What does a tax planning advisor do?
Advisors who offer tax planning services take a holistic look at your financial picture and find ways to minimize the amount of taxes you ultimately pay. It’s often a year-round effort that goes beyond helping you file your taxes and making sure you’re taking certain deductions or credits.
Tax planning advisors look at your investing strategies, retirement savings, estate plan, charitable giving and other aspects of your financial life from a tax perspective to make sure you’re managing your finances in a tax-efficient manner.
This could include, for example, implementing a tax-loss harvesting strategy on your investments or ensuring you’re making the most of tax-advantaged retirement accounts.
How is a tax planning advisor different from a financial advisor?
Many different types of financial professionals offer tax planning help, including financial advisors. However, not all financial advisors offer tax planning.
Professionals who fall into the “tax planning advisor” category could include financial advisors, financial planners, certified public accountants (CPAs), enrolled agents (EAs) or tax attorneys.
Financial advisors can offer a wide range of services, including investment management, retirement planning, help with choosing insurance coverage and comprehensive financial planning. Financial advisors who offer tax planning services consider how each of these areas impacts your tax liability and whether changes can be made to limit how much you pay in taxes.
“A lot of times we’re looking at tax-efficient investing so that over your lifetime, you’re not spending more money than you need to on taxes,” says Felicia Wong, CFP, CPA and EA with Financial Futures LLC and founder of Aventurine Planning. “We’re making sure that if you want to have any wealth over your lifetime, or even over your children’s lifetimes, that you’re planning efficiently towards that, too.”
Who qualifies as a tax planning advisor?
Since it’s not a regulated term, anyone can call themselves a tax planning advisor. This means it’s important to ask about the qualifications of any financial professional you’re considering hiring for tax planning.
Some common qualifications include:
- CPA: CPAs are state-licensed professionals who offer tax preparation or accounting services.
- EA: EAs are similar to CPAs, but they focus on taxes and are credentialed by the IRS.
- Tax attorney: Tax attorneys are lawyers who specialize in tax law.
- Registered investment adviser (RIA): RIAs are registered with the SEC or their state regulator to provide investment advice. Financial advisors, financial planners, wealth managers and other similar types of professionals are often RIAs.
- Certified financial planner (CFP): Financial professionals who have a CFP certification have completed financial planning coursework and passed an exam testing their knowledge on a variety of financial topics, including tax planning.
Wong says that CPAs, EAs and tax attorneys all have the legal authority to represent taxpayers in front of the IRS.
In addition to checking the qualifications of any advisors you’re considering hiring, you should also ask about the services they offer, since not every financial professional offers tax planning.
What strategies and services do they provide?
The scope of what an individual advisor offers will depend on their expertise and credentials. Some EAs and CPAs might focus more on tax preparation rather than proactive planning, for example. An RIA or financial advisor who focuses solely on investment management might not be able to give you tax advice outside of that area of your finances.
Some of the services and strategies a tax planning advisor might provide include:
- Tax preparation and ensuring you’re compliant with all applicable tax laws
- Identifying tax deductions or credits you qualify for
- Tax-efficient investing
- Estate planning
- Optimizing your retirement strategy
- Charitable giving strategies
- Assisting with audits and representing you before the IRS
If you’re looking for someone who can help manage your entire financial life, you might want to find a financial advisor or financial planner who offers tax planning as part of a comprehensive approach to your finances.
“If you don’t have the total picture, it’s hard to advise on the taxes,” Guissinger says. “If I’m just looking at this one piece of your finances, I can say these are probably the tax implications of what we’re doing, but most often decisions are interrelated.”
When should you use a tax planning advisor?
If you want to start being more proactive when it comes to your taxes, working with a professional who specializes in offering tax planning advice might be a good idea.
Working with an advisor could be helpful if you have a high net worth, a large investment portfolio or a complicated financial situation. A tax planning advisor can look at your full financial picture and find ways to reduce your tax liability. However, if your financial situation is relatively straightforward, you might not need an advisor.
If you’re already working with a financial advisor who doesn’t specialize in taxes, it could make sense to add a tax planning advisor to your team to focus on that area of your finances.
What’s the difference between a tax planning advisor and a CPA?
A CPA is a licensed tax professional who has met strict education, experience and testing requirements. They can offer a variety of tax services, but often focus on tax preparation, compliance and auditing.
Financial advisors who offer tax planning services often take a wider scope than CPAs. They can take a holistic look at your personal finances and how your tax situation fits into that. As a part of that, they can recommend tax-efficient investments and find tax-savings opportunities throughout the year rather than just when it’s time to file your annual tax return.
While many people choose to work separately with an investment professional and a CPA, there are advantages to having one professional or one firm who can provide both services.
“I’ve seen [this issue with] many clients where their advisors and tax professionals don’t work together,” says Erica Mariani, tax manager at AlphaCore Wealth Advisory. “If those two parties aren’t talking to each other, you could potentially be missing out on strategies or making investment decisions that aren’t tax-advantageous.”
For example, if your investment manager isn’t aware of your tax-savings goals, they might opt for investments that create additional taxable income that raises your tax bill. On the other hand, when you wait until after the new year to see your CPA, they miss out on the chance to present you with tax-savings options, such as qualified charitable distributions, that could help lower your tax bill.
“By having those two parties together, you have that synergy between the investment decisions and your tax outcome,” Mariani says.
As Mariani notes, two professionals aren’t necessarily mutually exclusive. There are tax planning advisors who hold CPA credentials and financial planning firms who employ CPAs, just as there may be CPA firms that offer comprehensive tax planning services.
Can a tax planning advisor help with retirement tax strategy?
A tax planning advisor can help clients explore retirement strategies that can reduce their tax liability both today and in the future, even if you still have decades left in the workforce. For example, an advisor can evaluate your income and tax situation to determine whether a traditional or Roth account (or a combination of the two) makes the most sense.
An advisor can also help you devise the most tax-efficient withdrawal strategy in retirement, taking into account various income sources like Social Security benefits and required minimum distributions.
According to Mariani, building a long-term relationship with your advisor is one of the best ways to optimize your retirement tax strategy.
“This is beneficial to both the client and the advisor because you understand the full extent of their situation from every facet,” Mariani says. “You have that historical knowledge and can continue to build upon that year to year, which helps [create successful retirement and legacy] plans.”
Should I choose a fiduciary tax advisor?
Yes. Unlike other financial professionals, fiduciary advisors are legally required to act in your best interests, prioritizing your finances over commissions and other incentives.
For an advisor that recommends financial products, that might mean recommending those that are most tax-efficient, if that’s your goal, rather than those that pay them the highest commission.
Some credentialed professionals, such as CFPs and CFAs, are always held to a fiduciary standard, but that’s not the case with all advisors. Be sure to ask any advisor you’re considering working with about their fiduciary status.
