The Ugly American
William J. Lederer and Eugene Burdick published The Ugly American in 1958. This short novel tells the story of Homer Atkins, an unassuming man in every way. He is plain spoken, plain in appearance. Yet he will change the world forever.
Atkins is sent by the US government to the fictional Southeast Asian country of Sarkhan to work on engineering projects. What he finds when he arrives shakes his worldview. Mismanagement and entrenched interests are overwhelming.
When Atkins challenges these entrenched interest the American foreign policy is laid bare. Gross incompetence topped the list, coupled with arrogance and corruption.
Everything America was working for in Southeast Asia was failing. The war against communism was bing lost. This at a time when a Cold War was at its height and communism was the perceived primary threat.
The Ugly American struck a chord with Americans and government leadership. Senator Kennedy made the Peace Corps a part of his campaign for president. President Kennedy signed the Peace Corps into law two months after taking office. The Peace Corps , it was felt, addressed the problems exposed in The Ugly American.
The Ugly American is a forgotten book today. It shouldn’t be as it still represents a mindset all too common in contemporary America.
“Ugly” in the novel described Homer Atkins view of himself. He worked in dirt and grease and considered himself “ugly” due the the filth he worked in as he built solutions for the people he worked to serve.
Some people like to think the “ugly” in the novel was American arrogance. I subscribe to that line of thought.
In my mind there is nothing ugly about a solid day of work on machines or in the soil. Conceit, arrogance, incompetence, and corruption are as ugly as you can get.
Yet, “ugly” thinking is alive and well as we will see.
The Ugly Accountant
Homer Atkins learned the needs of the local peoples he lived with. He assisted in development projects that made the lives of the people he helped better.
Atkins was a rarity in 1958; he would be a rarity today, as the following true story illustrates.
Earlier this year I consulted with a new client, a pediatrician from California. He was unhappy with his current CPA. Communication was nonexistent.
A large concern of his was the amount he owed at tax time. He informed his CPA that his income would be increasing again and by how much. She made adjustments to the doctor’s estimated tax vouchers and stapled the vouches deep inside the tax return, never mentioning the vouchers were there and how to submit payment.
I only found the vouchers when a digit copy of the doctor’s return was sent to me. I asked if he was making said payments and I got the “deer in the headlights” look. Zoom has so many benefits.
Here is was, mid-June, and no estimated tax payments were made.The second payment was due June 15th so our good doctor was two payments behind. Even if he caught the payments up he would suffer an interest penalty.
If I would not have caught the issue—one of many, by the way—my client would have suffered a very large balance due next spring when he filed his taxes, plus interest.
This is one example of the Ugly Accountant. It has nothing to do with appearance and everything to do with attitude.
The good news is that there was a solution. Often times while consulting with a new client fixes can be made that improve the client’s finances on the spot. Here is what I did.
Estimated taxes are the last line of defense when paying your taxes. It is possible to have a refund, even a large refund, and still pay an interest penalty when tax payments are made via estimated payments.
The reason for this is that the IRS applies the estimated payment when received. (They should give you credit from the time you drop it in the mail, technically handing it to a government employee.) Late payments mean you owed the money sooner and that can cause an interest penalty. Large late payments can add serious interest to what you owe the IRS.
However, when tax payments are made from withholding (from a W-2 or 1099-R, for example) it is assumed the payment was made pro-rata throughout the year. In other words, if you have a refund and all tax payments are from withholding you cannot pay any interest penalty no matter what!
This opens a tax strategy. Instead of making up missed estimated tax payments, adjust your W-2 or 1099-R withholding instead! Because the larger payment from then to the end of the year are considered paid throughout the year, there is no interest penalty.
My new client, the good doctor, loved the idea, but was unsure how to make the change. Technology to the rescue again.
With Zoom I am able to share a screen; the person I’m consulting with can share their screen as well. The good doctor shared his screen showing his employer’s online page for withholding. We set up his proper withholding during the Zoom meeting. With the proper adjustments the doctor will have enough withholding to avoid any penalties.
The Built-in Consulting Session
While consulting is a large part of my practice, I also have a built-in consulting session with each client every year. This is part of the process when clients pick up their tax return.
The consulting session when clients pick up their return is usually 15 – 30 minutes max. During this short meeting the return just prepared is reviewed, compared to the previous year, and helpful tax strategies are shared. Because tax season is crunch time, more involved questions or tax issues are scheduled for a formal consulting session later.
