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Many Unhappy Returns

Howard Rohleder

I WAS INSPIRED BY Rick Connor and other HumbleDollar contributors to sign up for the AARP’s volunteer-run Tax-Aide program. After completing 48 hours of training at a local college and passing the required tests, I volunteered two days a week at two different senior centers. I completed my first tax season in April.

Two clients, with whom I spent extra time, stood out. The first was a widow in her late 60s whose husband had always handled their finances. She had an account with a large brokerage firm. There were lots of transactions that generated lots of losses, which were on top of the large capital-loss carryforwards she already had.

I tried to coach her on questions to ask her advisor, but she was afraid to call the advisor because she could never understand what he said. I asked if she had adult children who could participate in a call, but she had none. Being new, I was giving the advisor the benefit of the doubt. The more experienced volunteer who reviewed my work was more blunt: The advisor was taking advantage of her.

In fact, her capital losses were so large, she could have offset them against ordinary income and hit the $3,000 annual maximum for the next 30 years. For me, it was eye-opening—a lesson about the dangers of leaving an advisor-managed portfolio to a spouse with little financial understanding. I wondered if the advisor, who had been selected by the deceased husband, had been churning the account before the husband died, or if he only started after.

The second client was a woman in her mid-60s, never married and who was planning to retire in 2024. She had a good job and a sizable 403(b) balance. She asked how to prepare for next year’s taxes, given that her work would end and her pension would start in July. It became apparent that she didn’t understand her options for delaying Social Security, and the risks and benefits of doing so.

This second client was good with numbers. She just didn’t know where to turn for help. I did some tax estimating for her and sent her to Fidelity Investments, her 403(b) provider, with a list of questions. I suspect she’ll come out okay, but I was struck by her lack of understanding of her own finances, even though she was clearly capable.

I tackled both cases while volunteering at the Tax-Aide program run out of a senior center in an affluent neighborhood. But I found working at the other location more satisfying. There, I was helping folks truly in need.

There was a couple in their mid-80s living only on Social Security. How do they manage? And then there was the couple who cashed out their entire six-figure retirement account from a former employer, without understanding the tax consequences. It was early in retirement, and they were facing the biggest tax bill of their life.

There was the polite, articulate 20-something man who needed me to do his 2022 and 2023 taxes. He worked four jobs in 2022 and four different jobs in 2023, one of which was as an independent contractor for DoorDash. His occupation was “driver.” He picked up work where he could to support himself and his young daughter. His income was $36,000, and he was hustling to keep things together. He ended up with a big refund due to the Earned Income Tax Credit, something I had no prior experience with. Fortunately, the software calculated it for me.

Several clients came up short on their withholding and had to set up payment plans with the IRS. They were surprised and upset, not realizing how a change in their work or retirement would impact their taxes.

One couple in their 80s with minimal retirement income was due a small refund. I asked if they wanted it direct deposited. They said not to worry; the IRS was going to keep it because they owed money from prior years. They were nice, cheerful people. We joked about the football teams represented on their tattered sweatshirts. I couldn’t help but feel for them.

Among those who owed money, a significant number refused to use direct debit to pay the IRS because they didn’t trust the government with their bank information. One prim and proper 93-year-old lady told me she didn’t want to pay money so those “jackasses in Washington” could travel all over at her expense.

Few clients itemized their deductions. The exceptions were those with large out-of-pocket medical bills. One woman had medical expenses totaling $30,000. She told me she’d had cancer, but had been cured after months of treatment. She’d asked the doctor to repeat that to her—she couldn’t believe she was cured after all she’d been through. It was a lot of money, she said, but worth it. Here was a place where the tax code helped her by taking on a small part of her financial burden.

Time and again, clients brought in receipts for itemization that were nowhere close to the standard deduction. I learned by listening to another volunteer how to explain that the government had actually done something good by raising the standard deduction. They hadn’t “taken away” the ability to deduct, but rather had greatly reduced their taxes by increasing the standard deduction, and also greatly simplified tax preparation.

I found the work stressful. I made mistakes that were caught by reviewers and, in turn, I caught mistakes in reviews I conducted of more experienced preparers. Even for “simple” returns, there were enough quirks to keep everyone on their toes. A woman brought in pension statements written entirely in Japanese. The initial preparer inadvertently put in 2022’s income instead of 2023’s, which was lower. I made the correction and teased him that my Japanese was better than his.

