Tax Planning Is Not Just a Once-a-Year Event
Why Tax Season Should Start a Conversation—Not End It
As the new year begins, it is time to begin thinking about taxes. Tax season can summon a sense of urgency, but many important tax-related decisions are made after April. Tax season should be the starting point for better planning, not the finish line. Our role as financial advisor is to help you be aware of the planning opportunities that show up throughout the year, while your CPA is focused on preparing and filing your tax returns.
Tax Filing vs Tax Planning: What’s the Difference?
Tax filing is retrospective – it is an overview of what has happened financially in the previous year. So once the year comes to a close, many opportunities to influence tax outcomes have already passed.
Tax planning, on the other hand, is forward-looking. It examines decisions made throughout the year and how those choices affect your long-term finances. As your financial advisor, we plan proactively, not reactively. We partner with you to help create a tax-efficient financial plan with the intention of minimizing surprises down the road.
Everyday Decisions, Big Impact
Some of the biggest tax advantages don’t result from one big move, but from smaller decisions made throughout the year. Investment direction, retirement contributions, charitable giving, and income timing all play important roles in your overall tax-efficient strategy.
Investment decisions: When and how investments are bought or sold can affect capital gains and tax efficiency. Your financial advisor can help make some of these decisions for you, based on your risk tolerance and your long-term goals.
Retirement contributions: Partnering with your financial advisor when choosing between traditional and Roth options can make a meaningful difference over time. We are here to help you time these contributions appropriately to maximize your tax efficiency.
Charitable giving: Creating a thoughtful giving strategy helps align your personal values with tax efficiency.
Income timing: For some people, the timing of when income is received or distributions are taken matters every bit as much as how much income is realized.
Why Coordination Between Your Financial Advisor and CPA Matters
Financial decisions and tax outcomes are directly related, which is why it is important to have coordination between your financial advisor and CPA.
When there is coordination between these professionals, your financial strategy and tax strategy can remain aligned. This collaboration helps identify opportunities sooner, addresses issues before they arise, and creates a more cohesive plan. It also ensures that both professionals are working from the same information, which can reduce confusion and stressful uncertainty.
Ongoing Check-Ins
Having regular check-ins with your advisor throughout the year allows your portfolio to be adjusted as changes in your life arise. These conversations can help reduce unexpected tax consequences, provide strategic clarity for upcoming decisions, and increase confidence that your plan is staying on track.
Using Tax Season as a Planning Reset
Tax season should not be a time of urgency, but instead be a chance to reflect on the past year and begin planning for the year ahead. Reviewing your tax return once it is received can provide helpful insights into what worked well for you in the previous year and help determine what you might consider doing differently in the coming year.
Planning Beyond April
While tax season is a great time to reflect, meaningful tax planning happens throughout the year. Being proactive and maintaining open communication between your advisory and tax teams, you can move you from merely reacting to results to planning with intention.
If you have questions about how tax planning fits into your overall financial strategy, contact our office today!
The material has been gathered from sources believed to be reliable, however West Michigan Advisors cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through West Michigan Advisors. Advisory services are only offered where West Michigan Advisors and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place. Securities offered through Level Four Financial, LLC, a registered broker dealer and Member of FINRA/SIPC