Tax Planning: The Importance of Sharing Your Filed Tax Return with Your Financial Advisor

As tax season comes to a close, many of us are breathing a sigh of relief that our taxes are filed and behind us for another year. However, it is important to understand that sharing a full copy of your tax return with your financial advisor can have a significant impact on your overall financial health. While often overlooked, robust tax planning is one of the most valuable pieces of a complete financial plan.

WHAT IS TAX PLANNING?
Tax planning refers to our review of your tax return to identify potential planning opportunities – both now and in the future – to keep your lifetime tax liability as low as possible. This is different than tax preparation (usually done by your CPA or an online service like TurboTax), which is focused on keeping you compliant with what the government says you owe each year.

WHY IS TAX PLANNING IMPORTANT?
Taxes touch every part of your financial life. Your tax return is a financial fingerprint: it’s completely unique to you, complete with valuable clues and information, all of which is buried in dozens of pages and hundreds of numbers. Understanding your return equips us to have more valuable and actionable conversations with you. Additionally, we can demystify the world of income taxes and help you understand this important piece of your financial picture.

WHO IS TAX PLANNING FOR?
Everyone! Regardless of your income sources or filing status, nearly anyone who pays income taxes can benefit from having a professional review of your tax return to identify relevant planning opportunities. At worst, we’ll review your return and conclude you are currently maximizing every available tax saving opportunity. That’s great “peace of mind” news. Alternatively – and more frequently – we’ll identify a handful of tax saving opportunities, both in the current year and in future years.

WHAT KIND OF OPPORTUNITIES MIGHT BE IDENTIFIED?
We will evaluate a number of opportunities during tax planning, including topics like contributing to the most tax efficient retirement vehicles, charitable giving strategies, realizing capital gains, harvesting unrealized capital losses, Roth IRA conversions, tax credit eligibility, and more. We can run projections to see how potential changes (e.g., filing status, dependents, the sale of a business, stock option exercises, etc.) may impact your upcoming tax liability.
We understand that life is not linear, so unexpected expenses might come up that require additional distributions from your investment accounts. You also may want to treat yourself with an extra vacation or luxury purchase that is within your long-term plan, while avoiding a negative tax consequence. By reviewing returns, we can show the tax ramifications of taking these distributions as additional ordinary income or capital gains:

Additionally, we can help you understand what that additional income might mean for calculating your future Medicare premium costs, which can have a significant impact on your overall retirement income:

These are just a few examples of where knowing the income tax impact of making a decision related to your financial plan can be important. While taxes don’t “drive the proverbial bus”, they are an important passenger as nearly everything financial has a direct or indirect tax consequence. By sharing your tax return with you Wealth Advisor, we can help you identify areas where you can take advantage of these strategies and others to help minimize your tax burden and maximize your overall financial health. We understand that sharing your tax return can be sensitive, but we offer multiple options to get it to us, such as mailing it to our office, securely uploading a PDF, or asking your tax preparer to send us a copy.

As always, if you have any questions, please reach out to your ACM Wealth Advisor.

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