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Evaluating your finance team


Tax planning is like medicine. Each area has become so complex that one can only hope to become an expert in one discipline.


There are the two mistakes that millions of taxpayers make. A small percentage relies on bad advice and takes wild risks to reduce the tax burden. A small subset of this group ends up paying for costly audits, tax court cases and potentially penalties. The vast majority of Americans go in the opposite direction and they rely on overly conservative planning and unnecessarily overpay their tax.

There is a “sweet spot” between the tax adviser you have outgrown and the overly aggressive adviser who takes unnecessary risks with your money. This article will give you enough knowledge to know that you can reduce costs and risks related to taxes, while gaining some peace of mind at the same time.

To better understand how the tax system works, you should start by understanding how the professionals in the industry work. There are many parallels between medicine and tax, so let’s look at your own field. Physicians are human; they make mistakes. Sometimes, the right treatment results in a bad outcome. On some occasions, there is outright malpractice. It certainly happens, but not often.

The important thing to realize is that when doctors are uncomfortable with a situation or a patient (practicing scared), they may over-treat the patient by ordering a wide range of tests, performing many procedures and prescribing a wide range of services and medications. This can be very costly and inconvenient for the patient, and for the healthcare system.

What a patient usually wants is a physician who is familiar with the problem and who will take a prudent, thoughtful approach to treatment. A physician has a very high degree of confidence in the likelihood of a successful outcome with as little unnecessary inconvenience and cost as possible.

There are a number of similarities between medicine and taxes. Sometimes, a perfectly legitimate deduction becomes the topic of discussion in a costly audit. That may be the result of a random review or an aggressive treasury agent. In other cases, there is outright malpractice where the tax adviser took some liberties with the tax code. Since the IRS launched the Global High Wealth Unit in 2009 to target high-income taxpayers, more and more accountants have been “practicing scared.” They see the “audit” as the worst-case scenario. Maybe this is because they aren’t confident defending their position or they haven’t had success in the past. Maybe it is the fear of the unknown for them. In any case, the end result is the same as it was with overtreatment in medicine - unnecessary overpayment by the client.  

What most taxpayers want from a tax adviser is someone who is comfortable addressing the problem at hand and competent enough to manage any complications that may arise in the future.



The differences

The million-dollar question is, “How can you tell the difference between good and bad advisers?

Traits of good advisers

  • They proactively bring new ideas to your advisory team (CPA, financial advisor, etc.);

  • They participate in annual planning reviews with you and the rest of your team;

  • They welcome new ideas that come from other advisers;

  • They see second opinions (of their work) as ways to meet new referral sources;

  • They are willing to admit they made mistakes - and want to help fix them.

Signs of a poor client-adviser relationship

  • The advisers review ideas you bring them. They don’t proactively bring you new ideas;

  • The tax, legal and financial advisers don’t all meet with you together at once, annually;

  • The adviser charges you to research an idea, instead of asking another expert;

  • The adviser asks you to sign nondisclosure agreements. These are red flags with the IRS;

  • You are one of the adviser’s wealthier clients. You need to be the smaller fish in a bigger pond.



3 things you can do today

First: Get a second opinion. Speak with a tax adviser who works with people at your level of wealth or higher. Ask the smartest and wealthiest people you know whom they would recommend for a very complicated tax problem. Remember, you want someone who can handle the most sophisticated aspects of your tax planning. You don’t just want someone who can file lots of returns on time. If you need a recommendation of someone in your region, please feel free to contact us. Ask them to look over your returns and provide comments and suggestions. Most tax advisers will do this for little or no fee as a way to demonstrate their competencies. It’s a bit of an audition for them.

Second: Restate your goals with your existing advisory team. Does it get under your skin when a patient gives you incomplete information and then wonders why the treatment wasn’t effective? With that in mind, go back to your existing advisers, tell them what you expect from them, then ask them what they recommend based on your restated goals. You will either be disappointed or pleasantly surprised by the response. In either case, you will know whether this person deserves a seat on your advisory board.

Third: Interview potential members of your team. Replacing ineffectual advisers and supplementing your existing team with winners are your aims. When you meet with these persons or firms, you should ask for client demographics, client references, and a description of sophisticated solutions that they have put in place for their clients.

It is also not unreasonable to ask your advisers about their own financials. How do they make money? How do they acquire new clients? Who are their favorite strategic partners? Why do they like some over others? You are trusting them with your sensitive information, they should be forthcoming with their own.

The purpose of this article is to impress upon you that it can be financially positive for you to take close look at your CPA and tax attorney. We are suggesting that you take an active role in your tax and financial planning, and assemble. Just as a patient is ultimately responsible for his own healthcare decisions, you are ultimately responsible for your own tax planning. 

When you add the federal, state, property, utility, sales and other taxes, the affluent pay marginal income tax rates of 50 percent and up. In California and New York, that amount can be greater than 65 percent. With so much of your earnings going to taxes, it is clearly beneficial to contract with the best team that includes a tax specialist, a tax lawyer, a certified financial planner, and others with experience in advanced financial solutions. How you can you afford NOT to get a second opinion on the work your tax adviser is doing for you?

Christopher Jarvis, M.B.A., C.F.P. is author of 12 books for doctors, including The Physician’s Money Manual (order for free at www.daktori.com/contact-us/). Mr. Jarvis was recognized as one of the 150 “Best Financial Advisers for Physicians” by Medical Economics in 2013. With more than 20 years of financial industry experience, Mr. Jarvis is one of the founders of the Daktori Financial Fellowship (www.Daktori.com), helping physicians maximize profitability and exit sale values. He can be reached at 817-749-5000 or jarvis@daktori.com.

David R. York is a principal with the Salt Lake City law firm of York Howell. David specializes in the areas of estate planning, tax, business planning, and nonprofit entities. He is a fellow with the American College of Trust and Estate Counsel, and a member of the Society of Trust and Estate Professionals. He regularly speaks to professionals on estate planning, tax planning, business entities, succession planning, domestic asset protection trusts, charitable giving techniques, charitable entities, asset protection, defective grantor trusts, and other sophisticated tax and estate planning strategies that are directly applicable to physicians. 

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