The Power of Incorporating Taxes into a Financial Plan
I use tax planning software to incorporate a client’s tax profile into my financial planning services. I’m excited to offer tax planning as part of my firm’s comprehensive financial planning because taxes impact virtually every aspect of one’s finances. A client’s tax return is a financial fingerprint: it’s entirely unique for that person, complete with valuable clues and information, all buried in dozens of pages and hundreds of numbers. Understanding the return equips me to have more valuable and actionable conversations with my client. Additionally, I demystify the world of income taxes and help clients understand this vital piece of their unique financial picture.
Tax planning refers to reviewing a tax return in depth to identify potential opportunities, both now and in the future, to minimize lifetime tax liabilities. Tax planning differs from tax preparation, which may focus on compliance with current tax laws and rules. By analyzing a client’s current and prior tax returns, I can recommend steps to potentially lower next year’s tax bill and uncover other long-term planning opportunities.
Here are some of the ways I may be able to leverage a client’s return during financial planning and investing strategies:
· Tax-Efficient Portfolio Management: Being fluent in a client’s tax status informs better investment strategies, such as realizing capital gains rather than ordinary income for greater tax efficiency.
· Retirement Optimization: Knowing a client’s tax details helps me determine the role of each retirement account in his or her overall financial planning strategy. Conversations often focus on Roth IRA conversions.
· Tax-Sensitive Withdrawal Strategies: Taxes are one factor when withdrawing retirement funds. I can illustrate how proper tax management is critical for withdrawal decisions.
· Coordination with a Client’s CPA: Understanding a client’s tax profile allows me to collaborate effectively on an integrated financial strategy with tax professionals.
· Ongoing Tax Management: Tax laws change frequently. I can suggest adjustments to address new laws and regulations by reviewing returns. I can run projections to see how potential changes (e.g., filing status, dependents, the sale of a business, stock option exercises, etc.) may impact a client’s upcoming tax liability and model how potential changes may impact upcoming tax liabilities.
In short, I aim to make my clients as tax efficient as possible. I look forward to incorporating tax planning in developing financial strategies and welcome any questions.
