The definitive guide to why your CPA isn’t bringing you ideas

“I make a lot of money and don’t pay taxes” aka the definitive guide to why your CPA isn’t bringing you ideas

My friend says “I make lots of money and pay hardly any taxes”.

YouTube is full of folks spilling the tea about “what the IRS doesn’t want you to know”.

But my CPA? They NEVER bring me ideas.

Isn’t my tax pro supposed to have my back? Aren’t I paying them to generate tax-savings ideas for me?

Who are they working for – me or the IRS???

😩

What on earth is going on here? Aren’t CPAs and EAs supposed to be smart people who care about their clients? How is it possible that seemingly everyone but YOU is getting help lowering their tax bill?

Here’s a really long list of what might be happening.

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Tax Professional Perspective

1. Tax Pro Competency: It IS possible your tax advisor doesn’t know enough to help you. If you have a complicated financial situation that your tax advisor doesn’t have experience with, you may need to hire bigger guns.
2. Tax Pro Engagement: It may be that you’ve hired someone to prepare your tax return and…that’s all. If you’re wanting a list of ways YOU can save on YOUR taxes – that’s a customized solution that your tax pro likely charges an additional fee for. If you’re paying $500 for your tax return, you’re not going to get much – if any – tax savings advice.
3. Tax Pro Capacity: Your tax pro cares about your current & future financial situation and might have ideas for you. BUT they can’t get around to the needed analysis because they’re too busy navigating the absolute pile of garbage that is our current tax system. The last several years have seen massive tax law changes layered onto embarrassingly archaic tax administration. Your “simple” tax return is no longer simple. It’s now taking 20%-30% (or more) longer to prepare your tax return than it used to several years ago. Your tax pro is so busy making sure your tax return is optimized for you, they don’t have time to make a 20 minute video showing you the behind-the-scenes look at the tax dollars they saved you choosing the best filing status, pushing you to provide business deductions, etc.
4. Tax Pro’s Ethical Standards: Your tax pro has ethical standards to maintain. Social media personalities may not. Sure, your accountant could have a YouTube channel (and maybe they do!), but their advice would be boring compared to a lot of the “finfluencer” content out there. Finfluencers say “run all your money through a trust and you won’t pay taxes”. Your CPA or EA would say “keep accurate books and records to make sure you’re not overreporting your profit and paying too much tax”. The former is a flashy & compelling lie. The latter is actually truthful & helpful, but a big yawn. If you’re wondering why your own tax advisor isn’t telling you about that thing you hear on TikTok or YouTube, take a look at the professional credentials of the folks in the video. They may not even have any.
5. Tax Pro Relationship: Your CPA KNOWS you. They know your tolerance for administrative hassle. They know if you have a vendetta against the government or if you cheerfully pay your taxes. If your tax pro isn’t bringing you tax savings ideas, it may be because they know you well enough to know you won’t find the strategy’s benefit high enough to tolerate the related downsides.
6. Tax is complicated & bespoke. Strategies that work for one person or business’ situation, might very well not work for someone else’s. E.g., businesses with higher margins tend to receive less tax breaks. Tax rules that apply to companies heavy on R&D may not apply to your brand new solo law firm. Your tax professional knows this and is likely not going to be providing you a detailed list of all the tax strategies that would never apply to you. But you still may see these strategies on YouTube videos.

Social Media Perspective

1. Finfluencers are trying to SELL you their PRODUCT. Your tax advisor is PROVIDING you a SERVICE. The folks on TikTok will gladly sell you their robust and attractive 8-story elevator. They will build it, deliver it, and install it. (They even promise to maintain & defend it, but good luck with that.) It may be expensive, but hey, it GOES UP 8 STORIES. In the meantime, yeah, your tax pro knows about that 8-story elevator. But they’re not in the business of selling 8-story elevators. They’re in the business of advising clients. They have lots of tools in their toolbelt and they know tax advice isn’t cookie cutter. They also know you have a 2-story house and it would never even occur to them to tell you about an 8-story elevator because it’s so grossly unsuitable. Further, they know that 8-story elevator the finfluencer is trying to sell you is made of shoddy materials and won’t withstand a light breeze.
2. Finfluencers are good at marketing. Cookies are well marketed, broccoli is not. Finfluencers know buzz words. They know how to string them together into something that sounds meaningful. An “LLC” here and a “trust” there. They’ll put together a “tax strategy” that WOULD work apart from this one tiiiiny little detail they erroneously include, omit, or misinterpret. And then they say your CPA, EA, or attorney isn’t smart enough to have thought of this “strategy” already. Tax professionals on the other hand are NOT good at marketing. We’re not great at crafting our messaging. They didn’t teach us that in school. Instead, we were taught to adhere to high standards, always be learning, always remain skeptical – BE THE ADULT IN THE ROOM. We’re too busy looking out for you to package it pretty. From your perspective, though, no news makes it seem like we don’t care. Could tax professionals collectively be better at marketing? Yes. Until then, don’t mistake cookies for broccoli – no matter what your friends tell you.

