Episode 39

Tax Planning vs. Tax Preparation

April 15, 2023

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Welcome to The Retirement Tax Podcast, where hosts Steven Jarvis, CPA, and Benjamin Brandt, CFP, work together to bridge the gap between tax professionals, financial advisors, and their mutual clients to help reduce most people’s largest expense in retirement: taxes. Each week, they will dive into conversations around taxes, focusing on what you can truly control (instead of what you cannot) and how to set yourself up financially for your future.

Ben and Steven discuss the important distinction between tax preparation (what happened last year) and tax planning (what can happen in the future). Most people know they have to file a tax return (tax preparation), but many taxpayers are at a loss for what they can and should be doing to reduce their lifetime tax bill in the future (tax planning). Listen in as Ben shares how to estimate what your “Retirement Tax” bill might look like and Steven shares potential opportunities that might help you shave the rough edges off of that bill.


What You’ll Learn In Today’s Episode:

  • The quick math on estimating your retirement tax bill (Spoiler: it’s bigger than you think)
  • What to be on the look out for so you can identify opportunities to sand off the rough edges of your retirement tax bill
  • Why you need to be thinking about your taxes more than once a year and planning for more than one year at a time
Ideas Worth Sharing:

“What’s really gonna get you ahead over time is consistently applying what might feel like boring tax planning. But, in this case, boring wins. Boring keeps us away from IRS audits.” – Steven Jarvis

“It always feels weird to tell a client we should voluntarily pay more taxes now, to reduce our tax bill. But when you show them through the tax software, then it also logically makes sense, if we reduce the size of this thing that’s going to be responsible for our future tax bill, it would make sense that our future tax bill would be smaller.” – Benjamin Brandt

“Can you find an advisor who partners with the other experts that you need? Because though that collaboration is so important, you can’t separate taxes from these other areas.” – Steven Jarvis

Resources In Today’s Episode:
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Read The Transcript Below:

Ben (00:05):

Welcome back to the Least Boring Tax Podcast on the internet. Yes, that is the Retirement Tax Podcast. I’m your humbled co-host as always, Benjamin Brant joining me today on a very special tax day, April 15th, maybe not this year, but Steven Jarvis is joining us.

Steven (00:20):

Ben, I’m so excited to be here. I’m also glad that we’re recording this ahead of time, and it’s not actually April 15th as we record this. And you are correct this year, the deadline is April 18th, but we’ll hope on behalf of our listeners that they are either completely done and have moved on or have at least filed their extension and will not be scrambling the next couple of days to get that done.

Ben (00:40):

Special shout out to all the procrastinators amongst us that were really celebrating the extra three days that we had to turn it in. I see you out there.

Steven (00:49):

Well, Ben, since we’re moving past the tax deadline here in a couple of days, we also want to start moving past a focus on tax preparation or what happened in last year’s tax return and make sure that we really talk about this distinction between tax preparation and tax planning. Cuz for a lot of people, taxes just kind of all get lumped together, become something we think about once a year. Of course not for our listeners as they listen in twice a month to hear us talk about taxes, which we love. But Ben, for you, what are some things that are important in that distinction of what makes tax planning so important?

Ben (01:24):

Well, it’s gonna be the biggest bill that you pay over your retirement. It’s an easy thing to be passive about. You know, a bill shows up on your return and you pay it. It’s a really easy thing to be passive about, but I think there are some very, very easily overlooked, proactive things that we can do to reduce that bill over time. So it’s the biggest bill you’re gonna have to pay. Let’s give up the attention that it’s due.

Steven (01:47):

Yeah, absolutely. And Ben, we talked about a little bit on our last episode, it’s something that you bring up quite often. I know it’s something you go through with your clients when you’re onboarding them of, Hey, let’s figure out what, or let’s estimate. We can’t put an exact dollar amount to it, but let’s estimate what your retirement bill would be because you very casually talk about how it’s a six or seven figure bill. And for a lot of people that might be hard to wrap their mind around of, wait, how could my tax bill possibly get to 7 figures to a million dollars? I get a refund every year. There’s no way the IRS is taken that much of my money.

