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Financial Advisors Offer Important Strategies for Tax Season

Jennifer Pagliara, CFP®, CTFA, Executive Vice President and Financial Planner
Jennifer Pagliara, CFP®, CTFA
Executive Vice President and Financial Planner

As we approach April 15th, tax planning is on the minds of most everyone. Gathering all the documents, searching for or meeting with an accountant, and deciding whether or not to file an extension takes up a lot of time and energy. Despite that, with the right accountant like Dave Burton, understanding taxes and filing a tax extension can seem a little less scary. Regardless, taxes need to be taken seriously.

Tax season is a busy time for financial advisors, as well, as there are a myriad of services that advisors provide to help clients prepare to file their taxes.

Whereas a CPA is skilled in income and estate tax approaches, a financial advisor has a broader image of the client’s entire financial puzzle – including insurance, investments, retirement savings, educational savings, employee benefits and retirement planning – and therefore can offer a holistic perspective on his or her tax situation.

For example, the Tax Cuts and Jobs Act of 2017 significantly changed the way Americans approach tax planning. We now have lower marginal tax rates across brackets and an expanded standard deduction – among other changes – which are currently set to expire Dec. 31, 2025. Right now, we’re discussing possible IRA distribution acceleration with our clients in order to take advantage of the favorable tax environment.

Some other examples of tax planning situations to discuss with a financial advisor are:

Estate planning: Many clients are concerned with how they are going to leave their assets after they pass. Some investment vehicles are more advantageous to the beneficiary. Traditional IRAs are often less favorable to inherit than Roth IRAs (which are tax free) or taxable accounts (which receives a step-up in basis, meaning the inherited stocks are more valuable).

Planning for a large purchase: If you anticipate buying a new house, boat or making another large purchase, you should give your financial advisor advance warning. Rather than taking one large lump sum from an IRA in one year (and paying a higher marginal tax rate in that year), one may take several distributions over multiple years at lower rates. Or your advisor might be able to strategize how to take a loss in a taxable account to offset a distribution from an IRA.

Tax bracket flexibility: You might not even realize what you are leaving on the table by not utilizing your entire tax bracket. Based on current needs and situation, an advisor can help create a balance between tax-deferred IRAs, tax-free Roth IRAs and taxable accounts.

The bottom line: Financial advisors serve as an additional resource for clients at tax time, and most are happy to coordinate with a client’s CPA so that everyone is on board with the tax plan. If you’re not sure this is a service your advisor offers, ask! You might be surprised by the answer.

Jennifer Pagliara is an executive vice president and financial advisor at CapWealth and a proud member of the millennial generation. Her column speaks to her peers and anyone else that wants to get ahead financially. For more information about Jennifer, visit capwealthgroup.com. This article was published in The Tennessean on April 1, 2019.

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