A year ago I started tracking the questions clients asked me. Clients were put into three categories: those with income below $50,000; those with income over $400,000; and everyone else in between in the final category.
Obsessive-compulsive disorder isn’t the reason for my behavior. I noticed questions frequently were based upon wealth. I needed to track data for a period of time to verify what I suspected was true.
Clients (and potential clients) with low income and or net worth almost always asked the same question: How much does it cost? That’s all they wanted to know. I hated the question too. It whores my professional service. Is price the only thing that matters to these people?
The lower income/net worth crowd focused questions around: How fast? How cheap? What’s my refund? and, When does my refund arrive? None of these questions helps clients one bit.
Tax preparation is glorified data processing. (Sorry, tax professionals. I have to call’em like I see’em.) Tax season isn’t the time to tax plan or to engage your accountant at a high level. His/her mind is preoccupied with a million things due yesterday. If the only issues with your accountant are cheap and fast, then you need to reconsider your relationship with your accountant!
The middle group was a mix. Some clients from this group asked the same questions as the poor. There were some who asked many questions similar to the wealthy. The lower end of the middle looked a lot like the low income/low net worth group. The upper end of the middle group had at least some questions similar to the high income/high net worth crowd.
What interested me the most was the wealthiest clients. How these people utilized my services was telling. Price was at most an afterthought; quality was demanded over speed; and the wealthy could care less about a refund. They were only interested in their actual tax liability.
Today I want to share the seven most common questions my wealthy clients have asked me over the last year. I think you will find the information valuable. You might also want to start asking better questions, questions the richest people are interested in hearing the answers to. Better questions lead to better answers and the possibility of more income and net worth.
1.) Is there anything I can do to optimize my tax return? This is by far the number one question my wealthy clients ask me. Wealthy people know an experienced tax professional can tell a lot from a tax return.
A tax return can be accurate without resulting in the lowest tax. Wealthy clients want me to use this information to build tax reducing strategies that fund their goals. Some clients want ideas to improve the efficiency of their charitable giving. Others want to maximize the benefits of their business or investments. A completed tax return is a wealth of knowledge for an experienced tax professional. With the tax return as a starting point serious wealth can be created with a few simple actions.
2.) I want a consulting session? The richest people in my practice want to speak to me at least once or twice outside tax season. They know I am under the gun in spring as the deadline looms so they want a summer or autumn appointment where the stress level for me is lower. (Wealthy clients actually say it this way, too.)
It is common for wealthy clients to remind me to charge them for the consulting session. (I always charge for consulting!) Rich people don’t want a barroom conversation. They want a deep analysis of their situation. They come armed with pages of handwritten notes they want covered. This is serious business. A thousand dollars of consulting can put $10,000 or more in the pocket of the client. That is a heck of a return on your investment and the wealthy are well aware of it.
3.) Can you review an investment for me? Of course, I can! A good accountant with decades of experience under the belt knows a few tricks when uncovering value. When wealthy clients want me to review an investment they want the bad news! They already convinced themselves it’s a good investment. Now they want me to punch holes in it. When they get my opinion, including the risks, they can make a better and more informed decision.
There are a variety of investments to review. Stocks and bonds are common. Real estate and businesses are also things I review on a regular basis. I run the numbers through the eyes of an accountant, looking for irregularities. In nearly every case I uncover something the client didn’t notice. Years of training will do that for you.
Seven or eight years ago a client working for the Wisconsin Department of Corrections came to me with an investment in concierge portals for hotels. The company selling the investment made a good story. It sounded good and early investors were getting paid. But! Something wasn’t right. The idea was these machines would make money from Google ads. Having websites and blogs on the internet I knew what profit potential these ads could bring. Quick math told me there was no way this worked. It was a Ponzi scheme.
I expressed my concern to the client and outlined why I felt the investment must be wrong. An internet search and background check of the business’s owner turned up nothing. I ventured a guess these machines were never produced or placed in hotels. I was part wrong. The schemer had a few machine made and placed in hotels to cover their tail if a crazy accountant asked to see one of their product in action.
Against my advice the client invested anyway. Over half of the officers in a local county sheriff’s department were invested in this thing and the thinking was nobody would scam a group of police officers. Think again! Who better to scam? It’s the perfect cover to keep the scam going.
A year and a half later the house of cards collapsed as the FBI came in and raided the company. As suspected, it was a complete fabrication. Tens of millions of investor’s money was lost. I help several people in law enforcement recover as much as possible on their tax return. It was still bad.
Wealthy clients want my advice and in situations like this defer to my judgment. Another opportunity is always around the next corner.
4.) What am I worth? At first this sounds like one of those stupid questions. It isn’t. Wealthy people own assets that are hard to value. Stocks and index funds are easy, but what about a coal mine? As I write I am busting tail on valuing a coal mine and it’s harder than you think. There is more than one way to value an asset. I must consider all valuation methods. Usually this question arises due to the death of a family member or a transfer of an asset as a gift within the family. A solid valuation keeps the IRS at bay.
5.) How much more can I tax defer? Wealthy people know taxes will take more than any other item in their budget if unchecked. Frugal people who say they don’t care about taxes are either lying or not as frugal as they want you to think. Overpaying taxes is still spending!