It was during this short session with the doctor picking up his tax return where the ugly accountant above went wrong.
The doctor was understandably upset. So was I!
I wanted to the doctor to understand the seriousness of the accountant’s error in a way he would fully understand. I said, “Doctor, this is the equivalent of you meeting with a patient and handing a packet to the parent (the doctor is a pediatrician remember) with 30 or so pages and tucking a prescription between pages 16 and 17 and never informing anyone of the prescription or how to take the medication.”
Our good doctor came out of his seat. I was comfortable he understood the seriousness of the issue.
Every established service business has a grand opportunity to grow their business with each client. Adding a simple consulting session onto services rendered is a powerful way to engage clients and increase profits. This isn’t a money grab either! You will provide better service to your clients. They will benefit from the short consulting session. And if they need more consulting services you can both think, Ka-Ching! Because everyone in the room is a winner.
A certain percentage of your clients will want full consulting services. Again, this is good for you, as the business owner, and for the client as you help them solve problems and achieve goals.
Most client questions fall within a narrow range. What is of concern to one is of concern to most with variations based on personal facts and circumstances.
When dealing with tax issues too many tax professionals focus on the narrow window of the current tax year, forgetting the consequences in future years. If you want to be viewed as different, and better than other tax professionals, you need to consider what I call “all-years involved.”
All-years involved comes in many forms. Should a business accelerate depreciation? Or drag out depreciation deductions? Elect out of bonus depreciation? It all depends on the facts and circumstances of the details of the client’s situation.
There are numerous examples of where all-years involved is a powerful mindset, but none more so than in retirement planning. We will address a few of those issues here, allowing you to understand the mindset and apply it in your practice.
Are you familiar with the Rule of 72? The Rule of 72 says that if you divide 72 by the compounding interest rate the result is how long it takes to double your money. It’s a reasonably accurate rule, good enough for government work and our back of the envelope planning we will discuss here.
Our first retirement example comes from the growing demographic of hyper-savers looking to retire early.
There have been times when a 40 year old comes to me for consulting and they have $1 million in their traditional retirement accounts already. The Rule of 72 is the easiest way to explain consequences to the client. Since the stock market in the US averages somewhere around 10% per year over long periods of time, the Rule of 72 says the account value will double every seven years and a bit.
Under the SECURE Act 2.0, our victim, ah, client, will face required minimum distributions at age 75. Between ages 40 and 75 she will see 5 doublings of her age 40 retirement account balance (40 to 47, 54, 61, 68, 75=5 doublings) of $1 million.
That means the $1 million at age 40, without another penny saved into the account, will grow to $32,000,000 ($1 million to $2M, $4M, $8M, $16M, $32M)!
A quick check on an RMD calculator says at age 75 you will be required to distribute from your traditional IRA close to $1.3 million(assuming your spouse is your primary beneficiary and are both the same age)! Most traditional tax planning goes out the window at that time. Not only are there fewer tax options to lower taxes, but our example here will pay much more in Medicare premiums as well! All-years involved includes all consequences, inside and outside, of taxes. In this case, Medicare premiums become an issue.
Of course, the situation doesn’t have to be so acute. $300,000 in traditional retirement accounts at age 60 may be more your style. In either case, there are powerful strategies to reduce taxes over all-years of your life, plus that of your beneficiaries.
Structured Roth conversions over a number of years are front of the line to preserve wealth and lower taxes. This works for both the hyper-saver and the person with more modest traditional retirement funds. If you want detailed instructions on when and how much money to move from a traditional IRA to a Roth IRA at every age, read this article.
The Hidden Tax Increase!
We are not done saving our client’s bacon.
Retirement planning can be a full-time consulting job in itself. And I’m not talking about selling products; I’m talking about reducing taxes over generations!
In case you didn’t know it, the SECURE Act 1.0 and 2.0 are tax increases on the middle class. Details in the link.
One example: The Required Minimum Distribution (RMD) age is slowly climbing to age 75. At first glance this might seem like a wonderful idea. Then reality sets in.
Because Congress also changed another rule. Before the SECURE Acts certain beneficiaries could employ the Stretch IRA tax strategy. This allowed the beneficiary to take distribution over their lifetime.
The Stretch IRA is now gone. The old rule also allowed the beneficiary to take the IRA funds over any of five years. The SECURE Act changed that to 10 years. BUT! The IRS has so much extra money in their budget they decided to complicate the issue by requiring distributions every year of the 10 years in a minimum amount similar to RMDs.