My favorite way to lighten the tension with returning clients, who’d clearly been married for many years, was to ask if anything had changed over the past year. Do you have a new address? New phone number? New spouse? That got a chuckle, and the wife would say, “Not that I know of.” The husband would acknowledge that he was lucky she kept him another year. They would then usually tell me how long they’d been married.

The tax system’s complexity for these mostly low-income people just overwhelms them. Even if they have simple returns, they turn to AARP because they’re intimidated. As they sat and watched me input numbers, I could feel their stress as they awaited the verdict. There was great relief when they heard the result they’d expected and great anxiety if I delivered bad news.

After a refresher course, I’ll be back next February.

Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.” Check out his previous articles.

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Doug K
7 months ago

Excellent ! thank you for doing this..

should I live so long as to retire, this sounds like a volunteer job I could do. Though, I only have degrees in mathematics, philosophy, and computer science, it might not be enough to manage the US tax code.. ha.

George Lambert
7 months ago

Great story/article, and thanks for what you are doing. It is so unfortunate that the tax code is so complicated with 99% of it applicable to only 1% of taxpayers. I am curious as to what options you had to advise the clients who had the churning broker.

DAN SMITH
7 months ago

You will see these things and more as you continue to prepare taxes. One of the toughest things for me is when I see one spouse destroying a couples chances of achieving financial security by doing stupid things. Or when I observe a spouse berating or contradicting every word uttered by their partner. Tax prepares gain intimate knowledge of their clients lives: The other day I was walking into the grocery store when a woman ran up and gave me a big hug. It was a former client I’d not seen since retiring. There was a young girl with her I’d not met, still, I knew her name and that it was a granddaughter being claimed by my former client due to the fact that the girls mother had substance abuse as well as other issues.
We try to help these folks but there’s only so much we can do.

Dominique Simonian
7 months ago

Regarding the couple “who cashed out their entire six-figure retirement account from a former employer, without understanding the tax consequences.” I volunteer for AARP Tax Aide also and had a young couple come in this year where the husband had recently left his job and done the same thing (although it was not near six-figures). It was the first time in my life I literally saw someone turn white, when I explained the tax and penalty consequences. Fortunately, he was within the 60 day period to roll the money into an IRA account and they had not yet bought the boat they were planning to use the money for.

Jonathan Clements
Admin
7 months ago

Yikes! Thank goodness you were there to help them in time.

Mark Eckman
7 months ago

Thank you for volunteering. I’ll mention a similar program, SHIP that helps people with Medicare and all the strange thing it brings. These programs are set up in each state through the department of insurance, require training and an abundance of patience. Unfortunately, there are similar stories of how greed, fear and ignorance intersect. But the volunteers can and do help people tackle the bureaucracy.

Eileen OHara
7 months ago
Reply to  Mark Eckman

Yes! I am a volunteer in Kansas for the program. Medicare bedevils everyone, it seems. Such a need to verify correct responses to individual situations. I’ve learned even as a volunteer to call Medicare at odd hours (Medicare, unlike SS, is open 24/7), because many experienced agents work evening shifts due to less demand than weekdays 9-5. And if I don’t feel that I click with an agent, I thank them and ask to speak to a supervisor, who can often explain nuances more clearly.

Mitchell Schoenbrun
7 months ago

For the first woman you mentioned I hope you reported the advisor to the authorities. I’m not a lawyer but I’m pretty sure that the crime involved is either failure to fulfill one’s fiduciary responsibility or elder abuse.

richard curley
7 months ago

You are a good man to volunteer Howard, a good man.

William Perry
7 months ago

Thanks to many for the volunteer efforts as a tax aid with AARP or other volunteer group. It sounds like Howard has a good group he is working with.

I am a big fan of the free AARP tax calculator which I find is a good tool for DIY tax preparers to check their own work and for interim tax planning.

A second set of eyes when preparing a return is a best review practice after preparing a return when possible. I also recommend the practice of a formal comparison with the prior year return(s) looking at both totals and detailed sources as a good way to to catch missing data. I also like setting a prepared return aside and then revisiting my own work cold a day or two later. When I give a client a completed return I am hopeful they will take the time to do a review before authorizing the electronic transmittal of the return. I also recommend using a comprehensive current year tax preparation checklist as a good practice to catch a new matter in the current year. I read the checklist after my initial draft of the return is complete to think about matters I may not have originally considered. There are attained ages which have tax significance for personal tax returns to consider. I hated having to tell a first year client widow that she missed taking her recently deceased husband’s RMD this past year. If a tax organizer is available it is in the taxpayer’s best interest to complete and if you are unsure of the answer I think the best response is usually ??? followed with a discussion. Please help your preparer help you by completing the organizer.