Peer Perspective

When you hear folks say “I make a lot of money and I don’t pay taxes”, take that with a grain of salt. ALL. THE. GRAINS. Why?

1. What does “I make a lot of money” even mean? For some people this means revenue. But taxes are typically based on profit. If you made $1M gross revenue, but had $1.1M expenses, you have a net loss of ($100K) and – accordingly – have a $0 tax bill. Many – MANY – folks in this scenario will tell you they made a lot of money and paid no taxes. While this isn’t WRONG, it’s definitely MISLEADING. Of course you paid no taxes, my friend. The taxes you’re talking about are based on profit and your expenses exceeded your revenue resulting in a loss.
2. What does “I don’t pay taxes” mean? Very often, folks don’t know the difference between tax LIABILITY vs taxes DUE/OVERPAID. They think their tax return reflecting a refund means they aren’t paying taxes at all. They forget about withholdings and estimated tax payments they had during the prior year. This isn’t a one-off confusion. MOST people will completely forget about prepayments they’ve made. If someone tells you they “don’t pay taxes” what they may actually be saying is “I don’t pay additional taxes when I file my tax returns because I’ve had sufficient withholding and/or estimated tax payments to cover my prior year tax liability.”
3. They’re confusing income with wealth. There is a difference between Income and Wealth. Sometimes folks will say they “make” a lot of money – which you interpret as “income” or “profit” or “revenue”. But instead what they mean is they HAVE a lot money, which is really “wealth”. Further, what is their wealth comprised of? Maybe it’s a bunch of heavily-financed real estate and they actually have negative net wealth. But they’ll still tell you they make a lot of money only because that’s how they think of it and they don’t know proper terminology.
4. They’re doing something unsustainable. I don’t mean bad, immoral, or fraudulent, I just something that’s hard to replicate year after year. For example, your friend purchased a new vehicle they use 100% for business purposes. The vehicle cost $80,000 and was purchased with a loan of $80,000. They use a tax depreciation rule that allows them to deduct the entire cost of the car all at once. They have an $80,000 deduction that provides a valuable tax savings. They tell you about their great tax write off and how they “don’t pay taxes”. Fast forward to Year 2. They now have a business car that requires regular maintenance and an $80,000 loan to pay down. Any tax benefits related to the car are mostly gone. They have sizeable cash outflow related to the car without offsetting tax deductions. Trading in the car won’t help, either, as that somewhat reverses the tax benefits of Year 1. In this case, if someone tells you they “don’t pay taxes” what they’re actually saying is “I took advantage of a widely-known, widely-used, legitimate tax strategy to accelerate tax benefits related to a car I use 100% for business purposes. While it will give me a great tax benefit this year, it’s a one-time thing. I can’t keep buying a new car every year because my business doesn’t need that many cars and because it’s not smart for me to spend money on something just to reduce my taxes.” Another example of unsustainable activities is capital gain deferral such as 1031 Exchange (Like-Kind Exchange). For the most part, if you’re going to defer tax on a gain when you sell something, you have to give up RECEIVING the CASH that goes along with the sale. When you DO receive that cash, then you’ll have potentially taxable gain. When your real estate buddy says “I sold a property and didn’t pay any tax”, what they’re really saying is “I took advantage of a widely-known, widely-used, legitimate real estate tax strategy to defer tax on the gain of a rental house I just sold. While it kicks the tax can down the road, it also means I had to put the cash I received at closing into the purchase of a new property. That’s great for now, but it also means I don’t have cash to invest elsewhere or pay living expenses. That money has to come from another source.”
5. They’re committing tax fraud. This includes not reporting “under the table” revenue, deducting personal expenses, and improper use of legitimate tax and legal entities such as S Corporations and trusts. Let’s go back to the friend in the previous example who purchased the $80,000 new car. But now they say they don’t use the car 100% for business purposes. Instead, they use the car only 10% for business purposes. They still deduct the full cost of the car – $80,000 – on their tax return. They tell you about their great tax write off and how they “don’t pay taxes”. What they’re actually saying is “I committed tax fraud by claiming a tax deduction of 100% of my car’s purchase price when I actually use the car only 10% for my business.”
6. They don’t know. It sounds hard to believe, but most folks really don’t know how much money they’re making, spending or their net worth. If they don’t know these things, they don’t know how much they’re spending on taxes. Regardless of someone’s outward success or confidence, don’t assume they know their own financial situation. Most folks are just managing to their bank account balance. If your friend looks at their bank balance today, feels the amount they see is “high”, they may have a positive spin on their business and personal finances. Tomorrow, they see what they feel is a “low” balance and their mood drops. This is truly how many people view their finances. Even small business owners. Be careful assuming someone telling you they “make a lot of money and don’t pay taxes” is sufficiently in touch with their money situation to even know how much money they do or don’t have.

The take away here is: the next time someone tells you “I make a lot of money and don’t pay taxes” – ASK TO SEE THEIR TAX RETURNS.