Financial Advisors Share Scary Tax Advice Stories

What is the scariest piece of tax advice you’ve ever heard?

Michael: It probably goes back to a few years ago when we started working with a client on their financial plan.

James: Well, the scariest I ever heard, back when the government first let people do accelerated depreciation, there was an accountant that told a client, “Go buy a bunch of equipment that you don’t need, because you can deduct it all this year.”

Michael: This one stock, this one position, ended up making up 50% of their net worth, all of the assets that they’ve accumulated and saved over their entire lifetime, 50% of that is in one position.

James: And when the client told me that, I said, “Wait a second, just because you get a 30% discount on that thing that you don’t need, you think this is a great idea.” Their CPA had advised them not to sell that position, because it would’ve ended up in a five figure tax bill. The only reason you would have to pay so much in taxes is because you made so much money.

James: And he was like, “Well, yeah, of course. I get to deduct it from my taxes.” And I said, “If your spouse came home and said, ‘I just bought the whole store worth of stuff that we don’t need, but it was 30% off,'” would you be happy with that decision?

Michael: What was so scary about that advice is the client was only looking at it from one perspective, right? The taxes. Right.

James: What we don’t want our clients to do is let tax implications get in the way of smart decision-making. Yeah. Buying a bunch of stuff that you have no use for, just ’cause it’s deductible.

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