Wealth Podcast Post

Tax Planning with Steven Jarvis

George Grombacher October 13, 2022

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Tax Planning with Steven Jarvis

LifeBlood: We talked about tax planning versus tax preparation, the important differences between the two, why taxes are your biggest liability in retirement, and what to do abou it, with Steven Jarvis, CoFounder, CEO, and Head TPA with Retirement Tax Services. 

Listen to learn the right questions to ask your financial advisor!

You can learn more about Steven at RetirementTaxServices.com and LinkedIn.

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Our Guests

George Grombacher


Steven Jarvis

Episode Transcript

george grombacher 0:00
I’m Bob Leffler. This is George G. And the time is right. Look at today’s guest strong, powerful, Stephen Jarvis. Stephen. Are you ready to do this?

Unknown Speaker 0:22
I am so ready. Let’s go.

george grombacher 0:23
Let’s go. Stephen is the co founder and CEO and head CPA with retirement tax services. He’s working to bridge the gap between tax professionals, financial advisors and their clients in order to reduce biggest liability that we have in retirement, which are, are is taxes. Stephen, tell us a little bit about your personal lives more about your work, why you do what you do? Yeah, so

Unknown Speaker 0:48
I do what I do, because nobody wants to pay any more taxes than they have to. And I’ve found that there’s a lot of value I can deliver to people, both financial advisors, taxpayers directly in talking about this big scary thing that is taxes for a lot of people to kind of the overlap of my my personal and professional life is that they are on a good day I’ll go with I’m the most interesting CPA you’ll ever meet. And maybe I left a good day, it’s I’m the least boring CPA you’ll ever meet. It’s a little bit more realistic. I know that taxes are not the most exciting thing for people to hear about. But I try to keep things fun. I try to keep things interesting, try to keep it realistic. In my personal life. You know, our listeners can’t see. But George you can see behind me, I’ve got my wall of metals, I do a lot of things to stay active. I do Spartan Race, I do triathlons, I do a lot of adventures with my family, my wife and two kids. So there’s definitely more than a few things going on in my life.

george grombacher 1:43
I love it. So whenever we don’t understand something, we tend to avoid it. Have you found that to be true with taxes?

Unknown Speaker 1:52
Yeah, when we don’t understand things when they make us nervous or uncomfortable, and especially since taxes feel deadline driven. And there’s obviously a tax deadline every year, it’s easy for people to say I’m gonna worry about that next year in March and April. And really, the number one advantage we have over the IRS is when we can take it more than one year at a time. If you only think about taxes each year in March or April, you lose. That’s just how the game works. If we can think about more than one year at a time and proactively make choices, then we can start not overpaying the IRS.

george grombacher 2:25
what a what a simple but brilliant way to think about that. Because I bet What 90% of Americans the only time they think about taxes is you know, a month before April 15.

Unknown Speaker 2:38
Yeah, oh, absolutely. As we work at honestly, both of them work with financial advisors and taxpayers, some of what I do is just reshaping that conversation of we absolutely should talk about taxes at other times of the year. And for business owners that this happens a little bit more intuitively just because of like quarterly quarterly estimated payments. But I want to go beyond compliance. Compliance is important. We want to pay the IRS every dollar we owe just we don’t want to leave a tip. And so as we proactively have a conversation outside of that tax time of year that we’re used to thinking about, we can start recognizing where we have opportunities to use the tax rules that are there and say here, here’s how I’m going to set myself up to sand off those rough edges of my tax bill.

george grombacher 3:24
Is the tax code. Complex on purpose? Is there a gray area on purpose?

Unknown Speaker 3:33
There is so there’s almost nothing in the tax code that is based on logic or reason. Is it complicated on purpose? You could say that I mean, every rule in the tax code has some agenda or lobby behind it. Right? I mean, just take take the face of the 1040 the individual tax filing Form, right at the top, there is a deduction for being a certain age, and there’s a deduction for being blind, why they picked blind and not deaf or blind or not paraplegic, or why they pick 65, and not 85. I mean, all of those things, they come back to the tax code is actually written by Congress, or at least the ideas behind it come from Congress. And then the IRS has the unfortunate job of trying to figure out what they meant. And that’s a lot honestly, a lot of where the opportunity is coming from is unintended consequences and how the tax law was written. I am a big believer in that everything I encourage my clients to do or that I do myself, I want to have the documentation and the reasoning behind it be so solid that the IRS did ever come and ask me questions. I would feel great about it. This isn’t about doing things we’d hope the IRS doesn’t notice. But and especially as the IRS is getting ready to hire 87,000 agents, it’s probably a little bit more likely that our chances of getting asked questions might go up. So I do everything from that standpoint of if I have a conversation, I’m gonna feel competent about my answers, but there are lots of opportunities to make choices.

george grombacher 4:54
So I think he just told me that to position myself for financial success from a tax planning perspective, I should be 65 years old and blind.