A lot of errors can occur when we are tired and/or rushed and that is particularity true of preparing tax returns. I always prefer to extend rather than have to amend a tax return. One practical tax reform could start with tax authorities eliminating the requirement to send a request to the federal or state government to request an extension of time to file. Some state have done this. Just make the due date for the return the following October 15 for filing the return and if you owe additional tax at April 15 all you need to do is make a payment. Interest would be due on any underpayment. A win win for the taxpayer and the government.

It is June 19th of 2024 and there is still a possibility that congress will retroactively change the required depreciation method for 2023. If you are still waiting for a 2023 K-1 from a pass-through business entity that may be the reason. I, for one, have no desire to have to amend any 2023 business tax returns and the related individual returns because congress has failed to act in a timely manner. There is a reason that the pipeline of new accountants is drying up. I am worried that the complexity of our tax laws will further divide our nation. Let’s fix the problems now.

Thanks for your article Howard.

DAN SMITH
7 months ago
Reply to  William Perry

William, I just checked out the AARP tax calculator. Wow, fast and thorough. Thanks for the tip.

Jeff Bond
7 months ago
Reply to  William Perry

I only do our own taxes, but also I’m a big fan of setting them aside for a few days and then doing a complete revisit of all branching decisions.

Gozo Rabat
7 months ago

Can I, as a lazy person, ask for help reaching a link to sign up to do this? I’ve been curious to try it, as I’ve done our own, somewhat-complex taxes for decades, but I never get around to searching out how to do it.

Regards,
(($; -)}™
Gozo

Dominique Simonian
7 months ago
Reply to  Gozo Rabat

I also volunteer for AARP Tax Aide. Most returns are pretty straightforward but we are not trained to prepare things like rental income, farm income, certain K-1 income, AMT, etc. You might want to check if your somewhat-complex taxes, as you describe, are in scope for the service.

Gozo Rabat
7 months ago

I assume that the full scope of my tax-preparation experience will go beyond what is required or used. Better to know too-much than too-little. Or so I hope!

Regards,
(($; -)}™
Gozo

Gozo Rabat
7 months ago
Reply to  parkslope

I’ve submitted an application. Thanks for helping this lazy-ish, old guy out.

Regards,
(($; -)}™
Gozo

Last edited 7 months ago by Gozo Rabat
Duke Tallam
7 months ago

Hats off Howard – doing my own is bad enough not sure I could stomach more. There is always that fear that you screwed up something and will get audited by IRS – so I have been using TurboTax, and use their audit defense for peace of mind. I preferred the old 1040/A/B/C – now it’s all kinds of new forms which I have not even bothered to figure out.

-Duke

Harold Tynes
7 months ago

Howard, as a fellow Tax-Aide volunteer, I think I have experienced many of the client issues you mentioned. This was my second year in the program and I enjoyed it even more than year one. It was great to get those “repeat” customers who seek you out and share what has gone on in their lives over the past year. Many took advice to heart and came in better shape than the prior year. You CAN make a difference!

Andrew Forsythe
7 months ago

Howard, good on you, and Rick and others, for doing this work. There are lots of ways to volunteer but I’ve got to believe this is one of the most challenging. I know your new clients are very grateful.

mytimetotravel
7 months ago

Thank you for volunteering! But this is the second article in a week that underlines the need for radical simplification of the tax code. Not that I have any expectation that it will actually happen, too many people make money from the existing system, just like the medical system.

Fred Miller
7 months ago
Reply to  mytimetotravel

I agree the tax code needs simplified. I have also realized though many people don’t even try to understand taxes (educate themselves). For example, my parents never put forth any effort (that I saw) to educate themselves about taxes. I feel it was a mix of being lazy and not having interest in doing so. Thus, they always had a tax preparer do their taxes. I did the same in my early 20s and was always hoping, like my parents, to get a refund. However, since late 20s (I am now in my forties), I have educated myself on taxes and am still doing so. The education was a result of interest in taxes and effort. I have now completed my own taxes for the last 20 years and am so thankful and grateful that I learned about taxes because it has saved me thousands of dollars and stress. Plus, I now don’t hope for a refund, since now through planning, via understanding taxes, I try to break even so I don’t have to pay or get a refund. So, yes, I wish the tax code was more straightforward, but that is out of my control, unfortunately. What is in my control is educating myself so I can make better decisions on how to manage my money and avoid paying “extra” in taxes and when it comes to tax time, not having to hope/stress about getting a refund or paying. Thus, it is awesome that several HumbleDollar readers and writers help people with their taxes. Thank you for doing so. I hope to do so someday myself.

