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    Evaluating your finance team

    Are you getting good or bad advice?


    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.



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