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How To Increase Your Value Proposition With Tax Planning



When most people think of taxes, they think of the frantic rush to file returns by the tax filing deadline. They think of confusing tax law, rushed explanations from tax preparers, and the fear over the status of their return. Will they owe or will they get a refund; this seems to be the top concern on the minds of clients walking through your doors. 

But what if you as an advisor can help change that narrative?

What if you were able to transform taxes from a once-per-year filing chore into something different, something planned and understood? What if you could help your clients understand how the financial decisions they make throughout the year inform the taxes they pay? What if you could have the chance to save your clients far more money than ever before?

Our advisors at ACP will tell you that you can do all of these things and more when you add a tax focus to your financial planning practice. What does it mean to add a tax focus to your practice and why is a tax focus beneficial for both you and the client?

We are going to explore the answers to these questions and more here today. 

Why isn’t tax preparation enough?

Tax preparation is an important job, one that ensures each line of your client’s return is compliant with both federal and state regulations. It takes an incredible amount of time, patience, and accuracy to get it right. 

But tax preparation is only focused on reporting financial activity from the prior year. It doesn’t take into account proactive tax measures that taxpayers can take advantage of over the course of the year. 

But how can it?

Come tax time, preparers are inundated with hundreds of returns that need to be filed by the tax filing deadline and that deadline doesn’t allow them the opportunity to look at each return from a comprehensive standpoint. 

Once you get to the filing season, there isn’t much strategic work that can be done. One of our advisors, Jonathan Heller (CFA, CFP®, EA, owner and founder, KEJ Financial Advisors in Newton, PA) told us on our podcast to think of this time in terms of a final exam. If the tax return acts as the final exam and you only start studying or preparing for those taxes on the first of the year, you may be surprised at the grade you receive or the amount of taxes you owe. But if you prepare the entire year for the final exam, you will find you’ll probably do pretty well, as you have anticipated the problem areas and made strategic decisions to fix them before test time. 

The scope of tax planning

In our society, people are trained to associate taxes with April 15. This one day per year causes a lot of anxiety for people and is often their only experience with taxes all year long. But this mindset leaves out all of the things that can be done January 1 through December 31 to positively impact their taxes. 

This is where you can come in. 

For many clients, their top concern with taxes is knowing if they have enough money withheld or have calculated the right number for their quarterly payments. But tax planning is so much more than influencing how much a taxpayer is paying. Tax planning is about helping clients take advantage of the tax opportunities that they have within the law.

With tax planning, you are able to take a more comprehensive, holistic approach to your client’s financial situation. It provides an opening for you to connect all of the disparate pieces of their financial life. It gives you the opportunity to look strategically at capital gains and offsetting those gains with losses, for example, or converting a traditional IRA to a Roth, lowering your client’s adjusted gross income (AGI) to the point where they may be eligible for different tax credits.

Tax planning encompasses so many areas of your client’s financial lives such as:

  • Tax-loss harvesting
  • Portfolio creation and management (asset location and asset allocation)
  • Estate planning
  • Retirement accounts
  • Tax brackets and AGI
  • Distributions
  • Tax credits
  • Filing strategies
  • Multi-year tax planning
  • Charitable giving
  • Cash flow

There are so many different aspects of your client’s financial plan which are impacted by taxes. By developing a sound strategy for how those taxes interact with other aspects of their financial landscape, you will be able to save them money and demonstrate the value you provide as an advisor. 

Based on your client’s income, investments, and financial goals there are so many ways that you can use tax planning to enhance their financial plan. One key example is through your client’s investment strategy.

How investment planning and tax planning work together

Taxes and investment management are among the top two things that come to mind when people think about financial planning. Investment management is an integral component of financial planning, but without a concrete tax plan, it isn’t as effective as it could be. Let’s take a look at a couple of statements to help decide which would be a better sell to a client. 

  1. We are making a change to your portfolio and expect to see an additional 10% return, though that isn’t a guarantee. 
  2. We are making a change to your portfolio that will save you $5,000 in capital gains tax. 

While we hope option 1 will work out that way, it isn’t guaranteed that it will. With option 2, you are providing precise savings based on a tax decision. 

When you employ a tax focus on investment management, you are able to make transactions throughout the course of the year which are in line with the comprehensive tax plan you have created for your client. This gives you the opportunity to develop trust and show the client that you are their advocate and have their best interests at heart when making investment decisions. 

Adding this tax lens opens you and your clients up to look at their portfolio in a more nuanced and comprehensive way. It is amazing to see the changes and increased value to investments over time when there is a strong tax strategy backing it up. 

Another important benefit of bringing a tax focus to your practice is that one professional will be looking at each of those aspects. When a tax preparer is doing a client’s taxes and an investment professional is rebalancing their portfolio, it is highly unlikely those folks are talking to each other. 

With tax planning, you are able to be on top of both of these factors, which makes the process more seamless and can help avoid a big surprise come tax time. This tax lens can provide greater insight when rebalancing a portfolio and even building a strong portfolio in the first place. 

A tax return can inform the financial planning process

During his podcast, Jonathan Heller also mentions that he was struck by the quote, “A tax return is the window to the financial soul.”

A tax return can give you the opportunity to get a sense of what your client’s financial life is like, including any opportunities that are out there. Those opportunities may come in the form of an amended tax return or even strategic ones to apply across their financial horizon.

Jonathan sees tax planning as a way to get creative with his client’s finances and gives him the space to think through and present different scenarios to his clients which will have a concrete impact on their day-to-day lives.  

All financial planning can benefit from a tax focus

Tax planning is a chance for advisors to demystify the cloud of intimidation and fear that surrounds taxes. 

A proactive tax plan is beneficial for all advisors. Whether you specialize in investments, retirement planning, college planning, or everything in between, all areas of your client’s financial plan are impacted by taxes. Why not incorporate this ubiquitous skill into your practice?

Are you excited about learning how you can include taxes in your practice but unsure how to get started? Here at ACP, our members have exclusive access to self-study, live classes, mentorship, and more to help build a profitable practice. 

Contact us to learn more today!