Ask a CPA
Curious what you should be talking to your CPA about before and during tax preparation time? Ryan interviews Jim Valk from UHY in Kalamazoo to help our clients see how we can work together with your other advisors and keep your financial plan on track. Many investment decisions will have taxable consequences so it’s important to look at the whole picture.
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Hey everyone, and thanks for joining us.
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This is a new series we're kicking off called Ask
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the Expert Today.
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We are are generously joined by local CPA, Jim Volk,
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who's been kind enough to donate a little bit of time,
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even in the middle of tax season.
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Uh, Jim is a partner with UHY Advisors,
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which is a nationally known
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and recognized firm I've known personally.
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Uh, I've known Jim personally
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for a little over 20 years now.
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Um, all around great guy.
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So he got, uh, he got the luxury
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or burden of being the first expert on the list
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here as we start this series.
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So, Jim, thanks for joining us.
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Uh, look forward to speaking with you today.
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You bet. Appreciate it. Yeah, uh, glad to do it, Ryan.
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So, uh, likewise, uh, compliments to, to you and what you do
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and, and the service you provide, uh, for,
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for all your clients.
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So, yeah, good to be here.
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Thank you. Uh, so we were talking a little bit
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before I hit the record button
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and, uh, honed in a few great questions.
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And so, uh, let's start with Jim.
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If you can tell us maybe the number one question you get
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during tax season and maybe, you know, one
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or two questions that you typically don't get
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that you feel maybe clients should be asking.
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Yeah, yeah.
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Well, uh, easily the number one question I think probably
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all tax professionals get is, uh, what kind
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of things can I do to reduce my tax liability?
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Um, should I be doing something different?
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Um, should you be asking me questions about this or that?
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What, what should I be tracking?
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Uh, obviously, uh, taxes are a, a, a significant,
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uh, expense of every household.
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And so when you can do things to reduce your,
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your tax burden, um, it is, so kind of along those lines,
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uh, Ryan, um, and, and what they should be asking us.
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Uh, it's funny what the question I get.
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Um, we get it after the fact.
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So, uh, you're finishing up their tax return
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and you're, you're going through it with 'em
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and they're saying, well, well, well, what can I do?
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What should have I, you know, anything I can do
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to fix last year up?
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Well, you know, that's, that's a little late at that time.
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So, um, really, you know, the big thing is, is
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what should they be asking?
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Well, I, you know, you need to ask those questions,
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um, beforehand.
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Um, you know, if, uh, I recommend people
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that are active in investing
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in businesses
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and things, um, that are more than just a, uh,
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compensation or a W2, uh,
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that we have a conversation one or two times a year.
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Um, and I really recommend that we have a conversation
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if you are, uh, anticipating doing something big,
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and that can be, uh, I'm gonna start a new business,
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or I could start a new job,
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or I've had this piece of property in my family for years
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and I'm thinking about selling it.
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Uh, anything that might have some sort of tax consequence
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before you do that transaction, give your CPAA call,
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just talk it through,
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because that's when the planning can occur.
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They're not always gonna have something for you to do.
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Um, but a lot of times, uh, they might be able
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to give you some advice that can definitely,
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um, save you some money.
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So, um, that's the biggest thing I like to tell people.
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I know, um, maybe you're thinking, well,
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they're gonna bill me for that time.
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Yep, they probably are.
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But, uh, you know, for the vast majority of the time, um,
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that fee, you're gonna pay your CPA, you're gonna, uh,
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you're gonna more than benefit from,
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from their advice upfront.
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What's the old expression,
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penny wise in pound foolish. Right,
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Right, right.
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Yeah. Um, you know, the other thing you just like, well, um,
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you know, I tell 'em is, uh, you know, you can always
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spend money to save taxes,
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but along those lines, it really never makes sense for you
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to spend a dollar to save 30 cents.
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You know, if, if that's something you wanna do, um,
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if you're philanthropic and,
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and we can talk about how maybe
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you bunch your deductions up in one year versus another
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to take advantage of itemized deductions
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because you're philanthropic, that's great.
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That's part of tax planning.
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But to just tell you to go out
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and, uh, make a charitable contribution to save, you know,
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30 cents doesn't necessarily make sense.
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Sure. So what I think I heard you say, just
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to say it back in our terms, is I always use the phrase,
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you know, uh, windshield planning,
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which is planning in advance versus rear real planning when
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you've already driven by it and then shown right in February
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and saying, Hey, here's all the stuff
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that happens, you know, make this work. And,
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And yeah, that's really a great way of putting it.
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So sidebar a little bit about, you know, clients,
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we're all busy, right?
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And, and this isn't to pick on anyone.
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That's not an excuse, but, you know, uh, and, and,
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and our jobs kind of have similarities sometimes is you
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wanna know ahead of time the issues and considerations.
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So you've got time to plan.
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So, so during the year, we, you know,
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always recommend when you have changes
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or you think you're having changes,
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or even if we see stuff, Hey,
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let's have a conversation with the cpa.
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Let's not wait and, and dump this in their lap in February
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and, and hope they can work some sort of magic.