Ben (02:18):

Well, we can do the quick audio mass. You know, if you’ve got a million dollars, let’s say you take 5% out of that every year and spend it. Now, if you don’t, good news, eventually you’ll have to, because the required minimum distributions will force you to, but maybe you choose to early on because you wanna, I don’t know this crazy thing called, actually make memories off of all this money that you save, but let’s just say million dollars. Now if you have a half million cut it and a half, you have 2 million. Double it, right? We’re doing easy math. So it’s $50,000 a year plus social security plus any other investments that you have plus any part-time work, plus any inheritance that you receive. But that’s $50,000 a year. So that’s of income. That’s 500,000 for 10 years. That is a million for 20 years, and that’s a million and a half for 30 years now.


And that’s with no growth. So if you’re investing your investments and accumulating you know, getting a positive return, I should say, on your investments, that is gonna grow. And so just with no growth, you know, we could see how we are, taking 300,000 or so of income off of that. And then you take your effective tax rate and you multiply that by 30 as well. You know, plus social security plus all the other things that I mentioned. Plus hopefully we’re evaluating, Irma brackets and things like that, the extra that we pay for our health insurance. So just off the top of my head you can easily figure out how you would be paying at least a hundred thousand dollars of federal income tax over the course of your life. But in reality it’s gonna grow.


You’re probably going to double the amount that you invested over the course of your retired life. If we’re looking at the rule of 72 and how much we’re spending versus earning. But then let’s just say you don’t spend it. Your kids are gonna pay taxes on it as well. And we’ve dedicated at least one episode to secure Act 1.0 and then now 2.0 very recently this spring somebody’s gonna pay a lot of taxes and the longer we wait, the more we pay. So that’s the real quick and dirty on retirement tax bill, if you’d like to learn more, we are going to do a webinar here in the coming future while I’ll just show you how we generate those 30 years of tax bills, how we calculate they are, and then how we add just with simple in our head math, how we attach lifetime tax bill to that. So I’m excited to, we’ll talk about that at the end about the webinar we’re doing, but that’s, that’s where my mind goes when given that question.

Steven (04:27):

Yeah, we’ll come back to details about that. But you can go to retirementtaxpodcast.com to get registered. We’re gonna go through a lot of great information, be able to show that visually. Ben, really appreciate you walking through the math on that. Cause I think it’s so in, it’s so critical to have that frame of buy-in before we start talking about tax planning, cuz it helps us know why it’s so important to have these conversations. We’re not talking about spending a bunch of time and saving a hundred dollars in taxes. Oh, when we’re talking about a six or seven figure tax bill. Even if we can just sand off the rough edges, that starts to become very meaningful amounts of dollars. And then especially when we tie that back to having an even better retirement of doing things with that money, as we stand off those rough edges and have more control of that money, those are just more of our goals.


We’re gonna be able to accomplish more time we’re spending with our family, our friends, doing the hobbies that we care so much about. For me, when we talk about tax planning, we have to start from this that we’re focused on planning for the lifetime of our wealth because, Ben, you mentioned that if you don’t pay the taxes, your kids will. So taxes have to go from annual conversation about what happened last year, that’s tax preparation, to a multi-year conversation of what does this look like in the future. One way I like to visualize this, I even have a little cartoon on my desk, is that tax, if we think of taxes as a car and tax preparation is the rear view mirror is that what’s happened last year. And the rear view mirror is only a very small portion of the car. For most people that dominates the tax conversation. What we need to do is shift our focus and look through the windshield, which is much, much bigger than the rear view mirror and say, okay, as we look out the windshield, that’s tax planning that’s getting ready for the future.

Ben (06:08):

Yeah, I love that illustration. I think once somebody described it to me that, you know, it’s like a museum. You’re touring a museum and they’re showing you all the things that happened in the past. It’s interesting and it’s potentially exciting and intellectually stimulating, but ultimately all this stuff happened in the past and how much attention we should give some attention to what happened in the past. But ultimately, if we’re gonna make a difference, it’s we gotta focus on the future. And that’s this year and following years.

Steven (06:35):

Yeah. So, Ben, we’ve hopefully convinced everyone that their retirement tax bill is going to probably be larger than they were expecting. And we’ve told them that, hey, there’s something they can do. But let’s get into that a little bit more about, okay, what is it exactly, we mean when we talk about standing off the rough edges of a retirement bill? Because if you just get on Google or Yahoo Finance and look at a lot of trendy articles, typically what comes up are these things that are really clickbaity headlines of, Hey, do this one thing and you’re gonna save a hundred thousand dollars in taxes. It’s really focused on like, pick a strategy, do it one time and save all of your taxes. But Ben, I know you’re on board with this. For me, what I see being most effective are the relatively simple and boring planning strategies being consistently applied over time.

