and already has the ducks in a row.
So it's not the biggest thing, and it is somewhat of a random example, but this, you just multiply it by hundreds. This is what happens. And it's just to make—there's a lot of value there. It makes everyone's life easy as well.
John Mason: I do love how Rachel's like, “Why? Why are you giving me this?”
Rachel Meredith: Do I need to do something with this?
John Mason: You didn't email me. What is this? Or one time I think you emailed, you were like, guess Joe did his Roth conversion already. I'm like, “Actually, no, something else happened.” And it was like, “Oh, cool. Good to know.” So that's the value of working with a team of professionals, it's going to provide a high level of service, not just at the lowest cost.
So let's transition, if y'all are okay with it, to any closing thoughts, action items, and then hopefully everybody's enjoyed this. I know I have.
Rachel Meredith: Yeah.
John Mason: So Tommy, any closing thoughts on your end?
Tommy Blackburn: We've hit on a lot today. I think you don't know what you don't know. There's value in working with experts and professionals.
There's also just a value to your time. So I would not underestimate that. You delegate many things in your life, whether you realize it or not, because you didn't build a car you drive in, you don't run the phone service you're working on. So you've delegated many things. Think about that in other parts of your life as well and having the professionals in your corner it's peace of mind, it's get your time back to work on something else, and most likely it's going to provide exponential value.
And I think another quick takeaway is go get that IRS in Virginia account so you can have oversight over your information.
John Mason:Thank you, Tommy. How about you, Rachel?
Rachel Meredith: I think that there's a lot going on that taxpayers are getting from every angle of society and media, and their neighbors next door who have somebody that did this for them that saved them tax dollars but they really can’t actually explain it.
I think that everybody is just hearing a lot of thoughts and don't necessarily know how any of this news or potential tax laws or tax laws that have actually gone through actually affect them. And I do think that's where we can really provide value, and just take again that burden of not knowing.
Not knowing how this really affects me. Some people call it a write-off. It's not a write-off if it's not a business. It's a deduction if it even qualifies.
Tommy Blackburn: Who writes it off? They write it off.
Rachel Meredith: I think that I think that's where I really find reward in working with clients and helping educate them on Yes, I know your neighbor said that they're doing this, but it absolutely does not apply to you and isn't a good idea, and I want my clients to call me to email me to tell me before they're considering doing things so that I can help figure out whether it is actually the best thing for them. You shouldn't always keep up with the Joneses from a tax perspective.
That's not necessarily a good idea. Everybody's situation can be different, whether it's how many children they have compared to, do they have K-1s and outside investments? There's just a lot of moving parts to some people's financial situations. And I think that we can take away the mystery and what they don't know just off the table and hone in on exactly what they should know and how we should be handling things as well for them on their behalf.
John Mason: I love the don't keep up with the Joneses; as far as you don't need the boat that they have if you want a boat get a boat if it if you can afford it in your financial plan, but I don't mind sharing this story.
My dad's got friends at a local country club that he plays golf with and they keep telling him, “Mike, you're paying too many taxes. You got to do this. You got to do that.” And he's who's the CFP here? Just because y'all are going rogue and you have people that are wild, wild west of CPAs that have somehow reduced your income to zero doesn't mean I'm not paying the right amount.
But even Mike being a certified financial planner who does tax planning for a living, yes, like when you hear people are paying zero and you hear these stories of people pounding their chest on the deductions that they're taking or what have you, it can cause you some angst. It can cause you some to do things you shouldn't otherwise do, so I love that not keeping up with the Joneses. So I don't know if we'll be able to link these, but if you've heard a few podcasts, we like movies and TV shows and stuff.
The episode in Schitt's Creek, that's not a cuss word. It's a place and a TV show. David is starting a store, and he tells his dad that it's a write-off, and he's writing off everything. So if you've never seen that episode, you may not appreciate it until David, but Schitt's Creek—is this a write-off scene is hilarious.
Also. I'm probably going to do this video on YouTube separately, but Bull Durham with Kevin Costner, he's a pitcher and in his final game, he's pitching and I forget if he throws a perfect game or whatever, but he's in Yankee Stadium. The crowd is loud, and he's like, “You always know when you're in New York.”
And then he gets ready to throw the first pitch. And before he does that, he says, “Clear the mechanism,” and everything gets quiet. And it's wow, like that's what we need to do as people in this country today. That's what we need to do is we need to clear the mechanism. We need to tune out the noise, and we need to focus on the next pitch.
We need to control the things we can control. We got to clear the mechanism, tune out the noise. Don't keep up with the Joneses. Tax planning ends December 31st for this year, and then it picks up again January 1st for next year. So anything that you want to do to impact how your return is going to come back on April 15th of next year, you've got about two months to get that done.
Really about 45 days, because nothing happens after December 15th in most places. So you've got a little bit of time to implement change or effect change on your 2024 return. Ultimately, I think the tax laws change guys five times, 10 times, 20 times since I've started working. I don't see it getting less complicated.
Every time they say it gets less complicated, it gets more complicated. So it's only going to get more and more complicated. Hire a professional; have somebody looking over your shoulder. Yes, you can answer the questions in TurboTax, and the IRS may or may not agree with you on your responses, but this is not something that will ever get easier for you over your remaining lifetime, at least in our opinion.
Folks, this has been another episode of the Federal Employee Financial Planning Podcast. Thank you, Tommy. Thank you, Rachel. Thank you, audience, for being on this journey. Today is October 23rd. This should launch sometime mid-November. Can't believe it's been three years, Tommy, of the Federal Employee Financial Planning Podcast.
Thanks for being my partner, my teammate, and I look forward to, soon, we'll be in our fourth year. So thank you both very much for being with us on the Federal Employee Financial Planning Podcast. We are Mason & Associates, masonllc.net.
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