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'cause as you know, a lot of times it's,
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it's too late to, uh,
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It's right.
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Um, so, so let's, let's go right,
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right into it here then with the next question.
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Uh, I chuckle 'cause we had this one,
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but what are some things clients do, uh,
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CPA confessions here that drive CPAs nuts, uh, when, when,
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when you're in there doing their taxes,
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and then how can we maybe bridge that communication gap?
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Yeah, I think, um, one of the things that probably drives,
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um, all tax prepare CPAs nuts is, uh, clients
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who procrastinate.
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Um, so, um, uh,
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quite honestly, we don't want
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to hear about how busy you are.
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Uh, we're getting in early, we're working late, uh,
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we're working weekends.
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Um, and so, uh, to have the client that tells you
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that they're so busy that they can't get you their tax
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documents and keep putting it off,
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and you have to remind 'em
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that you're up against a deadline, um, that that'll,
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that'll drive us all crazy
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and certainly don't tell us, um, that you didn't have time
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to get to your stuff before you went on spring break.
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And you'll get your stuff, um, uh,
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after they're back from spring break,
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which gives you about a week left to to file.
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So I think that drives all of us nuts.
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I think, um, you know, it's,
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it's interesting over the years, um, the, uh,
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the preparers there are less of us than there have been.
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Uh, there are a lot of people that have been retiring, uh,
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especially post COVID, uh,
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baby boomers getting outta the profession.
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And if you look at the numbers, uh,
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less people are getting into the, to profession.
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So there's just less of us out there.
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And then, um, there's documents that used
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to come out by the end of January.
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Um, you know, you're, you're all too aware of that,
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that some of your broker statements don't come
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out till mid-March.
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So it, it turns what used to be maybe a, um, nine
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or 10 week filing season into more like a five week
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filing season.
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So, um, you know, procrastinating only makes things,
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uh, worse on the prepare end.
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And, um, you know, you're likely,
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you're likely gonna see more
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and more extensions as a real result of that.
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And, um, you know, quite honestly,
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I think you're probably gonna see some
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increase in preparation fees just
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because of, of all of those, those issues.
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Sure, yeah. And we, we've seen it as you
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and I've talked, you know, we, we work with a lot
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of CPA firms in town and around,
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and, uh, a lot of people retiring, a lot of people leaving
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and or too busy to take on new clients.
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So I think it's, it's really important, uh, communication
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and then trying to be as, as prepared so
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that it it's smooth the processes as possible.
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Yeah, exactly. So I'm gonna
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share my screen for a second.
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And, and a lot of, I think our clients,
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and certainly you, you've seen this one before,
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but looking back at tax rates,
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and I always chuckle, I play this goofy game with people
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and say, can you guess the highest bracket
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in, you know, 1980?
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Everybody guesses like 40 or 50%
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and they're, they're amazed when I show 'em it was 70.
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Um, and then today it's at 37, which is,
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is still a lot higher than anyone wants to pay,
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but it's really interesting how tax rates have, have as a,
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as a whole really kind of gone down over that period.
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And, and, and where I'm going with this question is,
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you know, the old adage was always
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maximize all the pre-tax deductions,
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which I'm not saying is not good advice,
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but it, it's interesting now with the rise of,
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of things like Roth 4 0 1 Ks being adopted
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by different plan sponsors.
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Um, so I'm just curious, you know,
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when you see somebody has,
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or they do have a Roth, uh, option inside their 401k, um,
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you know, how do you look, look at that as far
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as putting in pre-tax versus Roth and,
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and maybe evaluating that?
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Yeah, yeah, it's really pretty good question.
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You know, I think, um, you know, that old saying, um, uh,
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applies, um, on a very regular basis.
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I think really a good piece of tax planning is planning
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the timing of when you're gonna recognize income.
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And that's where that, that saying kind of comes from
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that you, um, that you alluded to, you know,
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don't pay tax on it today, pay it at a future date.
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And the thought process is, is
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that hopefully you'll be in a lower tax bracket in a future
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date and many times you are.
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Um, but um, but it really goes beyond that.
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Um, if nothing else, sometimes you have just the time value
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of money paying tax today versus um, uh, another day.
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But an another piece of that timing
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is not just kicking it down the road,
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but kicking it down the road to a, to a timeframe
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where it makes sense to recognize that income.
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Um, you know, you might have flow through business losses
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and so you've, um, kicked off converting your IRA
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to a Roth down the road
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'cause you didn't wanna recognize that income,
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but maybe now's the time to recognize the income
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'cause you've got that loss to offset that.
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So, um, that that, that is a big piece of tax planning.
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So it's not just kicking it down the road,
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but kicking it to a future date where you have the ability
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to recognize that income, um, and at a lower rate.
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Um, and, and that doesn't necessarily mean when you retire,
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but along those lines, I'm glad you really kind
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of brought up a Roth because, um, Roth is one
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of the few things out there
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where you actually can avoid tax.
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A Roth grows, not tax deferred, excuse me, but tax free.
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And there are very few things in the governmental tax system
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that are free.
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So quite honestly, um, I think this is a wonderful vehicle.
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I think everybody should take advantage of Roth IRAs as much
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as they possibly can.