Last edited 7 months ago by Fred Miller
Rick Connor
7 months ago

It’s not always churning by an advisor that’s the issue. Sometimes it’s just inertia – a bad portfolio sits there generating fees for years with no activity. We found this with my wife’s aunt – she had a cash account with a national bank that was hit with monthly fees far in excess of the negligible return. She had no idea she had opened the account years before. I’ve also seen medium size portfolios that were important to the client, but apparently too small for the advisory firm to pay attention. A recently divorced retiree that I helped this year told me the advisor assigned to the account she was granted in the divorce wouldn’t return her calls.

R Quinn
7 months ago

This article and a few comments show the danger in allowing an advisor or anyone else to manage one’s investments to the extent of being able to buy and sell for you.

If a person is not a sophisticated investor and that includes me, they should not be buying and selling and should stick with index funds left alone. I have not bought or sold in over a decade and I keep full control. What I have changed periodically is which funds are reinvested.

dlnevins
7 months ago
Reply to  R Quinn

The problem, of course, is that some people (due to unavoidable mental incapacity) NEED to rely on someone else to manage their investments for them. In the future I could well be one of them, as I have no husband, children, or nieces/nephews who could assume that job, and my mother and maternal grandmother both died from Alzheimer’s. The hard part is finding someone both honest and qualified to fill that role.

A discussion on another board about settling an estate has again reminded me of just how many seemingly-honest people are anything but. It’s depressing, and a real problem when someone has to hand control of their finances over to another person.

Boomerst3
7 months ago
Reply to  dlnevins

Maybe set up a plan in anticipation of incapacitation before it happens.

Rob Jennings
7 months ago
Reply to  R Quinn

This comment reflects a generalization about advisors. As a client of what I believe is a fair and trustworthy one who is primarily a retirement planner but secondarily manages our almost entirely passive investments (including occasional buying and selling mostly for rebalancing), I know there are good ones out there unlike the one highlighted in the article. Any potential client should do a good deal of vetting before considering an advisor including those that manage investments-and clearly it’s not for everyone. If someone is willing and able to DIY, more power to them. And clearly whether one uses an advisor or not, its good idea to monitor what is going on with one’s portfolio on at least a semi-regular basis.

Last edited 7 months ago by Rob Jennings
Boomerst3
7 months ago
Reply to  Rob Jennings

Just curious. If you have a passive investment portfolio why pay someone to do something as simple as balancing it?

R Quinn
7 months ago
Reply to  Rob Jennings

Not at all, but there is a risk.

Howard Rohleder
7 months ago
Reply to  Rob Jennings

I certainly know ethical advisors and have no intent to disparage them all. The unsophisticated investor by definition is most likely to fall prey to the others. As in many areas of life, It’s caveat emptor… let the buyer beware.

R Quinn
7 months ago

I didn’t realize 20 year olds could use the AARP service.

Boomerst3
7 months ago
Reply to  R Quinn

Never mind. I just realized it was a client of the author in this story

Boomerst3
7 months ago
Reply to  R Quinn

i must have missed it. Who is 20 years old?

Howard Rohleder
7 months ago
Reply to  R Quinn

Eligibility is based on complexity of the return…there are areas of taxation in which we are not trained. All ages are welcome though most clients are older.

David J. Kupstas
7 months ago

Good stuff. I was a longtime reader of Kiplinger’s. However, I didn’t get my gift subscription until 1997, so I missed you on the cover. (But if I did have that issue, it’d be in my attic.) The work you’re doing sounds rewarding. At some point, I will move on from my paid gig and will look for a way to serve others. That kind of volunteer work could be right up my alley.

Lester Nail
7 months ago

Many many years ago I heard Steve Forbes lay out his flat tax plan while running for President. ( actually a very short jog). I thought it was brilliant then and still do. Why don’t we have it? I always figured there were too many “hogs at the trough” in DC to make that big of change. But I could be wrong.

BTW Forbes is a very nice guy in person.

Cammer Michael
7 months ago

Fascinating article.

I think it’s very common for people to be intimidated by their brokers. Certainly, when Schwab started offering $28 trades by phone and low fee mutual funds, Merrill Lynch came at me every which way to not close my CMA account.