Retirement accounts are a powerful first line of defense against taxes. The tax code offers multiple opportunities to tax shelter wealth. Not all of the best tax strategies are basic retirement accounts you hear about in the FIRE (financial independence, retire early) blogosphere. I am working with several retirement specialists in building several future blog posts to hyper-charge your tax efficiency using retirement plans within the tax code. (Something to whet your appetite: You never need a solo 401(k)! You can get the same deal as a solo 401(k) with a regular 401(k) if structured properly and at a very low cost. Now anyone can stash $100,000 or more every year into tax advantaged vehicles.)
6.) Is this a wise expense? Rich people have rich people problems and the only way to solve these problems is with a brutally honest accountant. I’ve had clients ask me if they could afford a yacht. I always tell them a story. The second happiest day of a rich person’s life is the day they buy their yacht. The happiest day is when they sell it.
Wealth sometimes puts stars in a young man’s heart. (The ladies are better at avoiding these kinds of rich-person spending pitfalls.) The veeeeery expensive car, boat, vacation home, et cetera, et cetera, et cetera, looks like such a good idea when you are loaded. A smart wealthy person—one who will remain rich—knows to ask the accountant before signing the check. Accountants are deal busters. Sorry. That great idea will evaporate like the morning dew when the accountant looks over the top of his glasses at you.
7.) Can you negotiate a deal for me? Yes, I can. Over the years I have negotiated tens of millions of dollars of deals. I’ve had clients tell me after they were in a room with me while I negotiated their deal they were biting their tongue so hard they drew blood. Negotiating can be that way at times. If it’s a BS deal I’ll say it and will walk whenever it suits me.
Most people don’t negotiate often enough to be good at it. An accountant (attorneys are good at this too) with experience closing large deals can do things you can’t. I can say things in a negotiation a client cannot.
My understanding of how money works, limited legal knowledge and how much total money a certain agreement will yield is a massive advantage. I’ve gotten deals done everybody had already lost hope in. I can be brutal. But it’s a good brutal. There are clients out there more than a million dollars richer because I did one single deal for them. It makes a difference.
Seven questions. They aren’t the only ones rich people ask me, but they are the most common ones I heard over the last year. The difference between people who have money and those who don’t involves determining value. Wealthy people value my advice and work because it profits them. They know my work and trust my experience to solve difficult situations.
Of course, these questions take more time than: What’s it gonna cost? Good accountants are busy all year round. The best accountants are known within a community. They are known by other professionals: real estate agents, attorneys, doctors, title companies, et cetera. The best way to find an accountant who can answer these questions for you is to ask professionals in other fields. They work with these people all the time.
So, I heard you have a question for me?
Monday 6th of July 2020
This article is spot on! I remember when I started my business, this is actually the first question that I have asked my accountant - " Is there anything I can do to optimize my tax return?"
Sunday 30th of December 2018
Keith, I am a CPA myself, albeit in Canada, and I think that this post is not fair in that it portrays a typical middle class person in a very negative light.
Your typical middle class person is not going to have a complex tax return. Now granted, it has been a couple of years since I have practiced in public (I work in private industry now), but I don't see how this would have changed.
1. They have their wage, which is their main source of income and perhaps they may be self-employed 2. They may have some deductions for savings such as for retirement 3. They may be eligible for certain tax credits 4. For most people, there isn't going to be as much tax on issues like capital gains because ordinary middle class people do not have that level of income (perhaps the most common time a middle class person has to deal with that is during the sale of a house - keep in mind that a middle class person is just going to have a lot less financial investment than a well of person)
Wealthy clients are simply going to have a larger source of income and different assets with various different tax implications.
Over the past few decades, the middle class has seen its real wages stagnate, which the well off have taken nearly all of the gains for themselves. That's why people who are less well off tend to lean towards the short term. Options like trying to defer tax are often not possible for the less well off and they are less likely to engage in business deals.
Here is a good read about the working class: https://free.vice.com/en_ca/article/ev3dde/most-money-advice-is-worthless
That isn't to say that a CPA might not be able to help the working and middle class (actually my province - or our equal of a state has a service where the CPA organization provides taxes for low income citizens that CPAs can volunteer for), but it's not nearly as night and day as this post implies. There isn't as much room for tax planning and optimization for most people who are wage earners. The opportunities for deals and tax savings are just a lot lower.
From my experience, about the most valuable thing that might be useful is financial advice. Even there, I think there's less opportunity for a middle class person simply because their needs are a lot simpler and the potential for savings a lot more modest.
Tuesday 12th of June 2018
This is one of my favorite posts... I immediately setup a consultation session w/ my accountant last year upon reading this and just setup another mid-year review for 2018. Thanks for the great advice as always!
Friday 9th of March 2018
This was really helpful and thoughtful. Thanks!
I especially enjoyed reading your replies to some of the comments on deferrals and when to seek a professional accountant.
I had never considered an accountant as a negotiator, but I will now. Thanks!
Are there any habits for the people in the middle category that aspire or expect to graduate into the top category that improve their chances of staying there?
Monday 5th of March 2018
Keith, in your future post can you include tax reduction strategies for those making around $500k a year? Appreciate your blog!