Proactive Tax Planning – How Tax Advisors Can Optimize Your Financial Future

Tax Advisors

Taxes are a big part of your financial life. Every choice you make directly impacts your taxes, from your Social Security, RMDs (required minimum distributions), and retirement savings to real estate transactions, charitable giving, and healthcare premiums.

Taking a proactive approach to your tax planning is key to maximizing deductions and minimizing your lifetime tax liability. Here’s how.

Avoid Surprises

Investing in strategies that minimize taxation can save you money and prevent surprises when it’s time to file. These include limiting capital gains to long-term status, reducing the amount of taxable income from IRA distributions and maximizing deductions like Roth conversion strategies.

As the financial industry continues to embrace value pricing, advisors will need to be able to deliver a wide range of services and support, including proactive tax planning. However, many financial advisors are told by their compliance departments to refrain from giving recommendations on taxes, mainly because of concerns that they may cross the line into tax advice (e.g., a strategy designed to shelter or avoid taxation, which requires a designated tax professional).

Luckily, Wichita tax advisors can now use technology to quickly upload client financials, generate personalized reports and run detailed tax projections in seconds. This type of financial planning can help advisors add significant value for their clients without crossing the compliance line.

Keep More of Your Hard-Earned Money

It’s universally acknowledged that taxes are a major pain point for many. Filing can feel like a daunting task between legal jargon, endless forms, and fluctuating income throughout the year.

But work with a financial professional with a robust tax strategy and a credentialed CPA. You can reduce your tax liability, saving you both time and money.

Advisors can help clients identify deductions and credits that may be available to them and implement strategies like tax-loss harvesting to offset capital gains. They can also advise clients on how to shift and time their investment accounts so they’re tax-efficient — a practice known as asset location.

If you’re ready to find a financial advisor who can help you save on taxes and achieve your long-term goals, matches you with vetted professionals in your area. Start your search now!

Pay Your Taxes Throughout the Year

Many people use their tax refund as an annual bonus and count on the money to help fund financial goals and offset expenses. This type of financial planning can be helpful, but it’s better to incorporate forward-looking tax-efficient measures into your wealth management strategy 365 days a year.

This process can involve changing withholding amounts or making estimated tax payments yearly. It can also mean making tax-deductible contributions to retirement accounts or other qualified savings vehicles, managing short and long-term capital gains and taking advantage of deductible expenses.

The good news is that a skilled tax professional can do much more than help you file your taxes. They can look at the bigger picture, make recommendations and even assist you in implementing strategies to minimize your tax liability. They can even help you avoid surprises next year. In addition, they can help you plan for the impact of potential new legislation.

Reduce Your Tax Liability

Many strategies to help reduce taxes, including deferring income into retirement accounts, tax-loss harvesting in taxable investment accounts and maximizing the use of deductible IRA contributions, can be complicated to implement and require a deep understanding of Federal and state rules. That’s why financial advisors often receive guidance from their compliance departments to avoid giving tax advice, a term that may have negative connotations or even suggest recommending an illegal strategy (like those involving tax-evasion techniques the IRS scrutinizes and restricts to designated professionals).

Instead, many advisors focus on “tax planning” – the consideration, analysis and projection of different strategies without recommending a particular course of action. This could include running a tax projection in a client’s software or exploring options like frontloading or maxing out pretax retirement and health savings accounts, timing capital gains, and pursuing charitable bundling strategies to minimize income tax liability. It may also involve determining how to manage assets within taxable investment accounts by moving them to tax-efficient environments or shifting between taxable and tax-deferred accounts to maximize after-tax returns.