When I tell people I’m a financial advisor, it’s common for them to assume I’m a broker or “stock jockey” – spending my time placing trades on clients’ accounts. Although I understand many people restrict financial advice to stock selections and portfolio management, investments are only one piece of your finances. Effective financial advice must encompass a client’s complete financial picture because one component can impact the others. Your investments impact your cash flow, your tax liabilities, your estate plan and more.
That’s why it’s critical to conduct holistic financial planning but also why it’s best that planning, investments and tax preparation take place under one roof. With tax season upon us, here are five instances when it’s critical your financial advisor collaborate with your tax advisor.
Establishing a business retirement plan. Particularly for business owners, a retirement plan is a powerful tool. It’s a vehicle to help not only plan for your future but also defer income (and taxes). Your advisors should collaborate on the best type of plan for you – including non-401(k) options – and consult about how much to put away pre-tax.
Withdrawing money for retirement. Accessing your invested assets is often necessary during retirement, but there are various ways to go about it – each carrying its own tax implications. Your financial advisor should help you understand when and where to make the withdrawal based on market conditions and the diversification of your portfolio. Your tax team should advise on the most efficient way to withdraw money for retirement without adding to your taxable income.
Contributing to charities. Many clients tap into their investments to give generously to their communities or causes they care about. Charitable giving is an important time to involve both your financial and tax advisors to minimize tax liabilities. Gifting shares of stock rather than cash allows you and the charity to avoid paying gains. So, when you want to make a donation, review your portfolio for a highly appreciated stock. Keep in mind, however, that shares of stock gifted to family members potentially require taxes be paid when the stock is sold.
Creating an estate plan. Dividing assets after death can be a means of carrying out your family’s core values and leaving a meaningful legacy. Whether gifting a portion of your estate to family or an organization, your advisors should collaborate on the most tax-efficient way to fulfill your wishes. The amount of your donation as well as timing affect its taxation; advisors should counsel you on whether your gift will be most impactful prior to or after death.
Selecting a business entity structure. If you own a business, establishing the right entity structure is one of the best ways to set yourself up for success. LLCs, partnership, C or S corporations have varying requirements and benefits, and a minor switch can make a big difference. We recently saved a client nearly $20,000 per year in taxes by changing from a C corporation to an S corporation and adding a retirement plan for the owner.
Financial services are no longer à la carte. Collaboration should happen on your behalf, and you shouldn’t be responsible for tying it all together – that’s my job. However, if these services aren’t under one roof, you may need to force communication between your financial advisor and certified public accountant to ensure you don’t miss great opportunities.
Blog by Stephen O’Neill, Senior Wealth Advisor.
This article has been reprinted in the April/May 2019 edition of E-Town magazine.
The financial information contained in this article should be considered educational in nature and should not be used as investment advice.