Odd answer to question to tax preparers

Not a Canadian but I have already contacted a tax preparer about my future taxes as I go from married to single next year. They are what is called an "enrolled agent" group so while they will not know the specifics they should at least be able to make an educated suggestion of how much I need to have withheld now that there are no longer any large medical deductions.

For many I think it is more of a question of how to receive a refund next year rather than how much should I be having withheld.

My CPA does that as a matter of course. She knows about new regulations or proposals that affect us, and suggests what we need to do to fulfill the requirements. She told us about a new one for this year which will save us a fair bit, and it simple record keeping, no change of strategy or anything.

Depends on what you want....what and how to prepare for tax regs....ok...how to invest, etc., use a trusted Financial Advisor . You need both. Unless, of

course, you are smarter than anyone else and know all the answers to

everything...then you are already set. ;)

You don't really want a "refund". That just means you have loaned money

to the Government, interest free, for the year.

This year was the first year we had issues with our taxes where we needed help from a professional preparer. They provided suggestions at the end of the session, just as a matter of course. I don't know if that is typical or not here in the US.

We always wonder about a similar question. Ask someone who's not struggling, working the same job you are, "how they do it". My husband is constantly talking young guys, in their 30's, out of buying a new truck. There was a big hail storm, the insurance paid off the truck they were driving as totaled, then drive it debt free....no monthly payment! right! Don't go back into debt buying a NEW truck.

Probably just me but I do not care if I loan the government extra money for part of the year. I just never wanted a large tax bill that I needed to pay when I filed. It is a peace of mind thing as I have seen others frantic about how they were going to satisfy IRS on Tax Day.

The tax rules that most individuals face are pretty simple and relatively straightforward. Computational complexities are handled by software. The rules and concepts may be unknown or a puzzle to the average citizen, especially when encountering something new, but few people face anything difficult.

Mostly because of how perfunctory it is, most tax return preparers can do an adequate job with only a bit of training and experience. Such people, especially at the lower tiers like Enrolled Agents or lower, usually don't have the training, the experience nor the mindset to do true tax planning. They can answer questions within the sphere of what they do but proactive planning takes different skills and a greater complexity of financial options than most people have. All should be able to answer one-off questions - "What happens if I rent my house and live in my RV", or, "what happens when my mother dies" or "What happens when I take money out of my IRA"- but their training and work isn't oriented to do forward thinking. Other than maybe to share things an individual has done that may have better tax results if done a different way.

Back to the original question, I'm amused and baffled by how many people think the key to better financial rewards is to obsess over their taxes. The truth is, for most people, their income at a gross level is 3 or 4 times greater than their taxes. A far greater benefit is gained by focusing on income- have you considered wage level consequences of your choice of occupation? Could you get educated or trained to do something else you'd like but with greater rewards? Could you make more doing the same work for a different employer or in a different area? Have you considered putting your money in a bank that pays higher interest, or in a different interest bearing investment with a better payoff? Etc.

These are the kind of questions that matter. Too many obsess over the pennies of taxes and ignore the dollars of their income choices. My advice to my own kids, very early on, was "try to increase your annual tax bill by 10% or more each year". Why? Because as long as the tax rates are less than 100% (and they are so, everywhere), when your tax bill goes up, you wind up with more left in your own pocket or purse.

For most people, the tax is what it is. Options to produce lower taxes are limited.

When making decisions my DH contacts our CPA regarding the tax consequences. We are now selling property. the buyer came back requesting a two payment plan, my DH conferred with the CPA about the best timing for an installment sale with the terms being in our best interest.

Elmer, I disagree, tax consequences can be great for many people. Understanding the tax effect and advance planning can put lots of money in your pocket. Of course one needs to make money to pay tax, but two people with the same income can net very different amounts based on their tax planning. Its not just about how much you make its also about how much you keep.

C Marlin, maybe my explanation wasn't clear.

I didn't say income taxes aren't costly. What I tried to explain, apparently poorly, is that for MOST people in MOST circumstances, I believe the rules and outcomes are pretty straightforward with few options. It is what it is. Not always, but usually for most people.

You asked your CPA what happens when you sold property with one wrinkle you were uncertain about. It wasn't complicated, it was just unknown (to you) and the question was apparently answered. There's no complexity to that. Options, had you asked, to avoid paying tax? There are two - do a Sec 1031 exchange or hold on to it until death - your heirs get a step-up in basis and no cap gain tax is paid. Again, very straightforward.

