Tax planning is often a misunderstood process, with most people believing it happens during tax filing season. However, as financial advisors who work closely with tax professionals, we know that effective tax planning begins immediately after you file your taxes for the previous year. This proactive approach allows us to identify opportunities and make adjustments throughout the year rather than scrambling at the last minute when options are limited.
One common frustration we see is clients expecting their CPAs or tax professionals to provide comprehensive tax planning during the busy filing season. The reality is that most tax professionals are handling hundreds of returns in a condensed timeframe, focusing primarily on accurate filing rather than strategic planning. They simply don’t have the luxury of time to explore your financial backstory, long-term goals, and planning opportunities when tax deadlines loom. This is where the partnership between your financial advisor and tax professional becomes invaluable.
As wealth managers, we bridge this gap by analyzing your financial situation well in advance. We look at upcoming income changes, retirement plans, investment strategies, and potential life transitions that might impact your tax situation. Something as simple as reviewing your paycheck withholdings can make a significant difference. We recently worked with a client who wasn’t withholding any taxes from her substantial income throughout the year, resulting in a shocking tax bill. Had we caught this earlier, we could have made small adjustments to her withholdings, spreading the tax burden throughout the year rather than facing it all at once.
The distinction between CPAs, Enrolled Agents (EAs), and other tax professionals is also worth understanding. While many assume they need a CPA for tax work, an EA might be equally qualified for your needs. EAs are licensed to represent taxpayers before the IRS, similar to CPAs, though they typically focus more exclusively on tax matters rather than auditing or other accounting functions. The key is finding a knowledgeable professional who communicates well with your financial advisor, creating a cohesive strategy that addresses both your immediate tax obligations and long-term financial goals.
Tax-efficient investment strategies represent another crucial planning area. While we always caution against letting “the tax tail wag the dog,” meaning you shouldn’t sacrifice appropriate investment returns solely for tax benefits, there are often ways to achieve similar investment objectives with greater tax efficiency. For instance, we generally prefer ETFs over mutual funds in taxable accounts due to their tax-advantaged structure. We also analyze opportunities for tax-loss harvesting, strategic Roth conversions, and careful coordination of income timing to minimize tax burdens, especially for retirees concerned about Social Security taxation and Medicare surcharges.
Even those with seemingly simple financial situations benefit from proactive tax planning. Questions like whether to contribute to a Roth or Traditional retirement account, whether to take advantage of HSA contributions, or how to structure charitable giving can have significant tax implications. With the standard deduction now at $30,000 for married filers in 2025, many traditional tax deductions like mortgage interest and charitable contributions may provide less benefit unless strategically planned. For instance, “bunching” deductions or utilizing qualified charitable distributions from IRAs can create tax advantages that might otherwise be missed.
The most successful tax planning comes from a collaborative approach where clients actively engage with their financial advisors throughout the year. By sharing tax returns, pay stubs, and information about life changes early, you empower your advisory team to identify opportunities long before tax filing season arrives. This proactive approach turns tax planning from a dreaded annual fire drill into an ongoing strategy that enhances your overall financial wellbeing and provides peace of mind that you’re making informed decisions throughout the year.