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Five Tax-Related Things Your Financial Advisor Should Be Doing Each Year  Thumbnail

Five Tax-Related Things Your Financial Advisor Should Be Doing Each Year

Investment Planning Tax Planning


Many people have an accountant and financial advisor.  Your accountant does tax things, and your financial advisor talks about your finances.  If you ask your accountant about investments, you’ll probably get “You need to talk to your financial advisor.”  Conversely, when you ask your financial advisor about something that has a tax impact, you might get, “You should discuss this with your CPA.”   

But that’s not the answer you should get.  Why?  Because it leaves you stuck in the middle of two professionals who know what they’re doing, but they don’t know what you’re doing.  And the only way out of this is if one of those professionals steps out of their comfort zone to help you a little bit more.   

This is not to say that professionals should be offering services they’re not licensed, qualified, or allowed to perform.  Your tax person should NOT be offering investment advice if they are not a registered investment adviser.  And your financial person should not offer tax advice if they are not a tax professional.  But over the past 20 years, many CPAs have become licensed to sell investments, and many advisers have picked up a tax specialty (either as a CPA, or as an Enrolled Agent, who is authorized to practice before the IRS).  

Even if your financial advisor is not a tax practitioner, there are certainly tax-related services they can perform, which will make life easier for you and your tax preparer.  Here are five of them. 

#1.  Incorporating Tax Planning Into Your Meeting Schedule 

You don’t need to be a CPA or enrolled agent to do tax planning.  And when you look at the CFP® accreditation, tax planning is a significant portion of the curriculum.  If your financial advisor is a CFP®, they already have a working understanding of how taxes work.   

What are tax planning meetings?  During mid-year, many advisors will sit down with their clients and discuss last year’s tax return and compare it to what’s going on in the current year (plus any possible upcoming events).  By reviewing last year’s tax return, the advisor provides a second set of eyes in case a mistake was made in filing the return, which allows you and your accountant to file an amended return.  By performing a tax projection, your advisor can help you understand what your tax bill could look like next spring and discuss what options you might have if you feel like you need to change course.   

Why don’t more advisors do this?  Several reasons come to mind: 

  • They don’t want to do the work.  Tax projections involve getting your tax return, learning more about your life, then thinking proactively about things that might happen that could impact your tax bill.  This takes work.  Ironically, this is also where we uncover tax planning opportunities…ones that many advisors never get around to, because they don’t want to take the time. 

  • The advisor doesn’t want to get in the way of your CPA or appear that they’re going toe to toe.  Accounting is one of the most trusted professions in America.  Financial services….one of the least trusted.  While this is a valid concern, accountants do make mistakes.   And accountants don’t always see everything the advisor sees.  But we find that many of our clients never receive tax planning guidance from their CPA (or never ask for it).  And in the instances where our projection differs from the accountants’, there lies an opportunity for us to take a deeper look and see what’s going on. 

  • The advisor says they don’t want to be held accountable for giving unlicensed tax advice.  Yet, they might recommend selling investments that cost hundreds, or thousands of dollars in capital gains so they can put your money into another investment?  Every time your advisor recommends that you sell something, they’re already giving you advice that has tax implications.  They should at least educate themselves to the point where they can tell you some of the things you can look up on your own.  And they can always CYA by prefacing their discussions with, “Check with your accountant, but I believe….” 

At our firm, we discuss taxes in at least one meeting per year with each client.  This usually occurs in the June-October timeframe…for clients under extension, we try to schedule tax planning appointments as soon as we can get their tax return.  Doing tax planning in the summer/fall time allows us to talk about any adjustments the client might want to make, or adjustments that we can make (like tax withholdings from IRA distributions).   

Properly done, this helps you avoid big surprises in the spring, when you file. 

#2.  Incorporating Approximate Tax Costs (or Savings) into Investment Recommendations 

Many advisors don’t tell their clients how much capital gains they might have when they sell their investments.  And most of these advisors probably don’t even hint at what the client might pay in capital gains taxes.   

This seems to be unconscionable.  After all, while calculating taxes might not be easy, any investment management software can easily tell you what capital gains (short-term or long-term), you might incur when making a trade.  With today’s technology, this issue appears to be something that could easily be avoided.   

However, after talking with several clients whose previous advisors made major mistakes (resulting in huge, unexpected tax bills), this seems to happen more frequently than you would think. 