Ben (07:23):

And there are things that when you’re retired, you just don’t have access to at all. Or if you have limited access to when you’re working, so when you’re retired, especially if you’re over 59 and a half, you’ve got access to your life savings. And we will be forced to pay taxes on that life savings at some point in the future. That’s mandated. That’s what was 70 a half and it was 72 and then the 73, and we’ll eventually be 75, that’s gonna happen. So the choice will eventually be taken away from us. So in the meantime, in the before time, we can have a significant impact in our tax bill by intentionally saying you know, I know I need $78,000 a year to do all the fun things that I wanna do in my hypothetical retirement, but it might be in my best interest to actually take 140,000 out of my IRA and then reinvest some of that into my Roth IRA.


And so it’s being really intentional and look, taking a multi-year a your entire retirement as the scope of when we should be making these decisions. So it’s counterintuitive. It always feels weird to tell a client we should voluntarily pay more taxes now to reduce our tax bill. Even though I’ve said it for hundreds of episodes, still feels a little weird to say. But when you show them through the tax software, and then it also logically makes sense, if we reduce the size of this thing that’s going to be responsible for our future tax bill, it would make sense that our future tax bill would be smaller.

Steven (08:41):

Definitely. And we apply the same logic on calculating total tax savings that we do on calculating a total tax bill. So instead of trying to go out and find that strategy, that’s gonna save you a half million dollars in taxes all at once. I promise, if you’re reading those articles, those are the exception. If they’re true at all, what we wanna do is look for those incremental things that we can do in any given year whether that’s intentionally paying taxes now, so we’ll pay less taxes in the future. Maybe that’s getting additional deductions being more intentional about our charitable giving. But even if we can start finding ways to save a thousand dollars, save $1,500, save what feel like small amounts in any given year, if you multiply that by 20 or 30 years, then you start becoming big dollar amounts. These start becoming additional trips you can take with your family, additional hobbies that you can have whatever is most important to you. But putting in those real dollars can start making a difference.

Ben (09:34):

And that’s why you saved up all this money in the first place. 

Steven (09:37):


Ben (09:37):

We wanna look at your 401K balance as untapped potential and by executing on some of these really easy to ignore tasks, we are making significant progress and tapping your full potential, creating more retirement income, creating more flexible income, and creating more memories. So that is tapping your full potential. So we wanna look at that 401K balance minus taxes. We wanna tap that full potential. That’s why we keep running through, you know, these same ideas because it’s untapped potential. It’s very important that we evaluate this further.

Steven (10:07):

I like that untapped potential. Ben, one of the things I’ll hear from taxpayers at times especially a lot of the clients that you and I both typically work with that aren’t business owners necessarily, that aren’t these real estate moguls that they see online that, hey, if you really wanna save on taxes, you gotta be a business owner. You gotta be able to write everything off. You gotta be a real estate agent, or you gotta be in real estate so you can pay zero taxes forever. Which these are some of those clickbait headlines that are doing a huge disservice. But then I’ll let you go first. I mean, can you reassure our audience that there are in facts tax savings even if you don’t own a business or a whole bunch of real estate?

Ben (10:46):

Well, if you spend any time on the internet, you know that you should open up an LLC and then buy some life insurance through that llc. And then everything from your pet supplies to your landscaping fees will be a tax deductible because it’s all a business expense. And if you act on that financial advice I hope our next meeting will be through plated glass as I remind my clients. So yeah, there’s an awful lot of stuff like that on the internet. Ultimately, they want your attention. They’re not really hanging their hat on the suitability or the accuracy of their financial advice. They measure their success in eyeballs and impressions and content. So we work with real clients, real people, and we are really accountable to the powers that be the IRS and the SEC and things like that. So we have to make sure that we’re giving helpful hints and information that are actually helping real people and are legal. So that’s the litmus test that we have to apply to our lives. So I forget what your question is, but I just wanted to mention the funny stuff I see on the internet.

