Play Ball! Ace the Tax Test (and others too)

Photo by Edwin Martinez

Ever heard of Vern Law? No, it’s not a facet of some state or federal legal code, financial rule of thumb, nor some scientific observation of the way the universe works. In fact, it’s not a law at all. Vernon Sanders Law, was a pitcher for the Pittsburgh Pirates from 1950-1967. He is probably most noted for winning the Cy Young Award in 1960, which also happened to be a year the Pirates won the World Series.

If you know me, you probably also know that just about anything to do with baseball interests me. When I can find an excuse to include America’s pastime in my daily routine, or the Accountable Update, I will do so. Case in point, for many years I have coached youth baseball and softball. People often thank me for volunteering or sacrificing my time for the sake of their kids. What they may not realize is that this activity has offered a welcome respite during what is frequently one of the most hectic times of the year in financial services, also known as tax season. I often feel like it is me that should be thanking them for having kids that play the game!

So, what does this have to do with Vern Law? It’s something he is credited with saying, “Experience is a hard teacher because she gives the test first, the lesson afterwards.”

About a year ago, ATX Portfolio Advisors opened for business. As a first time business owner, I have learned several lessons during the latest lap around the sun. The ones that were tested most often weren’t what I knew or didn’t know. The most frequent were those that exposed what I didn’t know that I didn’t know!

With tax (and baseball) season in full swing, I recently had the opportunity to chat with Chris Thomas, an Austin partner and CPA at the accounting firm, Tidwell Group.  We discussed what lessons that he most frequently found himself teaching, after the test, to their clients. Chris and his colleague, Ryan Nevill, shared the following wisdom.

What is the most common mistake you see business owners make when it comes to minimizing taxes?

“The most common mistake business owners make when it comes to minimizing taxes is not planning ahead. The business owner's tax preparer should be consulted throughout the year in order to prepare for tax filing. A tax professional can often find ways to minimize taxes, including taking advantage of credits the owner may have not been aware of.” 

What other mistakes do you commonly see?

“Other common mistakes include not being aware of new tax laws, not communicating transactions accurately and timely, and not being flexible with structuring or seeking out tax professionals that are experts in specific areas.”

What are a small business owners best practices for keeping their taxes down?

“The best way for a business owner to keep their taxes down is to be proactive. Take the time to learn the general tax laws relevant to your industry, and become familiar with the guidelines presented in your organizational documents. Identify extraordinary business events before they happen and know when to consult your tax preparer. Being proactive instead of reactive is the best way to keep taxes down.” 

Maybe not surprisingly, all of these responses have very direct applications to overall financial planning as well. Lacking a plan, not seeking expert guidance, and not staying current with ever changing rules and laws are probably the most common mistakes I encounter.

The main reasons for these mistakes, in my opinion, are lack of time and interest in dealing with what can sometimes be detailed and mundane topics. As another baseball great famous for quotes, Yogi Berra, once said, “In baseball, you don’t know nothing.” If you start with that realization about everything else, you will be well on your way to passing the next test.

If your financial plan isn’t making a passing grade, let’s play ball.

"Issue Briefs" on Diversification and Yields

"Is diversification still worthwhile?"

"Why buy bonds when rates are going up?"

These are two of the most common questions that I'm asked by investors. The latter one for over 20 years!

After several years of the largest domestic stocks outperforming, well, just about everything, it can be easy to forget why investing in small/mid sized companies and internationally in both developed and emerging markets makes sense.

It is also understandable to be concerned about the impact of rising rates, especially since the Federal Reserve increased them in December. However, it may be surprising to many that market driven rates have actually fallen since the hike. In this week's Accountable Update, I share perspective on both of these questions with "Issue Briefs" from my friends at Dimensional Fund Advisors.

The first, titled Why Should You Diversify?, reviews why spreading your eggs to more than one basket still matters. If you read this blog often, much of this piece will be information that is probably already familiar, but an occasional refresher never hurts.

In the second, Revisiting Yields, DFA discusses their strategy of designing bond portfolios that may increase expected returns by using information in the yield curve and applying it globally and with varying maturities. 

If you would like to review your diversification, yields, or overall portfolio and goals, get in touch.

The Accountable Super Tuesday Platform for Saving America (and some money)

Photo by www.dronethusiast.com

Next week is “Super Tuesday”. Voters in 12 states, including Texas, will participate in determining who the nominees will be for the Presidential election in November. It’s refreshing to be relevant, as the past several cycles seemed to have been all but determined by the time the Lone Star State got to weigh in.  

