Minimizing Tax Liability: A Financial Planner’s Role in Investment and Tax Planning

When it comes to terms in the financial industry, communication is difficult thanks to all the jargon — it can be hard to know whether you’re looking for an accountant, a lawyer, wealth management advisor, investment and tax advisor?

Professional certification has maybe gotten out of hand.

Regulation is also important to who does what.

As a fiduciary financial advisor, I provide insight into one of the parts of your financial plan that can save your income in the future: tax information.

Tax reducing strategies — within the bounds of law — can keep your wealth in your household and for your beneficiaries.

But what services can you expect from working with a financial advisor who combines investment strategy and tax strategies, instead of working with a tax consultant specific to tax law?

Both can be useful to have on your team, so this isn’t an either/or…

We can assist you in various areas of tax efficiency strategies including but not limited to the following:

• Social Security Income — Did you know a percentage of your social security might be taxable income? Your entire financial picture will help you decide when to take your benefit to receive the maximum that’s available to you.
• Capital gains — Not all income taxes are calculated at the same ordinary income tax bracket that you’re used to. We have strategies that may help you reduce your capital gains tax — and we work to help balance your portfolio in a way to balance your tax bill.
• Interest earning accounts — Personal finance has many interest earning accounts, such as CDs (Certificate of Deposit), a savings account, and even a high-yield checking account. We can plan where to put your cash to give you the appropriate balance between availability (liquidity), risk, debt management, rate of return, and tax savings.
• Tax-deferred accounts — 401 k’s, 401b’s, 457’s, and IRA’s (Individual Retirement Account) aren’t taxed until you withdraw money. Are you ready to do that in a way that’s most tax efficient? Should we move some into a Roth IRA? We ask these sorts of questions.
• Inheritance taxes – Owed by you or your beneficiaries upon receiving the inheritance of your investments. We can work with a lawyer for estate planning to make sure that your inheritance goes as tax efficiently as possible to your heirs, whether that be a trust, an insurance policy, or something else.
• Tax-friendly donation options — We know a donation to your favorite charitable organization is a tax deduction, but how can you do it better?
• Tax-minimizing strategies with investments and insurance — Sometimes the best strategy isn’t a stock or a bond, but a life insurance policy that can be handed down tax free.

As a financial advisor who is a fiduciary, I can help you with these big picture questions and give you the education to make the best decision for your retirement budget.

On the other hand, I am not a CPA (Certified Public Accountant). Tax preparation is a different area from tax planning. You certainly might want a partnership with a dedicated tax professional, who can help you navigate bookkeeping, the Internal Revenue Code, find every tax credit, prepare tax returns, file your tax return, pay your taxes or apply your tax refund, and prepare for an audit.

A CPA or other professional tax preparers can also provide different guidance on some of the legal and tax information needed for businesses at different stages of development. That is outside the scope of financial services.

Isn’t investment management enough? Can’t you just get more money if you invest well, and then you don’t have to worry about what you owe in taxes? Why do we need to talk about all this other stuff during retirement?

When you work with an advisor who has understanding both your investments and your tax picture, they can essentially add passive income to your retirement.

• Make smarter choices years before you get a surprise tax bill on some of your accounts
• Have stronger knowledge about your stock market decisions based on current data
• Keep more of your income no matter your tax rate
• Be prepared for retirement and your future long term care health expense
• Beat inflation before it beats you
• Leave more to your heirs or your favorite charity
• Create tax free income in your retirement years

If you think your taxes are straightforward, and you have a good handle on your personal finance, I encourage you to download my book, “1+1 = 2, Maybe.” The cost is free, but gaining financial literacy about taxes is priceless.

Every working adult is a taxpayer, so experience shows me everyone needs an expert in their corner.

But as a financial advisor who provides advice on both investments and tax reducing strategies, I find there are three groups in particular who have great need:

• 1. Those In or Nearing Retirement — More and more “Baby Boomers” are retiring every day — and in an ideal world, they won’t have to return to work unless they want to. Smart investment and tax strategy keeps people in the retirement they want.
  2. Women Navigating Divorce — When a divorce settlement takes place, many women don’t know what to do with their divorce settlement. And, unfortunately, it may not have occurred to them to talk to an advisor to manage their financial plan to keep their cash flow steady. Financial planning after divorce can help women achieve comfort during a difficult time.
  3. Those With Multiple 401 k’s — Whether you’ve been fired or have left your job, if you have multiple 401 k’s, you have multiple issues that need to be dealt with. What do you do with them? I can help you avoid the mistakes I see others make so often — while also making the most of your current employer-sponsored plan.