Steven (11:43):

No, those are great reminders. I think for our listeners, I mean, I’ll point out that, there definitely are valid tax saving strategies for business owners if you’re in real estate. It’s not that it’s all just made up. It’s to your point, Ben, it gets really exaggerated online quite often. And really my bigger point is that those aren’t the only tax strategies out there. And I said it already, for most taxpayers, what’s really gonna get you ahead over time is consistently applying what might feel like boring tax planning. But, in this case, boring wins. Boring keeps us away from IRS audits. Boring keeps us from getting IRS nasty grams, boring keeps us from being behind that plated glass as you mentioned, Ben.

Ben (12:27):

Plus it’s the same lessons we learned from investing, right? It’s more fun to gamble on Netflix stock than it is to buy an index fund that holds Netflix as a holding, right? The tried and true ways buying index funds over time is super, super boring. I’m almost falling asleep describing it to you. But it works, a hundred percent of the time it works. If we stick to it, what we wanna do is we wanna find the next Google, we wanna find that crypto or that penny stock that’s gonna 10 x overnight, and then we’ll tell all of our friends about it. We’ll feel really cool. Well, it’s the same thing with taxes. I wanna open up a Shell corporation that’s trading Zimbabwe currency features and it’s gonna make me a bunch of money. I won’t pay any taxes, right? That’s what we think tax planning is because it’s fun and it’s sexy and we can brag to our friends about it and feel really smart and really cool.


But in reality, it’s the boring stuff that’s done consistently over time where we will save the money. It’s just like the index fund. It’s boring, but it’s gonna work. It’s gonna work and it always will work. So do we wanna focus on the clickbaity stuff or do we wanna do what works? It’s dieting. You could put dieting in there too, right? Show me the workout and the meal plan where I’m gonna lose 60 pounds and have six pack abs and then this will become a video podcast to set up an audio podcast. But in reality it’s going to the gym every day and burning more calories than you consume. It’s the boring thing that works. There’s very many places in our lives where we can apply it, where we can apply the same knowledge. It’s the boring stuff done over time where we get the results.

Steven (13:51):

And we kicked all this episode telling you this was the least boring tax podcast. Now we’re talking about how boring you should be. So to stay true to the fact that we are the least boring tax people. You know, that’s why we talk about, okay, how does this apply to you? We also don’t just read the tax code to you. That would definitely put everyone to sleep.

Ben (14:08):

That’s next week’s episode.

Steven (14:09):

And that’s perfect next week’s episode. So I mean, Ben, you and I, we have done whole episodes on different strategies that apply to a lot of our listeners, whether it’s evaluating when to defer versus intentionally recognizing income, getting money into Roth, doing things around intentional charitable giving, making sure that we’re withholding correctly some of these different things. And while we’ve gotten really great feedback from our listeners that this is valuable information, we’ve mentioned it earlier in the show, but super excited to be able to dive deeper on this May 24th, nine o’clock Pacific is when we are doing our live event. This is gonna be virtual online free to our listeners. You can go to retirementtaxpodcast.com to get registered. We’d love to see you there where Ben’s gonna go through his calculation of how you can figure your lifetime tax bill. And then we’re gonna spend time going through and saying, using your own tax return, here’s how you can start identifying where these different strategies we talk about are applicable to you personally. So super excited about that event. Go and get registered and we will look forward to being able to share that information live.

Ben (15:15):

Absolutely can’t wait. I love presenting with podcasting form, but there’s just something unique about presenting live. When you look down at the bottom of the little webinar thing that says there’s 96 people, you know, waiting to get some retirement and tax planning advice from you and help lend some information it gets, it gets very exciting. It’s like sort of being on a virtual stage and if I get too nervous, I can just pretend my zoom screen froze and then I’m good. So you always have a way out and it’s not an actual stage. That’s great. But we’ve got a listener question. Someone wrote to the show, Steven, and they said, I am a believer that one firm handling your investments taxes, and Steven, did you write this question? I’m a firm believer that one firm handling your investment taxes and retirement planning is vast.


