How a Financial Advisor Can Help Lower Your Tax Bill

Careful tax planning throughout the year can put more money in your pocket

Tax planning is a crucial part of any wealth management strategy, but let's be honest—it can be a complex and sometimes overwhelming process, especially for those with more intricate financial situations. The good news is that with careful planning, you can significantly reduce your tax burden, leaving you with more money to pursue your financial goals.

One thing I always emphasize to my clients is that tax planning isn't just a once-a-year task. It's something that requires ongoing attention throughout the year. While your accountant plays a vital role, collaborating with a financial advisor can also be incredibly beneficial. We can help you explore tax-efficient investment strategies that align with your overall financial plan.

What is Tax Planning?

Tax planning is about taking a holistic look at your finances and implementing strategies to lower your overall tax bill. This might involve careful planning around your income, purchases, and investments, as well as strategies like tax-loss harvesting.

For instance, strategic tax planning can not only help you maximize your estate but also provide more flexibility for your heirs. I’ve worked with clients to transfer portions of their wealth to family members as tax-free gifts or establish irrevocable trusts, which can reduce the federal tax burden for their beneficiaries. It's all about finding the best ways to protect and grow your assets.

How Can a Financial Advisor Help?

As part of a comprehensive wealth management plan, many financial advisors, myself included, offer tax planning services that can make a significant difference. Here are a few key areas where we can assist:

• Charitable Giving Strategies: The timing and amount of your charitable donations can impact your tax bill. We can help you decide when and how much to give, allowing you to deduct these contributions from your adjusted gross income. For example, if you’ve had a financial windfall, a salary raise, or a big bonus, strategically timed charitable gifts can help offset those taxable events.
• Tax-Loss Harvesting: Sometimes, selling investments that have lost value can be a smart move, as it allows you to realize capital losses that can offset taxable gains. I help my clients identify the best times to do this and reinvest in similar securities with growth potential, turning a loss into an opportunity.
• Choosing Tax-Efficient Investment Vehicles: A well-thought-out tax plan will consider contributions to tax-deferred accounts like 401(k)s, 529 education plans, and health savings accounts (HSAs). These accounts offer different tax benefits, such as immediate reductions in taxable income or tax-free growth, depending on the type of account. I work with clients to plan these contributions in a way that minimizes their overall tax liability.
• Multi-Year Tax Planning: Effective tax planning isn't just about this year—it's about looking ahead. By considering your long-term financial goals, we can develop a multi-year strategy to reduce your tax burden over time. For instance, we might plan to bank capital losses to offset future taxable events, like the sale of an investment property. Or converting part of your traditional IRA balance into a Roth IRA can add tremendous value over time to your tax planning.
• Efficient Portfolio Withdrawal Strategies: Financial advisors can help lower your overall tax bill by developing withdrawal strategies that minimize taxes. By strategically drawing from different accounts, such as tax-deferred and taxable accounts, they can help you manage your taxable income and potentially reduce the impact of taxes on your retirement savings.

Tax planning involves many moving parts, from annual IRA contributions to charitable deductions to keeping up with local tax laws. Working with a financial advisor on a year-round basis ensures you're maximizing deductions, taking advantage of tax credits, and using tax-efficient investment vehicles to their full potential. We keep track of regulatory changes and make any necessary adjustments to your plan, so you don't miss any opportunities to reduce your tax bill.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information was developed by Oechsli, and independent third party, for financial advisor use. Raymond James is not affiliated with and does not endorse, authorize or sponsor Oechsli. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

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