April 15 may have come and gone, but the tax season deadline is anything but a fading memory for Dan Rinzema, chief client officer for Greenleaf Trust, a privately held wealth management firm in Kalamazoo, Mich. Rinzema believes it’s never too soon to prepare for next year’s tax return.
“The best time to meet with clients in order to help them is at the beginning of the year, in January,” Rinzema said. “No matter what that client’s financial bracket, everyone wants the same thing—my help in reducing their tax obligation, [so] we’re looking at longer-term strategies.”
That's also important when things can get overlooked. Take this example:
In February 2019, a client couple, a husband and wife, came to him for his help. They were retired and in their early-to-mid 60s, Rinzema said. The couple told him they couldn’t figure out why they were paying more in taxes after retiring instead of less.
Former childhood sweethearts, the couple went to work after high school at the same blue-collar company. As the years went by, the husband was promoted to a managerial position and rose through the ranks to a position of leadership. After 40 years of working at the same company, both the husband and wife retired. However, the husband found retirement boring, Rinzema said, so three years ago he returned to work as an industry consultant.
“He’s living on his savings, a nice nest egg, and has income coming in from the small business he started after retirement,” Rinzema said.
According to Rinzema, both the husband and the wife had each set up their own 401(k) plans during their years of working together at the same company. Once the husband returned to work as a consultant, however, Rinzema had him set up a new 401(k) plan to increase the amount of his contribution to the largest allowable.
Rinzema said all went according to plan until last year, when his client changed CPAs after moving with his wife to Florida. Upon completing a draft 2018 tax return, the new CPA sent it to Rinzema’s client for his review. According to Rinzema, his client thought the taxes were too high.
“That’s when he called me and asked me to review the draft return,” Rinzema said. “We worked with this client for a number of years, doing the financial planning and portfolio management, but we do not offer tax preparation.”
After reviewing the 2018 draft return, Rinzema found the reason for his client’s higher taxes—the new CPA had not included the Solo 401(k) plan contribution as a deduction.