Unknown Speaker 5:01
Yeah. Well, that would be one way to lower your tax bill, that I would probably not elect that.

george grombacher 5:08
Okay. All right. Good enough. Not tax or financial advice from Steven there. So our biggest liability in retirement is taxes are our taxes. Is it is taxes, or is it our taxes? Stephen? It’s an English lesson for everybody. And

Unknown Speaker 5:25
for me, I guess liability is taxes. liability is the word we’re trying to. I think that’s how the grammar works. I didn’t do well in high school English. So that’s why I’m the numbers guy.

george grombacher 5:36
So tell me more about that. Tell me how what why is that the biggest liability?

Unknown Speaker 5:41
Well, because sacrifice early high. That’s just the reality for a lot of people. I mean, medical and taxes tend to be at the top of the list. And what and one of the reasons I points such a big spotlight on that is because it doesn’t come as a surprise to anyone that that medical is going to be expensive. It probably already is, it certainly will be later in life. Taxes comes as a little bit more of a surprise for a lot of people over the course of a normal retirement, your tax bill will be six or seven figures. We’re not talking about small dollar amounts. And for a lot of people, their their focus on taxes each year is did I get a refund? Or did I owe in April? I do this quite often. And I’ll ask people, okay, how much? How much did you pay in taxes last year? And they’ll tell me oh, well, this is how much I got to refund it. So know how much of your hard earned money did the IRS keep. And so that’s, that’s a line item, I always point out on the tax return. And it’s kind of mind blowing for people sometimes that they’ve been for years paying 10s of 1000s of dollars in taxes, and had no real kind of recognition of that because it gets held withheld from a paycheck, and they don’t really see it, or sure they’re making quarterly estimated payments. But to your point earlier, it’s painful and scary. And so we forget about it. And so the idea that in retirement, the IRS might ask us to pay hundreds of 1000s or a million dollars in taxes over the course of our retirement comes as a big shock.

george grombacher 7:01
Yeah, that’s that’s, that’s pretty sobering right there. Just to think about that, like you could potentially be at risk of giving the government six to seven figures of the money that you have worked really hard to save and accumulate and invest.

Unknown Speaker 7:19
Yeah, let’s just do some some real simple math here, let’s say you have a million dollars in a 401k, that tends to be the most common place, people have money socked away, and a million dollars is arbitrarily this number, we always use to somehow indicate some level of success. So it also helps me do easy math. So let’s say it’s a million dollars. So 401k is a is pre tax savings. So that means when we take money out of our 401k, the IRS gets to collect their portion of it. And so if I have a million dollars in my account, if I withdraw it all, I don’t get a million dollars, I probably get somewhere between seven and $800,000 of that depending on where I live and what state taxes I have to pay. So great right off the top of I withdrew it all at once. The someone is the taxes are 200 to $300,000. So we’re already at six figures. Now more realistically, we’re going to take that money out gradually over a retirement. So that balance is going to continue to grow. And we’re gonna have a much larger cash flow potentially up to two or $3 million dollars. And so now on two or $3 million of income, we’ve paid six or $700,000 in taxes. And so you can see how this quickly gets to really creeping up on that seven figures of taxes. And so that’s where that that that moment of really unfortunate realization comes for people is Oh, wow, I’m putting a lot of this to taxes.

george grombacher 8:37
Yeah. Is it knowable? Do you have a sense of, of how many people understand that when you’re making a pre tax contribution to your 401k versus a Roth style contribution, that everything’s going to be taxed when you take it out?

