Wednesday, May 21, 2008


Over the years I have gotten lots of different reactions from clients when I tell them the “bottom line” on their federal and state tax returns.

Some clients breathe a sigh of relief – “At least I don’t have to pay.”

Some are not surprised by the result – “I figured I would owe this year.”

Some are actually giddy when I tell them the amount of their refund.

I remember the response from one of my mentor’s clients many, many years ago – “Gott in Himmel!

And there are always a few who are never satisfied and complain, “Is that all I am getting back!?!

This reaction is often followed by, “How come [my brother, my neighbor, or my co-worker] always gets back more than I do?

The client is convinced that you have done something wrong because his brother, neighbor or co-worker makes exactly the same as he does and is in exactly the same situation as he is and yet gets a much larger refund.

Well for one thing, how do you know your brother, neighbor or co-worker always gets back a lot more? Have you actually seen his tax return each year? And how do you know just what he makes or what situation he is really in?

Maybe this person is just practicing “one-upmanship” and tells you he gets back a lot more just to bust a certain part of your anatomy.

Even if this person to whom the client is referring has a base salary similar to that of the client and lives in a similar home in a similar community there are a variety of reasons why the refund is different.

· Your refund is a factor of the tax withheld. Perhaps this person has much more tax withheld.

· This person’s spouse may not work, while the client’s does. Or the client and/or his spouse may have a second job.

· This person may pay lots more in real estate tax (the amount of tax paid on a similar house can vary substantially from town to town) or have a much larger mortgage and/or more home equity borrowing. He may have a vacation home which generates additional expenses or rental property that produces a tax loss.

· This person may have a lot of out of pocket expenses connected with his job and be able to claim them as a miscellaneous deduction – or he may have excessive medical or dental expenses well in excess of the AMT exclusion amount.

· Perhaps this person has kids in college and can claim an education tax credit or tuition and fee deduction. Or his kids are under age 17 and eligible for a Child Tax Credit.

· This person or his spouse may have a sideline start-up business that generates losses.

· Or maybe this person lies through his teeth on his tax return while the client’s return is prepared honestly and correctly!

My response to this question from a client is – “Show me his tax return and I will tell you why.”


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