I'm a retired CPA (who dabbled with individual tax at times in my career but really focused on corporate taxation), better acquainted with tax rules (even as that fades with time and changes) than with clear communication in English.

For simplicity, I didn't mention all the details of my tax question as it wasn't pertinent to the subject of tax planning. You said you are well versed in taxes so you already know not all real estate transactions are straightforward, it is foolhardy for you to make a brash statement that the answer is indeed very straightforward. Thankfully, I'm not expecting tax advice in this thread.

The taxation of real estate transactions is usually very straightforward for someone whose profession is to deal with them, as a CPA or tax lawyer.

Transactions of any kind, whether real estate or others, can have wrinkles both common and uncommon. But once understood, the tax outcomes are rarely uncertain or puzzling.

Unknown or puzzling to an uninformed participant doing something different or for the first time? Of course.

Let's start with the fact that about 44% of Americans pay NO income tax. This is not due to any legal high jinks, just that they earn so little that they pay no income tax. A great majority of those who do pay income tax only have W-2 forms and perhaps a form with your interest earnings. Most used the "short form" even before the new tax law. Their finances are pretty simple. This year, I did not benefit by itemizing my return, even though I own a house and have multiple sources of income and other property tax deductions and also charitable giving deductions. My tax due was less if I used the new standard deduction.

When most people sell their house, it is again, a simple transaction, Very few do financing for the buyer - they just get a check at closing. Most people know that they have a capital gains exclusion on their house up to $250,000 for an individual and $500,000 for a couple. Since most people live in houses worth far less, it's of no consequences to them anyway.

If you're not like most people, then you need to pay a financial advisor and lawyer who specializes in estate planning. It's not something for an online forum.

For general questions unless you have lots of investments vs my few stocks held for long term investment, various 401's and pensions using a CPA is good advice but most people including myself do not have more than what should be able to be plugged into a computer and an answer spewed back out. I already know based on my income that once I claim single I will need to pay more. Have not paid state taxes for years but now will. Having some idea of the amount to have withheld will assist me in planning. I like planning it has kept us out of trouble.

We were taking our taxes to an accountant who's been in business and long time and has worked for the CRA. Since we both work(ed) from home I put in receipts for deductions. He said they weren't allowed.

We then tried a different accountant for the past 3 years and she said that they were absolutely allowed and even more things which we hadn't thought of. We've been getting a refund ever since.

jasdip, you certainly know that in any occupation, competence is not equally distributed among those who do such work nor to be assumed. The famous bell curve applies. In the US, I saw in my career that there is a wide range of competence among those who do tax work, including those with various credentials such as EAs, CPAs, practicing lawyers, etc. The credential is an indication of training and background but not always an indication of ability or smarts.

Have you had contact/an audit with Revenue Canada about these issues on your more recent returns? If not, there may be no way to know yet which of the two (first one No, second one Yes) was correct.

Elmer, this year when the accountant e-filed my return, it was accepted, but said "under Review". I thought Yikes! But I got a letter in the mail, saying that they reviewed my return and actually found a further $12 refund. So all should be good. (I hope)

Our CPA includes a "Three Year Comparison" when we get our Tax information back from him. It show "Prior Year, Current Year and Coming Year" ie 2017, 2018, 2019. If I have provided any information to him about expected changes to our income/expenses/investments, the 2019 information reflects that.

Does the CPA do that or does the software he uses do that? I do my own return with Turbo Tax and a two year comparison is something it does automatically.

I'm not sure what good including a future year in the comparison does unless you're using expected changes to this year's info to compute estimated tax payments.

Elmer I will be able to file as married for 2020 but without my husband's medical deductions. With similar income in 2021 I will need to file as single. There are some that that will be doing the reverse. There are also those that will be retiring in states that do not or only partially tax pensions. Are you really advising those in similar situations not to compute at least an estimation of what could be owed or refunded?

No, not at all. Anytime someone's situation changes, whether because of changes in filing status, significant changes in income or deductions, changes in state of residence, significant law changes that bear directly on one's tax situation, or whatever it's always good to know what to expect. Plus, for people who make quarterly estimated tax payments, it's essential unless you're sure your tax is increasing and if one of the prior year exceptions may or may not apply to postpone tax payments.