So why is this a tax increase?
Well, think about it. In the US the average person lives to about 80. Most people have children in the mid-20s. How old are the kids when they inherit parents money? Somewhere around 50, give or take a few years. Some fall outside this range, but there is no doubt where the Gaussian Curve (bell curve) peaks.
What is the problem with that? you might ask.
Let me ask, What is a highlight of people around 50 years of age? Could it be most people are at their peak earning power at this time? And their highest tax bracket?
Taking away the ability to focus inherited IRS distributions in a manner for lowest taxes has been truncated. Now you know why consulting is so important! And you, my friend, are the solution.
Adding consulting to your business is the easiest way to grow your client list and increase profits. In taxes, it is common for a client to gain 10 times (10X) in tax savings over the cost of consulting.
But consulting isn’t limited to my field of expertise. I have encouraged clients from various service fields to add consulting with incredible results.
One example is a backyard auto mechanic I consulted with years ago. He took my advice and started consulting with his clients and other mechanics. He now has 12 employees, trains mechanics, and consults for other auto mechanic shops.
Sharing knowledge and experience is not creating your competition! Yes, you do create people who can replace you, but that is a good thing, as you are now in the different line of work training people. And you can retire, knowing your clients are in good hands.
Consulting changes lives for the better. It passes knowledge and experience forward. Peers seek me out at conferences to thank me for what I’ve taught them in this blog. They are not my competition! I have a waiting list of people wanting to be on my client list, and that is after I have a list of “competitors” on this blog anyone can use.
I focused on the tax industry in this post because it is what I am most familiar with. Consulting has been an incredible part of my practice for over a decade and the only regret I have is I waited so long to start offering the service.
Why did I wait so long? Two reasons: 1.) Where do you find consulting clients, and 2.) I had doubts about knowing enough to handle all issues.
I will discuss #1 below as we close out this article. As for #2, you know more than you can imagine. Experience in itself is a massive reservoir of information. Everyone learns from experience or the experience of others. You have that part covered.
Doubt is normal when starting out. You will always have things you don’t know. That is life. It happens to me in consulting all the time. Looking things up or verifying what I think to be right is part of the process. You want your doctor, attorney, and tax professional looking things up! It’s that important.
People will look to as the person that has answers or the one who can find them. There is something about knowing this that creates a warm feeling inside.
Now let’s see if we can’t find you some clients if you are starting out or looking to grow.
Finding New Consulting Clients
The biggest concern I hear when encouraging people to add consulting to their business is how much to charge and finding new consulting clients. Both are easy to handle.
Finding the right fee structure should be based off what your current rates are. How much do you charge for a tax return? How much time does it take? If new to the business you can compare what other people in your industry charge. Once you start consulting you will discover what an appropriate fee structure should be. For example, if people are breaking down the door to get in it might be time to adjust your rates.
Finding consulting clients is also reasonably easy when you know where to look. It does require speaking to people. I’ve been preaching this from the beginning of this blog! People that see and hear you are more likely to hire you.
The best venues are small groups where it is easy to answer questions and there is no feel of being in front of a crowd. It is just speaking to people you want to help.
Speaking engagements of this kind are virtually unlimited. Apartment Associations, Optimist Clubs, Elk, Eagles, churches, libraries, and more. These groups are hungry for someone to come in and speak for 15-20 minutes on a topic. A few of these and your schedule will be full!
Let me use a real example with libraries. My oldest daughter, Heather, started a tea business a few years ago. Her business is growing leaps and bounds. I never knew that much tea actually was sold in this area!
She also speaks at several libraries multiple times per year on how to brew a proper cup of tea. Different types of tea require different brewing methods, as she explains it to me. (It goes over my head.)
Here is the part that blows my mind. Every presentation she has given about tea (brewing, herbal teas, taste, health benefits…) at a library sells out well in advance! People attending buy lots of her tea and love her presentation and samples. Then the library pays her, too!!! Yes! She gets paid to show up, has fun sharing ideas on preparing and consuming tea, and then people buy her products. Talk about a consulting gig!
If you want to see some of the teas Heather has available, click here. Many of her products are locally grown here in NE Wisconsin (on my farm). Tea that doesn’t grow locally is purchased from small farms where climate allows it to grow.
Now get out there and serve your clients at the level they deserve to be served!
Note: A version of this post was given to the Missouri Society of Accountants in the summer of 2023, with some modification to fit the printed format.