This isn’t an annual task, so much as a task that’s done with every investment recommendation.  The annual task is helping you compile the year-end information for your tax preparer (see #5 below). 

#3.  Offering Information About Tax Strategies That Might Apply to Your Situation 

When you change jobs, who are you more likely to call, your CPA or your financial advisor?  Perhaps your accountant (if you’re expecting a HUGE pay increase), but more likely your advisor.  If they’re serving you well, they’ll probably help you understand your pay structure, bonuses and other compensation, and your employee benefits.   

How about getting a divorce?  You might talk to your CPA about how to file that year’s tax return, but you’re more likely to talk with your advisor about what your finances will look like after the divorce.  Having children?  Same (unless you’re more interested in the child tax credit than you are about trying to figure out how this impacts your finances). 

You get the picture.  While your accountant might know more tax strategies, your advisor is probably going to know more about you.  And your tax planning will be a little more insightful (like reflecting the birth of a child, which allows certain tax credits and other planning opportunities).  You don’t need to wait until you see your CPA to talk about possibilities.  And your advisor can always say, “Check with your accountant, but….” 

This might not be done on an annual basis, but there are probably enough moving pieces in your life where your advisor offers this conversation during your tax planning meeting each year. 

#4.  Offering to Consult With Your Tax Preparer BEFORE Making Big Moves 

Do you know what works better than having your advisor say, “Check with your accountant, but I suggest you do (proposed tax strategy)?”  Having your advisor say, “I believe we should do (proposed tax strategy).  Let’s set up a time to call your accountant talk it over.”   

After all, accountants can’t fix many things after the deed is done.  The phrase, “An ounce of prevention is better than a pound of cure,” has never been more appropriate than in the world of taxes.  So the accountant wants to know BEFORE things occur, so they can help guide you accordingly.  And having the advisor offer to do that means that’s one less thing that you have to manage.   

Of course, offering this service is something that your advisor would probably only do if they 

  • Took the time to acquire some knowledge about taxes 

  • Took the time to learn more about you, then applied their tax knowledge to your situation 

  • Was interested in your accountant’s expertise 

  • Had confidence that their guidance along the lines of what your accountant would say  

Even if your advisor’s guidance is spot-on, having the financial advisor reach out to them makes the accountant feel as though their expertise is valued, and that they’re not just cleaning up a mess. 

More valuable:  If your financial advisor says, “I checked with your accountant, and we’re going to do this.  I’ll send an email to both of you to discuss the details.”  This assumes that the relationship between your advisor and accountant has reached a certain level of trust.   

#5.  Reporting Year-End Tax Information To You AND Your Tax Preparer 

Every financial institution is required to send you relevant tax information by January 31 each year.  This includes your 1099-R (retirement income), 1099-B (brokerage accounts), 1099-DIV (dividends), 1099-INT (interest), or 1099-MISC (anything else).  Sometimes, you might get a 1099-Composite, which just combines many of the above forms.  But the institutions deal with complexity themselves, so they ask the IRS for a little leniency.  You might get your forms later than January 31, which puts you in a lurch.  Or you might not get a certain form that you were expecting at all.  Then, when you get everything Wouldn’t it be nice if your financial advisor helped in this regard? 

Many advisors send their clients a year-end summary that outlines: 

  • Major taxable events (like capital gains or IRA distributions) 

  • Required minimum distribution calculations, and the actual amount distributed. 

  • Tax withholdings from your investment accounts 

  • What forms you should expect to receive (and which ones you should not expect to receive) 

Each January, our firm forwards a summary email with this information to each client (and with permission, to the client’s CPA).  That way, everyone will know when the CPA has all the documentation they need to actually start preparing the tax return.   


Taxes are a fundamental part of the financial planning process.  While many professionals recognize this fact, often there is a gap between what the financial advisor sees and what the tax professional sees.  More likely than not, the accountant will assume that YOU are filling in this gap, when you probably are not.  Your financial advisor should be the one helping you fill in the gap, and even doing the work for you where they can. 

In doing this service, your financial advisor helps you and your tax preparer.  This includes not only in filling in the blanks for your tax return, but in being proactive so you can keep your tax bill as low as possible in the future. 

Is your financial advisor NOT doing this?  Ask them to start today.  And if they don’t?  We do.  And if you’re ready to take the next step and work with us at Lawrence Financial Planning, you can learn more about how we work with clients right here.

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