Potential for Reducing Your Tax Bill

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How a Financial Advisor Can Help Lower Your Tax Bill

Careful tax planning throughout the year can put more money in your pocket  

Published: March 14, 2024

Tax planning is a vital part of any wealth management strategy, but reducing your tax burden isn’t always a straightforward process, especially for individuals with more complicated returns. Careful planning can help minimize your tax liability leaving you with more money to further your financial goals.

Tax planning isn’t just something you think about when filing, it requires year-round attention if done properly. Surely, your accountant should play a large role in this, but consider working with a financial advisor who can recommend tax-efficient investment strategies as well.

What is tax planning?
Tax planning involves examining your finances holistically and incorporating strategies to reduce your overall tax bill through careful planning around income, purchases, investments, and strategies like tax-loss harvesting.

Strategic tax planning can also help maximize your estate and provide more flexibility for your heirs. For example, as part of your tax plan you might hand off portions of your wealth to family members as tax-free gifts or establish an irrevocable trust to reduce the federal tax burden for those who inherit your estate.

How can a financial advisor help?
As part of an overall plan to manage your wealth, many financial advisors will offer tax planning services, which may include:

  • Charitable giving strategies. The amount and timing of charitable giving can have an impact on your tax bill. A financial advisor can help you determine when and how much to give so you can deduct your charitable contributions from your adjusted gross income. An advisor may help you time gifts to charity so deductions can offset other big taxable events, like a financial windfall, a salary raise, or a large bonus at work.
  • Tax-loss harvesting. An advisor can help you determine when to sell investments that have lost value to realize capital losses that can be used to offset taxable gains. Your advisor can help you use proceeds from the sale to reinvest in similar securities with upside potential.
  • Choosing tax-efficient investment vehicles. A strategic tax plan will consider the impact of contributions to tax-deferred savings accounts like 401(k)s, 529 education plans, and health savings accounts (HSAs). Some plans—like traditional 401(k)s, traditional IRAs, and HSAs—provide an immediate benefit by allowing you to reduce your taxable income. Contributions to 529 plans aren’t tax deductible, but investments inside the account grow tax-free. Withdrawals made to cover qualified education-related expenses are tax-free as well. A financial advisor can help you plan contributions to tax-deferred accounts to minimize what you owe in taxes.
  • Multi-Year tax planning. The most effective tax plans go beyond annual strategies and look ahead to your long-term financial goals. An advisor can help you put together a multi-year plan to reduce your tax burden in the long run. For example, they could help you bank capital losses to offset a future taxable even, such as the sale of an investment property.

Tax planning involves a lot of moving parts from annual adjustments to IRA contribution to charitable deductions to staying abreast of local tax laws. Working with a financial advisor on year-round tax planning can help ensure you’re maximizing tax deductions, taking advantage of tax credits, and using tax-efficient investment vehicles effectively. An advisor can help ensure you don’t miss any opportunities to reduce your bill and will keep up with regulatory changes, making any necessary adjustments to your plan.

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1 2024 Forbes America's Top Wealth Management Teams Best-in StateThe 2024 Forbes ranking of America’s Top Wealth Management Teams Best-In-State, developed by SHOOK Research, is based on an algorithm of qualitative criteria, mostly gained through telephone and in-person due diligence interviews, and quantitative data. This ranking is based upon the period from 3/31/2022 to 3/31/2023 and was released on 01/09/2024. Advisor teams that are considered must have one advisor with a minimum of seven years of experience, have been in existence as a team for at least one year, have at least 5 team members, and have been nominated by their firm. The algorithm weights factors like revenue trends, assets under management, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Out of approximately 10,100 team nominations, 4,100 advisor teams received the award based on thresholds. This ranking is not indicative of an advisor's future performance, is not an endorsement, and may not be representative of individual clients' experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. Raymond James is not affiliated with Forbes or Shook Research, LLC. Please see https://www.forbes.com/lists/wealth-management-teams-best-in-statefor more info.