Unknown Speaker 8:53
Is it knowable, I’m sure somebody has done the research, my my interactions with taxpayers and advisors, I interact with hundreds if not 1000s. People understand that they are deferring their taxes, but they aren’t thinking about what that means. Because I’ll have conversations with people when we talk about, you know, what’s your What are your emergency funds are? What happens if what happens if you want to take a large distribution for something fun, like an RV or something not fun, like a new roof? And they say, Oh, well, I have a million dollars in my 401k. So that means I have a million dollars I could spend on this. And I say no, no, that’s not how that works. Your 401k basically has a mortgage associated with it. That’s got a variable rate interest. And oh, by the way, the IRS gets to pick what that interest rate rate is at anytime they want because you might have put into your 401k When your tax rate was 22 or 24%. The IRS makes no promises on what that tax rate will be when you pull it out. We’re

george grombacher 9:49
talking about a moving target. Hmm. Yeah. So we talked right at the top the problem of viewing tax planning in this Just one year increment sort of every year, every year, every year versus taking that more longer time horizon from a longer time horizon planning. Taxes are is words are hard today. How do we start as as just regular people as business owners as users of of the tax code as citizens here to change our thinking away from just that one year at a time to a more long term?

Unknown Speaker 10:28
Yeah, not said to be overly simplistic about this. But I mean, we need to set aside time, outside of March and April to think about this, right. And I’ll talk a little bit more about what that means. But that’s got to be the starting point, March and April can’t be the only time we’re thinking about taxes, whether individual or business owner. From there, there’s got to be someone on our team who is proactively thinking about taxes. Now for DIY errs, that could be you, that’s fine. That could be a financial adviser could be a tax preparer. There’s got to be someone who’s proactively thinking about this. So we’ve got to dedicate time outside of tax season, and we need to start learning about the tax opportunities relevant to us, the tax code is over something like 80,000 pages long, you don’t need to learn it all. You need to learn those things that are most relevant to you, and start recognizing when you can make decisions, whether that’s the types of retirement accounts you use, or intentionally accelerating income, or how you categorize expenses, or give to charity, or these other things that we associate with taxes, but we don’t really have a strategy for.

george grombacher 11:28
Got it. I appreciate that. That’s, that’s the language I really like to use, also talk about how nobody’s ever going to be more interested in your financial success than you are. And doesn’t mean you have to do all of it, you can but for the parts you don’t want, there’s got to be somebody on the team whose job it is to make sure that they’re paying attention to this. How often is that financial advisor? And are there? And do you think it’s their responsibility? Is that their role? Can it be?

Unknown Speaker 11:55
Yeah, so a couple of things in this. I think, in general, both in the financial planning industry and the tax preparation industry, having people focus on tax planning is the exception. And this causes problems, because a lot of people who work with a tax professional tax preparer will think, Oh, I’ve got I’ve got a CPA, I’ve got an EA, I’m covered, and you’re covered for your filing, but not that forward looking that tax professionals can be very focused on the rearview mirror, not the windshield. And so we’ve got a problem on that side. On the financial planning side, I’m starting to see more advisors who will claim tax planning as something they do. But for most of them, it’s very superficial, it’s Well, I’ll tell you, if you should contribute pre or post tax, which great that is a step. But more to your question of should they be responsible? I absolutely think they should. I’m not a financial adviser, personally, I grew up around the industry. And that is now my full time focus. I work exclusively with advisors and their clients. And when I first started having that focus, I would make comments to the effect of you know, great financial advisors are incorporating tax planning, honestly, I’ve changed my tune to it is irresponsible for advisors not to consider taxes, because any financial decision you make has a tax impact. And so financial advisors absolutely can deliver a lot of value to their clients, if they’re considering taxes without getting the tax preparation, that the advisor does not need to know how to prepare the 1040 or the 1120. So the 1065, or any other made up number of a form. I could probably say any number I want it and people will believe it’s a real form. But getting clear on what are those decisions? I’m recommending that have a tax impact, and how do I help my client understand what they should

george grombacher 13:35
do? To you ever just say numbers and sort of look around to see if anybody perks there? You know, I

Unknown Speaker 13:44
don’t I probably I probably should at some of the conferences I go to I’m going to a few conferences this fall, George just for you. I’ll see what got made up made up for him. I can pull past people, just for you.

george grombacher 13:54
People just keep nodding i Oh, yeah, sure. The 359 60

Unknown Speaker 13:59
are the 65 QR yep, that’s the one we’re gonna get. That’s a

george grombacher 14:02
super important one. All right. So for people who are listening that that that are just just not there’s they’re they’re taxpayers and not a financial professional. But that what you just said makes sense to them. It’s like, well, I’d like to be working with a financial professional who is paying close attention to this because what Stephen has been talking about, I’d rather be proactive about this than reactive. How do they bring it up to their financial professional?

