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5 Ways Your Financial Advisor Can Prepare You for Tax Season Thumbnail

5 Ways Your Financial Advisor Can Prepare You for Tax Season

It’s tax season! Not exactly an exciting time, but it is a busy one. Accountants across the U.S. are sorting through seemingly endless piles of 1099s, W-2s, K-1 forms and more.

And at Halpern Financial, we are doing our own preparations. We are not tax preparers ourselves, but we do work with our clients’ accountants every year to facilitate the process. There are things we may know about our clients’ financial situations that can be very helpful in tax planning—but only if your CPA is made aware of them. Not every advisor does these things, but since they can have an impact on overall performance, we find them incredibly important!

Here are a few of the ways that financial advisors can help with your tax strategy:

1. Maximizing tax-advantaged savings. Maxing out your IRAs (if you fall under the income limit) is common advice around tax time. But even if your income is above the limit,  your goal in any case should be to maximize the tax-advantaged savings available to you.

If you can contribute up to the maximum for your workplace 401(k), you should (that’s $18,000 per year, or $24,000 per year if you are over age 50). If one spouse has a qualified retirement plan through work and the other does not, there is an advantage to putting as much as possible toward that individual’s tax-deferred growth. If you are self-employed, you may have the option to save up to 25% of your income or $53,000 (whichever is less) in a tax-deferred plan such as a SEP IRA or profit sharing plan. Even if you can’t contribute up to the maximum for your tax-deferred accounts, the underlying goal is to save as much as you can, keeping in mind that tax-deferred accounts are meant for long-term savings. A good place to start is to save 10% of take-home pay.

2. Compiling the records of trading gains and losses in a secure electronic file. Accountants need information about your gains and losses for the year, and at Halpern Financial, we are able to provide this information securely to CPAs for those clients who authorize this service. Having this information electronically saves your CPA time with data entry (thus saving you some money if he or she is paid with hourly fees) and helps to eliminate human error.

3. Tax-efficient investing strategies. The best CPA in the world cannot free you from the tax liability of a strategy that does not take taxes on investment gains and losses into account. For starters, your advisor should be putting the right types of securities in the right types of accounts. For example, we generally hold TIPS in tax-deferred accounts to avoid unpleasant tax situations like the 'phantom tax' which comes from owning them in taxable accounts. In taxable accounts, tax-loss harvesting, or offsetting gains with losses, is another source of tax savings. All the way from the selection of securities to sale and distribution, your investment advisor should be acting with an awareness of tax implications.

4. Limiting taxes in the distribution phase. When you are over age 70 ½, the law requires you to take “Required Minimum Distributions” from your Traditional IRA and 401(k) accounts. The tax liability can be significant, but good management can limit the impact, depending on whether the RMD funds are needed for the monthly costs of living or whether they can stay invested until the end of the year to benefit from tax-deferred growth (which may fully or partially offset the tax liability). Large purchases throughout the year affect the strategy as well.

5. Gifting strategies. If you have appreciated stock that will pose a significant tax liability, and you do not plan on keeping the stocks as part of your overall investment plan, you can gift these stocks tax-free to a qualified charity. Your advisor can help to create a more coordinated strategy for gifting—whether that means establishing a donor-advised fund or taking advantage of the recent law enabling “qualified charitable distributions”—meaning that you can direct your RMD funds to the qualified charity of your choice in a tax-free transfer.

When your financial advisor, CPA, estate attorney and other professionals have a unified strategy, you reap the benefits—not only at tax time, but in your entire financial life. At Halpern Financial we view this teamwork not just as a nice thing to do, but as a critical step to improve long term performance.

Photo used under public domain.

Halpern Financial is not a tax preparer, CPA or enrolled agent. For specific questions about your individual tax situation, please consult your tax expert.


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Halpern Financial, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Halpern Financial, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Halpern Financial, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Halpern Financial, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.