ould anyone in their right mind sit down from scratch and develop the tax withholding system we have today? The IRS publishes tables telling employers how much to take out of everyone's paycheck, depending on their income, their filing status, and the amount they guesstimate they'll be claiming in deductions and credits. Then, at the end of the year, employees file their actual returns and hope it's the IRS coming out on the short end.
Lots of Americans use the tax withholding system as a piggy bank. Yes, letting the IRS hold your money for a year amounts to giving them an interest-free loan. And no, they won't do the same for you. But with savings accounts paying just a hair over 1% right now, plenty of taxpayers decide the forced discipline is worth more than the interest they give up.
In 2018, the average refund amounted to $2,782, which is enough to cover some bills, take a nice weekend trip, or maybe redo your family room for big-screen TV nirvana. But one enterprising 29-year-old named Christopher Blanchett found himself in a position to snag a refund worth writing home about. And when you hear his story, you'll realize that sometimes these stories of ours just write themselves.
Two years ago, Blanchett sat down to file his return. He had a W2 from a Sizzling Platter restaurant where he worked in Utah reporting $1,399 in income and zero withholding. And somehow, he had a W2 from a Tampa nursing home showing $17,098 in wages and a million dollars in withholding. But where you or I might have thought, "hmmmm, something looks off," Blanchett smelled opportunity — and he chose not to look his gift horse in the mouth.
So Blanchett chose to file his return with a straight face, based on those W2s. In due time, the IRS sent him a check for $980,000. He took that check and deposited in Sun Trust Bank. Sun Trust suspected fraud (ya think?), froze the funds, and eventually sent the money back to him. So Blanchett took that check and deposited it into a credit union, as one does, "falsely representing that the funds were from the estate of his deceased father."
And what did Blanchett actually do with his new-found wealth? He bought himself a used Lexus RC 350 sport coupe. Now that's not a car to sneeze at. The Wall Street Journal calls it "a capering boulevardier with a soundtrack of cute, kitteny growls." You can get one with all-wheel drive, heated leather seats, and Apple Carplay® integration. But really . . . a Lexus? That seems like an awfully mild play for a seven figure score. (Seriously, you'd think at least part of that windfall would find its way to a Ferrari dealer.)
By that time, the IRS had realized maybe there was a problem with a guy getting back 53 times his income in a refund. Last month, they seized $919,251 that was left in his bank accounts, along with the Lexus. And they're looking to take $809.94 that Blanchett's insurance company refunded him when he canceled the coverage on the Lexus. (Kinda like the Grinch taking the last can of Who Hash, right?) Prosecutors haven't filed charges against Blanchett, at least not yet. But it's a fair bet this story won't end well for him.
There's no real lesson in today's story, other than don't be a bonehead. But there's a great way to give yourself a nice refund, and you won't risk the IRS showing up with a tow truck and making off with your wheels. That answer, of course, is planning. So call us when you're ready to save, and enjoy the ride!
The problem stems from not knowing what you don't know. And if you've started a small business, it just might be time to start thinking about how to Grow Your Business and Keep More Money. The Right Way!
Just a couple of generations ago, it just wasn't polite to discuss money. We mostly knew who was rich and who wasn't. But it wasn't until about 1984, when crack investigative journalist Robin Leach launched Lifestyles of the Rich and Famous, that Americans began following celebrity houses, cars, and bank accounts with the same gusto as batting averages and quarterback ratings.
Today, of course, everything is different. The Forbes 400, along with local business papers, blow the whistle on executive salaries and net worths for everyone to see. Glassdoor.com lets you see how much your colleague in the next cubicle makes. And Zillow lets you (sometimes literally) peek into your neighbors' houses and see just how much their kitchen remodels added to their value.
So, with tax season just getting off to a roll, we got to wondering how much tax professionals make? Last week, Forbes magazine dug up some data from the Bureau of Labor Statistics that show the average tax professional isn't rolling in the sort of rock star money everyone expects!
For 2017, the average tax preparers earned $38,730. That's actually less than the U.S. average of $44,564 for a 40-hour workweek. Of course, that figure covers a wide range, with the bottom 10% earning under $20,170 and the top 10% clearing over $81,740. Many tax preparers work seasonally, which drags down the overall average. (Fifteen years ago, "Jeopardy" champion Ken Jennings finally crashed and burned after 74 games when he couldn't name the company whose 70,000 seasonal white-collar employees work only four months per year. The answer? H&R Block.)
Unfortunately for those who do nothing but prepare returns, job prospects aren't especially bright. (And it's not because the taxes themselves are going away.) Technology, which used to help preparers do their job more efficiently, is now threatening to do their jobs for them. That's a real threat to the sort of storefront preparers who just record the history their customers bring them.
