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SmartAsset: Financial Advisor Tax Planning Services

Financial advisors who specialize in tax planning help clients optimize a tax strategy, which includes reducing tax liability and making the most of available tax deductions. As a subset of the broader category of financial advisors, tax planning financial advisors may also help clients with budgeting, saving, investing and retirement planning, in addition to tax-specific services like preparing tax returns. A financial advisor could help you put together a tax strategy for your investment needs and goals. 

The Basics of Tax Planning

The goal of tax planning is to reduce your overall tax bill. Tax planning doesn’t just happen when preparing taxes. Instead, it’s a year-round concern. For instance, a tax plan may suggest selling money-losing investments before the end of the year in order to create a deduction that will shelter profits from more successful investments.

Well-done tax planning can improve investment returns because taxes take a significant bite out of most investing profits. The timing and amount of charitable giving is another part of tax planning. Contributions to tax-deferred retirement accounts like 401(k) plans play a role. And a tax plan will also consider the consequences of contributions to health savings accounts and 529 education plans.

Tax planning is a big part of retirement planning. Decisions about whether to invest in a tax-deferred traditional IRA or a taxed Roth IRA are guided by estimates of the tax bracket that a retiree will inhabit after leaving the workforce. Estate taxes and the use of trusts to transfer wealth also come under the purview of tax planning.

Financial Advisor Tax Planning Services

SmartAsset: Financial Advisor Tax Planning Services

Not every financial advisor offers tax planning services, but many will include it as an offering to manage your overall financial plan. Financial advisors who offer tax planning services will likely offer some or all of the following services:

  • Tax return preparation, including returns on rental property and partnerships
  • Maximizing tax deductions
  • Scheduling tax-loss harvesting security sales, usually around year-end
  • Ensuring the best use of the capital gains tax rates
  • Planning to minimize taxes in retirement

In addition to preparing for retirement and death, a financial planning tax advisor can also contribute to evaluating the tax effects of other major life events. Some of those may include marriage, parenthood and divorce.

Along with these tax-specific services, tax planning financial advisors may help with other personal finance matters. These may include insurance, saving for college, portfolio management, managing debt, small business financial plans and more. In addition to taxes, financial advisors may specialize in other areas, including investment management, retirement planning, estate planning and divorce.

Financial Advisor Tax Planning Fees

Like other financial advisors, those who specialize in tax planning use several different models of compensation. Some are salaried employees of large financial institutions, but most use one or more of the following ways to generate income:

  • Flat fee: These advisors levy a single fee-for-service charge for generating an annual tax plan. It may entitle the client to ask questions and, sometimes, get the plan updated for the year.
  • Hourly rate: Tax planning financial advisors may charge $100 to $400 an hour, depending on their level of professional certification and experience and the complexity of the client’s situation, for giving tax advice.
  • Percentage of assets: Financial advisors who also manage a client’s investments may receive a fee amounting to 1 to 2 percent of the assets that are under management.
  • Sales commissions: Advisors who give advice on mutual funds, insurance, annuities and other products may receive a commission from the sellers of the products. It can be difficult to tell how much an advisor earns from commissions without asking the advisor.

Note that many tax planning advisors use a combination of one or more of these compensation schemes. For instance, an advisor may collect a fee as well as a percentage. Also, costs vary according to location. Advisors in and around major cities commonly charge significantly more than those in small towns and rural areas.

Selecting a Financial Advisor for Tax Planning

SmartAsset: Financial Advisor Tax Planning Services

Many financial advisors who specialize in taxes have complementary areas of expertise. For instance, they may be licensed attorneys or accountants. Several professional certifications that can indicate that a financial advisor is likely to do a good job as a tax advisor. Here are some of the most prominent:

  • Certified public accountant (CPA): This is the top certification in accounting, requiring an extensive course of study, passing a rigorous examination and obtaining a CPA license.
  • Personal financial specialist: This is a certification CPAs can earn by studying, gaining experience and demonstrating deep knowledge of personal finances.
  • Enrolled agent (EA): The EA designation is bestowed by the Internal Revenue Service and allows its holders to prepare tax returns as well as advise clients on tax issues. EAs are all former IRS employees, who have also passed an exam. EAs aren’t necessarily as well-equipped as other financial advisors to guide clients’ non-tax affairs, however.

In addition to these, individuals with tax concerns may want to consider advisors with top-shelf certifications such as the certified financial planner and chartered financial analyst. These well-educated and rigorously tested professionals can be expected to have in-depth knowledge of taxes and their role in personal finance.

Bottom Line

Financial advisors can help clients with tax matters by preparing returns, suggesting tax-minimization moves, and making the most of deductions. They can also be important when planning for retirement, doing estate planning and crafting an investment strategy.

Tax Planning Tips

  • Tax planning can get complicated but many financial advisors can uncomplicate such issues and help you prepare for tax issues with your overall financial plan. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Use SmartAsset’s tax return calculator to see how much you will owe or be owed based on your personal finances, and you can start to plan from there.
  • If you plan to itemize, make sure to keep all your receipts at least a few years after you file. It isn’t uncommon for the IRS to look at returns from three to six years prior to the return they are actually auditing. And depending on which deductions you take, like the home office deduction, your return may be more likely to trigger an audit.

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Mark Henricks Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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