Not every financial advisor offers tax planning services, but many will include it as an offer to manage your financial planning. A financial advisor who offers tax planning services will likely offer some or all of the following services:
Preparation of tax returns, including returns on rental properties and partnerships
Maximizing tax deductions
Schedule a loss-making harvest security sale, usually around the end of the year
Ensure the best use of 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 them may include marriage, parenthood and divorce.
With these tax-specific services, tax planning financial advisors can help with other personal financial problems. This may include insurance, save for college, portfolio management, debt management, small business financial planning and more. In addition to taxes, financial advisors can specialize in other areas, including investment management, retirement planning, estate planning and divorce.
Financial Advisor Tax Planning Fees
Like any other financial advisor, people who specialize in tax planning using several different compensation models. Few are salaried employees of large financial institutions, but most use one or more of the following methods to generate income:
Flat fee: These advisors charge a single fee for the service of producing an annual tax plan. It can give the client the right to ask questions and, sometimes, get an updated plan for the year.
Hourly rate: A tax planning financial advisor can charge $100 to $400 an hour, depending on the level of professional certification and experience and the complexity of the client’s situation, to provide tax advice.
Percentage of assets: Financial advisors who also manage client investments may receive a fee of 1 to 2 percent of the assets under management.
Sales Commission: Advisors who provide advice on mutual funds, insurance, annuities and other products may receive a commission from the seller of the product. It can be difficult to tell how much an advisor earns from commission without asking the advisor.
Note that many tax planning advisors use a combination of one or more of these compensation schemes. For example, an advisor may collect a fee as well as a percentage. Also, the cost varies by location. Advisors in and around big cities usually charge more than those in smaller towns and rural areas.
Choosing a Financial Advisor for Tax Planning
Many financial advisors who specialize in tax have complementary areas of expertise. For example, they may be attorneys or licensed accountants. Some professional certifications 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 highest certification in accounting, requiring an extensive course of study, passing a rigorous exam and obtaining a CPA license.
Personal finance specialist: This certification CPAs can earn by learning, gaining experience and demonstrating deep knowledge of personal finances.
Registered Agent (EA): The EA designation is bestowed by the Internal Revenue Service and allows its holder to prepare tax returns as well as advise clients on tax issues. EAs are all former IRS employees, who have also passed the exam. EAs are not necessarily as well equipped as other financial advisors to guide clients’ non-tax affairs, however.
In addition, individuals who have tax problems may want to consider an advisor with top-shelf certification such as Certified financial planner and Chartered financial analyst. These rigorously educated and tested professionals can be expected to have an in-depth knowledge of taxes and their role in personal finance.
Financial advisors can help clients with tax matters by preparing returns, suggesting tax-minimizing moves, and taking advantage of deductions. It can also be important when planning for retirement, doing estate planning and making investment strategies.
Tax Planning Tips
Tax planning can be complicated but many financial advisors can solve such problems and help you prepare for tax issues and your financial planning. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset free tool match you with up to three financial advisors who serve your area, and you can interview your advisor match 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, start now.
Use our SmartAsset tax return calculator to see how much you will owe or be owed based on your personal finances, and you can start planning from there.
If you plan to itemize, be sure to keep all of your receipts for at least a few years after you file. It is not unusual for the IRS to look at returns from three to six years before the returns they are actually auditing. And depending on the deductions you take, such as the home office deduction, your return is more likely trigger an audit.
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