Can you provide examples of when that might not be true? So I would say that Steven wrote this question because Steven helps me with my firm. And so we managed clients’ investments and then he helps us. So with the taxes and we were trying to create kind of shop. So that’s why I said that Stephen wrote this question, but should we have everything in one basket? Right? The common common knowledge is no, don’t have all of your eggs in one basket, right? That knowledge often gets then transposed onto a financial advisor saying you shouldn’t have all of your investments with one financial advisor because that’s all of your eggs in one basket. But in reality, that financial advisor is hopefully buying you low cost index mutual funds and ETFs and you’re owning the entire world. So you don’t actually get any benefit by having advisor A own the entire world through your investments and then also advisor B owning the entire world through your investments.


You’re just creating redundancy and not any additional diversifications. That’s a common mistake I see people make. The other common mistake I see people make is say you know, and I’ve have had these real life conversations in the past and I politely turned down their relationship, but I said, Benjamin, I’ve saved a a million dollars and I’m gonna give you $500,000 and I’m gonna give Steven $500,000. Steven’s a random financial advisor in this equation and I’ll see how you do. I’ll check back in like six months and in a year and whoever does the best gets the rest and in good faith. Clients think that they’re acting in their best interest, but they could not be creating a larger conflict of interest if they tried. What am I gonna do? Yeah, well, am I gonna do good planning and talk about 30 year strategies for tax savings or am I just gonna try to wow them with the biggest return?


And the other advisor knows that this is an all or nothing situation as well. They’re gonna do the same thing. You are setting yourself for extreme failure in two advisors, trying to wow you with a six month return that could maybe scramble your egg for the next 29 and a half years. But sometimes really good rules of thumb and knowledge, don’t put all of your eggs in one basket can easily be misconstrued into something where you’re setting yourself up for failure without even realizing it. So you, I don’t think you want two financial advisors. One, they could be advisor A could be canceling, not advisor B with different things that they’re doing. I think you should have 2% less large cap exposure at this valuation. He thinks you should have 2% more large cap exposure at this value and you just paid us both a fee and we canceled each other out.


So I think you should take your time, interview quite a few financial advisors now listen to quite a few different retirement podcasts and pick one. I don’t think you’re benefiting yourself by having two. Now if one of those advisors that you’re interviewing also offers tax prep also offers access to a really high speed CPA does the filing, does all that stuff, I think that’s a step above. I think we’re gonna see more and more firms doing that. But that’s my thought. I don’t think you should ever have two financial advisors. Could you provide examples of one that may or may not be true? I don’t think you need two advisors. I think you’re gonna set yourself up for bad stuff down the road. Take your time, interview a few and pickle.

Steven (18:54):

Yeah, that’s great insight. Ben, I did not write the question. I did pick the question though, so that, I’ll fully admit to that. I thought it was an interesting one cuz as I was thinking through this, I mean really I echo what you said. The only examples I could think of is when you will find firms that offer these different services, but they’re not really collaborative. I mean it seemed like any profession, right? It’s this balance of do you want a specialist or do you want somebody who is trying to be all things to all people. And where we’re trying to find that middle ground working with advisors like Ben and then the other advisors that we work with is what if instead of Ben trying to be the expert on all things himself, it’s can you find an advisor who partners with the other experts that you need? Because though that collaboration is so important, you can’t separate taxes from these other areas. But definitely agree with if you’re looking for professional help, make sure you take your time, find someone who’s really gonna lean in and help handles these different areas, even if part of handling is just getting you plugged in with the right expert.

Ben (19:55):

But for the audience, if they want a little bit of a spoiler for what the end of our upcoming webinar looks like, we’re going to give you some resources on how to vet a financial advisor. And for those of you that are extremely motivated about meeting financial advisors that offer these sort of services, we will show you how you can work within our network to meet additional advisors. So a bit of a spoiler alert about the end of the webinar, but we’ve got some resources available, some actionable resources for anybody that tunes into the live webinar. So I can’t wait to share.

Steven (20:22):

Ben, this has been great as always, always love spending time with you and I’m definitely looking forward to that webinar on May 24th.

Ben (20:27):

Love it. Can’t wait. Until next time, don’t let the tax man hit you where the good Lord split you.

Hi, everyone. Quick reminder before you go. While Ben and I feel very strongly about the information we’re sharing on this podcast, it is for educational purposes only and should not be taken as specific tax, investment, or legal advice. You need to make sure that you are working with a professional to evaluate how these concepts apply to your specific situation before you take action.

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