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You know, I kind of say, well if you're not,
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if you're not taking bread off your table, um,
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you ought to be doing this.
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And basically, I mean, if you're not changing your
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lifestyle, if you're not like barely getting by, um,
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but if you've got any type of ca access cash, look
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for a way to do a Roth.
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Um, if you make too much money to put, uh,
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make a Roth contribution, well then get with, get with Brian
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and do a backdoor, um, and,
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and put it in a non, uh, deductible IRA
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and then convert it into a Roth.
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Um, you know, you talked about tax deferred,
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but if you're a young person, um,
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and uh, you have the ability with say your 401k at work
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and there's a Roth component there, again, I would recommend
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that you actually, uh, defer as much
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as you can defer the whole thing into the Roth if you
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actually can afford to do that.
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'cause if you think about what, um, a 25-year-old
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that's putting away all this money in a Roth, what
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that's gonna look like by the time they're ready to retire,
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I mean, it's, it's significant.
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Um, but it really is more than just young people.
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Um, um, there are a lot of people like myself,
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I'm in my fifties, maybe you're, you,
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maybe you're in your fifties
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and you don't plan on taking any money outta your IRAs
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until you absolutely have to.
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So you still got 20 years down the road
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before you might even wanna take anything out of it, uh,
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convert into, uh, a Roth, do the Roth, um,
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contributions because you still got a significant amount
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of time for that to grow tax free.
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So it's not just tax deferred
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and getting into another bracket, it's actually,
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um, tax free.
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And I think, um, if you look at those calculations, um,
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you know, it's still gonna be a significant savings
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to, to do a Roth.
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Yeah, no, that's, that's great advice.
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And I think, uh, we're always trying to guess
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what the tax rates are gonna be.
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The one thing that's nice about the Roth, you know,
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we always know what that tax rate is, right?
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It's, it's zero. So whether it's up or down
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or not, we know that, and all the growth is zero. So,
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Yeah. And you never know.
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I mean, you never know when,
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um, the government might pull that benefit back.
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I mean, you, you just don't know.
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Tax laws change all the time
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and, um, you know, there's an administration,
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they might think they want some kind of revenue raising deal
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and you know, Ross might go away.
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Sure. So that, that ties perfectly into our next question
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as we kind of wind up here with the, the last question is,
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okay, 2022.
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Now behind us we're into 2023
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with the talk about tax planning and,
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and windshield planning and getting ahead of things.
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Any, uh, any tidbits or tips, you know, you kind of see
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or people should really be aware of for 2023 sort
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of coming down the pipeline that you may share?
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Yeah, I would tell you right now, I don't really see, um,
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anything realistically coming down.
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I think, um, um, you generally are gonna have to use
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to use current tax laws to, to think about stuff
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for your planning.
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You never know. Um, it's politics.
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Um, so much of the tax law is really quite
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honestly politics.
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Um, certainly, uh, there's a push on the Democratic side
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to raise more revenue.
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Um, they've, uh, had a number of proposals go through,
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uh, or be voted upon.
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Um, they haven't really been able
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to get anything significant, uh, to go through,
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but they, uh, right now they would love to see some of the,
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uh, cuts that came about, um, in the Trump administration
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reversed, um, some higher rates.
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They continue to talk about, um, taxing those
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that make more than $400,000 a year that that's the group
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that they want to hit.
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Uh, I think it got harder for them with, uh,
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with the house now shifting over to, uh,
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Republican controlled, uh, it's gonna be harder to convince,
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um, the Republicans to, um, approve some sort
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of tax increase, um, especially with
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inflation that's, um, still out there.
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So I, you know, my, my gut tells me, I,
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I really don't see anything coming through
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of any sign significance,
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but it's important to, um, understand some of the things
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that they're talking about so that you can think about it
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and, uh, and be prepared.
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But, you know, I, I caution people just
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because it's in the newspaper and one party
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or the other is proposing something
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that doesn't mean it's gonna happen.
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Uh, there's a lot that has to happen,
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but, um, if there's also a lot
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of buzz about capital gains rates, well then maybe you ought
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to start putting together a little bit of a game plan on how
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that might affect you and whether you need
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to make some moves as a result of that.
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Okay. Well said. So kind of to summary, summarize
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and kind of put a, put a button on this, uh,
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really a couple takeaways is one, be proactive, right?
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We're looking to plan ahead versus after the fact.
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Uh, two clear communication between the client, the CPA and
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or the advisor, ideally all three.
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Um, and, and then the third thing is really,
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you know, what is best?
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It's not a one size fits all.
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It's to their unique circumstance. So really
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Well said, The considerations and,
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and the trade-offs, uh, particularly
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with the pre-tax and post-tax.
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Yep. Absolutely. Well said. Well,
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Jim, thank you again for your time.
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You've been a great resource to us for the past 20 years
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and a lot of our clients, and, uh,
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appreciate you taking time outta your schedule.
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Uh, I'll let you get back to what I'm sure is a,
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a large stack of returns on your desk.
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They're, they're coming in. But yeah, thanks Ryan.
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Appreciate it. Thank you.