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How Your Financial Planner Can Help You Prepare for Tax Season Thumbnail

How Your Financial Planner Can Help You Prepare for Tax Season

Benjamin Franklin said there were only two things certain in life: death and taxes. The good news about taxes at least is that the earlier you seek guidance on tax issues, the more prepared you'll be, come tax time.

One of the benefits of hiring a financial planner is that they can help you make strategic decisions throughout the year that may result in a lower tax burden. Keep in mind that many of the strategies listed below should be executed well in advance before you sit down and get ready to file your taxes.

financial plan tax planning

Stock Options, Restricted Stock, Equity Compensation

Employer equity compensation plans such as stock options, restricted stock units, employee stock, and other forms of equity compensation are a fantastic benefit for eligible employees. On the other hand, equity compensation can represent a considerable tax burden and requires careful tax planning to reduce employee tax liability.

Engaging a qualified financial planner early in the equity compensation life cycle can save you thousands of dollars in taxes down the road. A good financial planner will run tax projections, modeling various equity compensation strategies, and walk you through the different tradeoffs of each available approach.

A financial planner can also help you see how your valuable equity compensation plan fits into your broader financial picture. In this way, you'll not only have an opportunity to save on your taxes; you'll also be deliberately planning to ensure your windfalls supports all your financial goals. 

Maximize Your Tax Saving

Financial planners can advise you on ways to maximize your savings when it comes to tax payments. For instance, they might encourage you to contribute the maximum to your company supported 401(k). These contributions can be made pre-tax, therefore helping you to put away additional money that can grow for your retirement. Finding accounts that allow you to make tax-deferred investments are a great way to save money on taxes while continuing to grow your wealth.

Additionally, financial planners can advise you on how much of employee bonuses you should defer to either a pre-tax 401(k), Roth 401(k), or deferred compensation plan to reduce your tax liability. Or, if you're self-employed or a business owner, a financial planner can advise you on setting up an employer-sponsored retirement plan, which could help you reduce your tax burden.

Capital Gains and Losses

When it comes time to file your tax return, your accountant will need to know how much your investments earned or lost throughout the year. Your financial planner will be monitoring this and keep a consistent record that they will be able to easily transmit to your accountant, saving you a significant amount of time and legwork. This electronic file can also be imported into tax documents, resulting in less time you will need to pay your tax preparer.

Your financial planner can also advise you when and how much of your investments you should be selling, so you take advantage of the specific capital gains tax rules like holding periods and using capital gains to offset capital losses. 

financial planning charitable giving

Strategize On Gifting Strategies Throughout The Year

You are allowed a specific amount of money throughout your life to be gifted to family members for several reasons. The IRS calls this the "gift tax exemption." Your financial planner can inform you of these gifting strategies, which will let you transfer some of your wealth to another party without a tax penalty. They can also advise you of other qualified charitable donations that will allow you to make monetary gifts and help reduce some of your tax burden throughout the year. Also, a financial planner can advise you on estate planning gifting strategies so your loved one can benefit from your hard work for generations to come. 

Minimizing Your Taxes During The Distribution Phase

Optimizing your tax strategy when you enter the distribution phase of your financial life is critical to making your assets last a lifetime. The effects of taxes on your retirement can be profound. Many retirees receive income from a combination of pensions, social security, retirement accounts, annuities, and IRAs. Understanding your financial picture in retirement from a tax perspective can help you avoid common tax traps so you can make smart financial decisions. 

Help You Determine Tax-Efficient Investment Strategies 

Financial planners can help you choose investment strategies that may limit your tax liability. While a planner cannot protect you from capital gains tax in all circumstances. They can provide you with strategies that may limit your tax liability, such as tax-loss harvesting, offsetting gains with losses, and avoiding tax issues that come from market timing or from selecting actively managed investment funds. 

hiring a financial planner

Engaging A Financial Planner To Do Tax Planning 

Taxes are hard. The rules around what you can and can't do, understanding the myriad of forms, calculations, and deductions, can feel overwhelming. This is especially true as the complexity of your financial situation increases, and the stakes get higher. The great news is that a CERTIFIED FINANCIAL PLANNERâ„¢ professional and other allied tax professionals have unique sets of skills and knowledge that can help you navigate tax issues. 

If you have questions about your tax situation or if you like an objective review of your financial situation, I'd love to hear from you at Thirty Mile Financial

Please feel free to schedule an introductory meeting using our scheduling application or via the contact page.