For the same period, the country's 1.24 million accountants and auditors, whose broader responsibilities include preparing financial statements and giving actual advice, earned an average of $77,920. The bottom 10% bring in under $43,020 and the top 10% over $122,220. State averages ranged from $95,430 in New York to $59,960 in Mississippi.
Tax lawyers generally don't prepare many tax returns. They also make considerably more than preparers and accountants, according to the website Salary Expert, pulling in an average of $145,746.
And how do prospects look for the rest of the tax industry? The Wall Street Journal recently published a report on the Tax Cuts and Jobs Act, and reported that, "many of the jobs it is creating, it turns out, are in the tax industry." Firms are fighting for qualified employees. The paper quoted one executive as saying "There's no doubt that the talent wars in tax have definitely heated up." (Can you imagine talent wars in tax!)
So what should we conclude from our nosy snoop through tax salaries? It looks to us like the real news is tax pros who tell you how much you owe earn a decent income — but those who help you pay less are worth more. And in the end, isn't paying less what you really want? So call us when you're ready to save, and see just how valuable we can really be!
If you own a small business or are self-employed, be sure to attend my workshop "Grow Your Business, Keep More Money". Not only will you learn how to set yourself up for success, you'll be able to learn how you can stop wasting money on taxes you shouldn't be paying!
America's economy has morphed throughout our history, starting from agricultural to manufacturing to service to technology. Now it seems we're moving towards a celebrity-based economy. The world is full of D-list celebrities competing for attention: third-rate rappers hoping to break through their own noise, random Kardashian cousins, and spurned bachelorettes fighting for one last rose. (If you're ever invited to compete on Dancing With the Stars, you'd better hope you were nice to people on your way up, because you're about to see if they'll be nice to you on your way down.)
America's unlikeliest new celebrity is a Japanese woman named Marie Kondo, who created a mini-empire around The Life Changing Magic of Tidying Up. She's spun the concept into a line of bestselling books, including a graphic novel, and an eight-episode series on Netflix. (No doubt there's a line of designer-branded plastic storage bins headed to a Target near you soon.)
Now, you're probably thinking you've got to squint pretty hard to find a connection between tidying up and taxes. (And you're right . . . cut us some slack, it's not always easy to come up with topics every week!) But once that connection jumps out, you'll wonder why you missed it all these years.
The KonMari method starts with holding a physical object and asking yourself a simple question: does it spark joy? If so, find the right place for it, and enjoy how it adds to your life. If not, respectfully let it go. She suggests you start with clothing, because it's easiest to discard, then move on to books, papers, "komono" (miscellaneous "stuff"), and finish up with sentimental items. Kondo even prescribes how to fold the clothes you keep — nearly a million people have watched a video of her folding socks.
Now, try this with your money — take a look at where it goes. There are plenty of expenses that really do spark joy. A family vacation, a kitchen renovation, or even a night out on the town all bring a smile to your face and make you feel good about yourself and your choices. Even big-ticket bills like your children's college tuition spark joy as you watch them prepare to succeed in life.
But if you're like most of our clients, your biggest single expense is taxes. Does writing those checks (or seeing them deducted from your paycheck) spark joy? Maybe at the local level. Plenty of people vote "yes" on local levies, then gratefully enjoy their schools, parks, and libraries. But very few people find joy in sending up to 40.8% of their income to Washington and watching the people in charge of spending it shut down the government for five weeks because they're more interested in scoring points than solving problems.
Now, the world is full of tax professionals who are happy to take those W2s and 1099s that are starting to clutter up your desk right now, and assemble them into a tax return. They'll tell you how much you owe, which is what you need. But very few of them will tell you how to pay less, which is what you want. To continue the Marie Kondo analogy, they'll help you inventory your closet. And that's important, because you'll need to know where that ugly Christmas sweater is when next year's party rolls around. But they won't help you clean it out. Because, really, ugly sweater?
So, ready to clean up your tax bill? We'll work through your business, your retirement, and your investment portfolio. We'll fold it all into easy-to-pack little balls. You'll love the feeling of zen and you might even see your blood pressure drop. So call us when you're ready and see just how tidy we can help you get!
Remember: You can't strategize your taxes with a box of receipts. Learn how to get control of your money and get it to work for you by attending my "Grow Your Business, Keep More Money" workshop. Click HERE for more info. It's FREE!
"10 Most Expensive Tax Mistakes That Cost You Thousands"
"5 Things You Forgot About with Your Small Business That Are Costing You Money"
John Leidy, EA
DIY Books Coach
It was the third day of the very first income tax course when I realized that it will become my mission to help people understand their taxes better to be able to make better decisions and STOP wasting money on taxes they should not have to pay.