I really don't give specific advice from a distance. If you have questions, you should consult with a competent tax preparer who has all the facts at hand.

So as to avoid semantic confusion with the word and world of "Estimated Taxes,", a specific technical term, most would prefer to call a look at a future period a "projection", not an estimate or estimation. I knew what you meant and there was no misunderstanding so no problem, just a suggestion.

Good luck and best wishes.

You are making ignorant statements as you have no knowledge of our experience or transactions. I've told you already it is not straightforward, but you with no knowledge insist it is. Don't you feel just a little silly making such uninformed statements.

And C. Marlin, I believe you are picking nits! Elmer made very clear that his remarks addressed most people under most circumstances. Of course there can always be complications or intricacies of real estate transactions that can be less straightforward but for most individuals, it is pretty basic.

I have no specialized tax training at all but in my previous life, I analyzed personal tax returns to determine creditworthiness and cash flow generation for my commercial real estate banking clients, typically developers that had a great deal of their assets tied up in income producing properties. Even with these far more complex transactions than most individuals will ever encounter, the tax impact was still very basic. The accuracy of my evaluation had a major impact on whether or not these clients were granted multimillion dollar loans, so it is by no means rocket science for anyone with some experience in financial analysis to make a similar asessment.

In 35 years of practice with a wealthy, financially sophisticated and push the envelope client base, I never encountered an individual or small business real estate tax issue that was ultimately complex or difficult to resolve. I didn't immediately know all answers to all questions but all could be resolved. That gives me a basis for a presumption about your matter. I will say I didn't work with people who developed/owned Section 8 housing or anything like that, but that's a well travelled path too.

What you've described is a vanilla installment sale. (for reference, I had an installment sale question when i took the CPA exam what seems like one hundred years ago, that's how old those rules are). Maybe that's not all of it but that's what you described. Unless you're embarking into something new like the Qualified Opportunity Fund world, recently enacted to encourage development in depressed areas, there's not a lot of uncertainty wandering around.

You can assume your's is the first one I've encountered if that makes you feel better.

C Marlin, aren't you being rather judgemental?

It's been my experience that Elmer has wide training, including in accounting, has experienced a number of countries, and while opinionated, has often said that, lacking knowledge of specific situations, can't offer more than general opinions.

ole joyful

C Marlin, if you notice, Elmer said "If you have questions, you should consult with a competent tax preparer who has all the facts at hand."

I read the original post as questioning peoples tax planning. My experience with multiple real estate transactions has shown me with planning before the final sale one can structure the transaction for better tax benefits. Yes, it can be straightforward but one may pay higher taxes if tax consequences are not considered before agreeing to certain terms. Why more more taxes if one can save money with a little planning.

I'd also add the comment to include many taxable events one experiences, better to plan ahead than learn you did it wrong after the fact, simple thought.

The property I'm working on now is a large parcel in a foreign country which can be sold in different lots in different years, taxation must be considered in two countries and terms of sale which are interpreted differently in each country.

I am well aware many real estates sales are straightforward and some should not be, as it may cost you more money, another simple thought.

Yes, of course, I agree fully with your comments.

But in this case the path for "tax planning" is clear, an advanced assessment of how the transaction will be treated and perhaps consideration of alternatives concerning structure and timing. There isn't seamless congruity between the tax rules in different countries, so there can be dissimilarities that provide opportunities or disadvantages. Determining which rules apply and how should be clear, it's the facts that may be flexible and likely tax treaties (if the property is in a country the US has a treaty with) and foreign tax credits may be involved. Not vanilla but not complex either, it's straightforward for an adviser who has the right resources and experience.

Good luck.

My original comment related to whether some taxpayers asked simple (non-accountant) tax preparers whether they had a suggestion or two that might enable them to change plans a bit to enable them to reduce the tax load - and almost all said that no one had done so.

Basically, to get a rough idea whether ordinary taxpayers who weren't using accountants might have an interest on their own in taking a first step toward reducing their income tax load.

ole joyful

joyful, my comment up above was, in my experience, the tax return preparers that many people deal with aren't oriented or capable to answer such questions. Nor do most people have a need, ability or flexibility nor an opportunity in their own financial situations to make changes of consequence.