You may be thinking, “Isn’t this a financial blog?” Well, yes, this isn’t meant to be a political forum, but many of the policies being proposed by the candidates are grounded in fundamental disagreements in how to be more successful financially. What is most striking is both parties’ unwillingness to just admit that life is hard and that the best solution for most problems ailing society is to look in the mirror and be accountable to yourself.

At the risk of alienating both the left and right, this week’s Accountable Update lays out the @ATXAdvisor stump speech if I were running for President.

Build your resume, not a wall. Stuck in a job paying less than you feel you deserve? Your take home pay isn’t going to increase by building walls unless you are in the wall building business. In fact, waiting for “the government” to do anything, like forcing your employer to pay you more, is a formula for continued disappointment and even unemployment.

If you don’t see a path to the C-suite in your current job, you can blame it on the impoverished immigrant that probably spent their life savings and even risked their life trying to get to the country of opportunity in which you live. Or, you can start chasing that opportunity yourself.

Talk to your boss. Ask them how you can better develop yourself for a promotion. Ask how to get recognized for doing your job well. Take the feedback, write down a plan, then get after it. Don’t discount that you are free to quit to pursue a better job, too; just be realistic about your qualifications and expectations.

Start thinking of your job as a career and not a necessary evil and you’ll be off to a great start. For some tips on building your resume, check out this recent blog article from Austin based recruiting firm, HireBetter.

Everyone is not equal. When our forefathers declared independence from Great Britain, they wrote that “…all men are created equal…” It was and continues to be a wonderful aspiration for our country to strive for the inalienable rights of life, liberty, and the pursuit of happiness. But that’s all we’re entitled to. Would it be nice if we all had exactly the same IQ, knowledge, appearance, abilities, money, connections, inheritance, etc.? Maybe, but we don’t.

So get over it. Instead, here is what you can do to get a leg up.

Quit smoking, or even better, never start. A recent study by WalletHub estimates the cost of smoking in Texas at $1,515,958 over a smoker’s lifetime.

Parents, have frank discussions about sex and relationships. Teach about birth control, where to get it and how to use it. An unplanned birth doesn’t guarantee a life of poverty, but according to the American Journal of Public Health, unintended pregnancy rates are highest among the poorest and lower educated.

Work hard at high school, graduate. Get a secondary education at a trade school or college. Keep working hard, and graduate.

College is too expensive? Apply for grants, scholarships, or (cough cough) get a job. Just don’t fall for the bait and switch scam of calling loans “financial aid”. Borrowing money, then whining about it a few years later will not make the debt go away. You can’t generally even get student loan debt discharged in a bankruptcy.

Go ahead and get used to saving for purchases tomorrow instead of borrowing today. Your patience will be paid off in greater wealth. You may even be able to survive the inevitable collapse of Social Security and Medicare that is coming during your lifetime.

Want to give your kids an advantage? Sacrifice for their future.

Get a second job, live in smaller house, and drive an older car. Anything that will allow you to put some savings away in a college or retirement account. You may be contributing to the privilege and inequality that everyone wants to feel guilty about these days, but you’ll also be breaking a cycle that should result in more prosperity for you and your family’s future generations.

"Free" is expensive. Nothing sounds better than when someone promises something for nothing. Take "free college for everyone" as an example. It sounds great, we’ll have a better educated workforce, no more crushing debt at graduation, and rainbows and lollypops for everybody too.

What isn’t mentioned is that the teachers that have spent 25-30 years of their lives getting educated, the nice buildings, books, computers, and everything else that is needed to provide that education has to be compensated for. Where will that come from? Those greedy employers that are not paying you enough already?

Go ahead and raise taxes on them, at least you’ll be eligible for unemployment benefits for 26 weeks until you have to find another job.

Of course, you could join the military and serve your country. Yes, you may be called upon to make sacrifices during that service, but you will be paid and eligible for benefits such as the GI Bill which assists service members and eligible veterans in paying for education and training.

It’s not free of risk. You see, the freedoms you enjoy like life, liberty, and the pursuit of happiness, are expensive. You just have to decide if you want to be in the minority that pays the way, in money or blood.

The thing about democracy is whether you sit around and enjoy it or work to pay for it, you get a say next Tuesday. Don’t take that for granted.