By: Paul Morrone
Don’t shoot the messenger
It’s that time of year again. Taxpayers are paying big tax bills and complaining that their accountant didn’t do a good enough job. To all the accountant haters out there, I hate to break it to you, but it’s (likely) not your accountant’s fault. Especially if you didn’t communicate with them throughout the year. A larger portion of the blame falls on your financial advisor (if you have one) and on you if you and your team failed to plan over the past year. April 15th is just the line in the sand when you finally have to face the music for lousy or non-existing tax planning. But there is some good news, 2026 is a new year, and there is plenty of time to learn from the sins of the past and get your affairs in order so there are no surprises next year.
The obvious first question is: what drove the nasty April surprise? A couple of common causes could range from simple:
- Inadequate withholding or estimated payments relative to income (which can be made worse with penalties and interest)
- Sale of real property at a gain
- Liquidation of highly appreciated stock or portfolio trading resulting in large net realized gains
- Mutual fund pass through capital gains
To complex:
- Pass-through taxable income from a trust or other entity
- Exercise of stock options
- Disallowed losses due to passive activity rules
- Vesting of company restricted stock units (RSUs)
- Phaseout of certain deductions or credits
- The impact of alternative minimum tax
The unanticipated tax bill could have also been the result of a confluence of factors, and often with taxes, that is the case.
Regardless of the reason, the next question is: should I have seen it coming? For discussion purposes, it would be pretty hard to deny that you had no knowledge that you sold a rental property or exercised stock options as those generally require you as the owner to be involved in the liquidation/sale process. These type of events should be planned for in advance, and working in conjunction with your CPA and advisor, you could have crafted a plan to pay for any associated costs – which includes the tax bill.
Other things are harder for a taxpayer to assess in real-time, especially if they work with an investment advisor. Maybe your advisor sold your highly appreciated Nivida stock at a huge gain and neglected to discuss the resulting tax impact with you. Or maybe there were a series of trades, none of which that were individually significant, that added up to a material number when aggregated for year-end reporting. Another common investment related matter are gains that are passed through to mutual fund shareholders at the end of the year. In a late-stage bull-market, as we’ve seen lately, these numbers can be staggering. Again, these are all things that should be communicated and addressed proactively by a competent advisor.
Not every advisory firm has tax expertise – and that is OK. There are plenty of qualified and quality advisors who don’t provide tax advice or planning services. That does not mean, however, that an advisor is relieved of their duty to ask the right questions during the year or for them to provide timely and relevant communications regarding investment activity that will impact a client’s tax return.
If you find yourself in this position, as yourself: In an advisory relationship, shouldn’t you be discussing changes in cash flow, sales of property, investment activity, and long-term tax minimization strategy anyway? The analysis and execution of some of these items may require coordination with a qualified tax professional to help refine the strategy, but it is the conversations with the advisor that should be the impetus to discuss any of the above items in more detail.
The point is that tax return filing and tax planning are two distinctively different services. One uses past data that, in many cases, can’t be changed. One looks out the windshield and uses assumptions and unknowns rather than facts. Filing focuses on completeness and accuracy while planning is driven by goals and theory. If you had an April surprise this year, you should be asking yourself one final question – should I find an advisory firm that will help guide me in a way that is best for my future?
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