Many Unhappy Returns
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.
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.The post Many Unhappy Returns appeared first on HumbleDollar.
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