More of the same. lo

For example, a few years ago, as I had to pay over $2,000. on filing, I had to prepay tax by quarterly instalments through the following year, so arranged with my pension provider to withhold slightly more, enough to bring my final payment below the $2,000. It's been $3,000. in recent years, I think - not that sure, as for several recent years, prior to last and this year, I have had $00.00 income tax liability, federal and provincial.

ole joyfuelled

I may be very wrong, but I think that many Canadians aren't aware that a "taxpayer" pays a different rate of tax on interest income (pretty well the highest rate) and on dividends received on stocks of Canadian corporations.

If the taxpayer had substantial interest income the preparer might, if asked for suggestions as to tax planning, ask him/her whether s/he was aware that if s/he had stocks in Canadian corporations, the tax rates are much lower than on their current interest income.

A taxpayer whose income includes substantial interest will pay substantial income tax.

A person whose only income is about $45,000. of dividends on Canadian corporations ... is not required to pay any income tax. With eligible dependents, an age credit, or substantial medical expenses or charitable or political contributions, the tax-free level rises. Very likely many tax preparers could and would be willing to provide such or similar information - if asked.

Few are, it appears to me.

Their (potential) loss, it seems to me.

I've been known to be wrong, before, on occasion. This time? Maybe.

But maybe it would pay taxpayers/everyone dealing with money, to make some efforts to learn how to manage it effectively.

Wouldn't it be a useful option to ask one's tax preparer, who has a good view of one's financial situation, for some suggestions? Which might lead to some useful investigations.

ole joyful

Wouldn't it be a useful option to ask one's tax preparer, who has a good view of one's financial situation, for some suggestions?

No.

The problem is that you are trying to get your tax preparer (a pretty general term) to do the job of a financial planner. It is just about the same logic as asking the plumber to wire your house, I mean he is working inside the walls so why not run some electric when he is in there.

Interest income doesn't necessarily equal dividend income. You are using two things interchangeably that are not necessarily interchangeable. Different investments have completely different risk profiles and returns. I am not at all familiar with Canadian tax law, but I would be very hesitant telling someone to invest in the Canadian exchange for a tax advantage. Over the last ten years, the US S&P Index has grown 4.5 times faster than the SP/TSX (Canadian S&P index), meanwhile the SP/TSX typically has a higher dividend yield.

I am not trying to give investing advice or anything of the sort, but I am trying to caution against letting the tail wag the dog. I believe this was Elmer's original point, don't get so wrapped up in tax avoidance that you actually perfect income or wealth avoidance. If you want tax planning then find someone who is qualified/certified to do tax planning, and if you want your house rewired call an electrician, even if your plumber has a great picture of the inside of your walls.

This fellow has a habit of resurrecting his own old threads, pinging them to "current" status by repeating what he said before when the thread was new and commenting anew on his old comments. As was done here. The comment was made last April, the discussion was had last April, there's nothing new to report and the thread belongs in the thread graveyard. Where he found it before pinging it up.

I was reluctant to add my own thoughts lest doing so cause this thread to hang around longer than necessary. Another hour added by this comment won't worsen anything by much.

Bry911, I like your summation both of tail wagging the dog and be wary of who you're asking for advice. For me, I don't think it's a horrendous mistake to ask a person in a financial-related field a financial-related question. Your mistake comes if you take anyone's advice blindly. Ask, listen, think. Take responsibility for what is ultimately your own decision, not this or that advisor's.

I agree with bry911. A financial planner is a better choice for tax advice. I've been a tax preparer for the AARP tax prep program for several years. Preparers receive training in tax prep and take an IRS test to get certified in tax preparation not financial planning. Anyhoo, I've never had a client who asked how they could minimize their tax liability.

For me, I don't think it's a horrendous mistake to ask a person in a financial-related field a financial-related question.

I don't either, the problem being that tax preparation is not really a financial-related field. As a CPA and an accounting and finance professor, I would not consider the words tax preparer to be either necessary or sufficient for financial professional. While I understand that point you are trying to make this is tantamount to calling the collections clerk at traffic court a legal professional.

Your tax preparer might be a CPA or tax attorney or they could be a Non-Credentialed Tax Preparer. They may be well suited for a full range of financial advice or know nothing beyond what the computer program tells them.

Bry911, something to think about before acting. Thank you.

Jerseygirl, I agree with you ... but now I remember the wife of an old boss of mine, who started to call herself a financial planner. I don't know what training she took. But I was NOT ever impressed with her ... so it really pays to investigate who you are talking to, if you are contemplating taking serious advice from them.