Max Gainey
7 months ago

What a great thing you’re doing, thanks on behalf of us all. Now if we could persuade congress to simplify the tax code. I’m not concerned about lower taxes, happy to pay my fair share. I’m interested in better tax code that requires we all pay our fair share to support our citizens.

Howard Rohleder
7 months ago
Reply to  Max Gainey

Simplifying the tax code is a worthwhile goal… one I suspect we’ll never see. We saw clients who had only just learned of the Tax Aide program who had previously paid $250 to $400 for tax preparation for simple returns. What a drain for low income people.

CJ
7 months ago

Great article. I volunteered with the IRS VITA program for the first time this year and it was one of the most gratifying experiences I’ve had in a long time.

Edmund Marsh
7 months ago

Good for you, Howard. Now, what could be done to provide sound financial advice in a manner similar to the Tax-Aide program?

Howard Rohleder
7 months ago
Reply to  Edmund Marsh

I’ve wondered about this as well. The problem of course is the extreme variability that would need to be covered both in training and in practice compared to the tax code which, while complicated, is a discrete set of rules. Teaching financial literacy may be the best hope.

mytimetotravel
7 months ago
Reply to  Edmund Marsh

Starting next year my state, North Carolina, will require a personal finance course for graduation from high school. No idea what it will cover.

Rick Connor
7 months ago
Reply to  Edmund Marsh

Edmund, I’ve been looking for exactly that but haven’t found the equivalent. There are financial literacy programs bu they seem to be one-offs by organization. The FPA does some pro-bono work butI’m not sure how extensive it is. Many times over the last 6 years of TaxAide I’ve seen clients that would benefit greatly from basic FP.

Marjorie Kondrack
7 months ago

Howard…enjoyable and satisfying article. One thing you and Rick Connor have in common is compassion for people, an ingredient which makes you both successful tax preparers.
There are some who, through no fault of their own, do not have the capacity to understand taxes—the subject terrifies them. Instead of berating them we should use our God given talents to help them, as you have demonstrated so well.

Howard Rohleder
7 months ago

Thank you for the kind comments. I learned at my father’s knee the importance of community service.

Rick Connor
7 months ago

Thanks Marjorie. I have to say that over the 6 years I’ve been doing this just about everyone I’ve worked with has tremendous compassion and commitment to helping people. It inspires and keeps me coming back.

Marjorie Kondrack
7 months ago
Reply to  Rick Connor

It also helps that you are a very good communicator. A skill needed for all tax preparers.

Rob Thompson
7 months ago

My grandfather, a former commercial photographer, was suffering from macula degeneration. Due to his terrible vision, he would simply “OK” whatever his stock broker called about. One day my Mom (a Boglehead before we were Bogleheads) was going through his statements and discovered the churning this broker had been doing. Investing shouldn’t be complicated and neither should the tax code.

Linda Grady
7 months ago

Thanks for doing this work, Howard. The photo on my phone’s screensaver is of my proud, smiling husband wearing his AARP Tax Aide shirt. He had a few stories like yours but unfortunately, Covid closed his assigned senior centers down just a few weeks into his first season. Seeing how good he felt about the volunteering is one of my fondest memories of him.

Howard Rohleder
7 months ago
Reply to  Linda Grady

What a wonderful way to remember him

John Yeigh
7 months ago

Howard – well done.
While the widespread lack of financial understanding doesn’t surprise me, I remain appalled by how common the fleecing of elders is by those working in the financial services industry. More here:
https://humbledollar.com/2019/04/unloaded/

Last edited 7 months ago by John Yeigh
Brian Kowald
7 months ago

Sounds like rewarding work. Great reminder to be vigilant of advisors. wearing, one of my favorite articles in a long time.

Last edited 7 months ago by Brian Kowald
R Quinn
7 months ago

There is no doubt the tax code is overwhelming for just about everyone, but your experience also demonstrates the general lack of attention too many people pay to their financial lives. Near zero in many cases.

In many cases it’s a matter of seek and ye shall find or not. One of the reasons I retired was the accumulated frustration of years trying, but rarely succeeding, to get workers to pay even a modest amount of attention to their retirement and health care benefits. Many people are their own worst enemy.

It’s quite sad really.

Stacey Miller
7 months ago
Reply to  R Quinn

Amen, Richard.

Rick Connor
7 months ago

Great article Howard. And many thanks to you for volunteering. I can tell by your words and the underlying attitude of your column that your community is very lucky to have you on their side.

Howard Rohleder
7 months ago
Reply to  Rick Connor

Thanks Rick… and thank you for making me aware of Tax Aide through your articles.

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