Unknown Speaker 14:32
Yeah, that’s a that’s a great question. So it’s something I spent a lot of time around financial advisors. And then clearly, as a result, I spent a lot of time working with taxpayers as well. So a lot of the taxpayers I’m working with, you know, they already are connected to an advisor who’s thinking about this. And what we’re realizing is it’s very challenging to get a for a client for a taxpayer to say, Hey, Mrs. Advisor, I would love for you to just all of a sudden start doing your service model. Different to incorporate taxes, I would absolutely encourage you to ask those questions when they’re making investment recommendations when they’re making estate planning recommendations, everything has tax impacts, ask that question, what is our strategy here for dealing with taxes. And if they’re unwilling or unable to help you with that, it might be time to find a new advisor, if you’re in the process of looking for a new advisor, definitely should be one of the questions that you should ask. And I wouldn’t just say, Hey, dude, do you do tax planning? cuz they’ll say, of course, we do tax planning, I would ask questions like, what time of year will you be requesting a copy of my tax return? Because a lot of advisors will say, Oh, we don’t typically get tax returns. If your advisor is not looking at your tax return, you need a different advisor. Because if they don’t have your tax return, how do they actually know what tax impacts their recommendations are going to have that back to that my comment about, it’s irresponsible not to do taxes, if you have an advisor who’s recommending a withdrawal strategy or contribution strategy, or tax loss harvesting, or any of these other tax planning strategies, and they haven’t looked at your tax return? That is wildly irresponsible.

george grombacher 16:03
Nice, excellent red flags right there. It’s funny, it made me think about many, many years ago, where I was in the recruitment and development world for and, and I would ask people, if they were interviewing somewhere else said, Well, tell me about the training program or ask them about their training program. They said, Oh, yeah, of course, we have a training program. They said, Well, if they say that, you have to ask them to show you their training materials. So yeah, I did tax planning. Okay, great. When are you going to request my tax return from me? Oh, well, we don’t actually do that. I see. Yep.

Unknown Speaker 16:35
And the flip to another side, if there’s advisors listening, one of my favorite things for advisors to ask a prospect, who’s considering multiple advisors is oh, well, what did Mr. Advisor say when they looked at your tax return? Oh, what do you mean, they’ve never looked at my tax return? Because then we’re highlighting very specific ways that we’re setting ourselves apart without just saying another they don’t

george grombacher 16:54
do that. Yeah. Yeah, I think that’s a really key thing, right? They’re very powerful, particularly when we’re talking about hundreds of 1000s or even a million dollars for an average American. It’s not. I think that that’s very, very realistic and very tangible. So beautiful. Well, Steven, thank you so much for coming on. Where can people learn more about you? How can people engage as taxpayer and then how can financial advisors connect with you? Yeah, so

Unknown Speaker 17:21
everyone’s welcome to follow me on LinkedIn, I put out a lot of content. It is tax related. I do try to make it a little bit fun, but it’s it’s impactful. It’s gonna it’s there things that you are impacted by for taxpayers. I have a podcast and what I’ve learned about podcast listeners is they listened to multiple podcasts, so don’t don’t replace lifeblood with mine just add it. So for taxpayers, the retirement tax podcast is my taxpayer focused conversations. And then for financial advisors, it’s the retirement Tax Services podcast. So we just were just nailing the names right on the head. They’re telling you exactly what we do. But find me on LinkedIn. Find one of the podcasts if you look if you search for Stephen Jarvis CPA, I am the top result. So yep, always always excited to have more people I can share this this message with

george grombacher 18:07
love it. If you enjoyed as much as I did show Steven, your appreciation and share today’s show with a friend who also appreciates good ideas. Follow Steven on LinkedIn, I can I can absolutely attest to the value and frequency of the content that he puts out. And it is both informational and entertaining, which is not an easy line to tow, particularly when it comes to tax. And then for us taxpayers out there, check out the retirement tax podcast and for financial advisors out there who are trying to up their game and the value that bring it to the clients check out the retirement Tax Service is podcast. Thanks again, Steven. Yeah, it’s

Unknown Speaker 18:44
great being here, George,

george grombacher 18:46
and until next time, remember to your part by doing your best

Transcribed by https://otter.ai

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