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  • W. Scott Hurt, CFP®, CPA

5 Great Questions To Ask Your Financial Advisor About Your Tax Plan


5 Questions to Ask Your Financial Advisor About Your Tax Plan

Proactive tax planning can be instrumental in your retirement plan and, when wielded properly, can help you achieve your financial goals. However, people often confuse it with tax preparation, meaning they miss many valuable opportunities.

Sound tax planning is a year-round strategy, so here are 5 important questions we think you should always ask your financial advisor about your tax plan.


Tax Planning Vs. Tax Preparation


Before we jump into the questions, it’s essential to highlight the difference between tax planning and tax preparation.


  • Tax preparation concerns accounting for all financial matters within a given tax year and filing the appropriate information on a tax return. Minor planning is often involved, which usually focuses on maximizing deductions to reduce the tax bill as much as possible.

  • Tax planning, on the other hand, is thinking about ways to reduce your total tax liability over multiple years. That strategy sometimes involves taking steps that increase your tax bill now to reduce your tax bill further at some point in the future, like with a Roth conversion or strategically realizing investment gains. The focus is on forecasting which actions you should take and when rather than recording the actions you already took. In other words, tax preparation is reactive, and tax planning is proactive.

Tax planning and tax preparation are vital in different ways, and we can help you with both. We are incredibly passionate about the impact tax planning can have on your long-term financial strategy.

Here is a 2022 tax number reference guide to help as you start to think about your own tax plan as well.

Now, let’s dive into the top 5 tax planning questions to review with your wealth advisory team.


Question 1: What’s Your Approach To Tax Planning?


Asking this question will help you understand how the advisor thinks about tax planning in relation to your larger financial and investment plan… or if they do at all.

Ask them specifically about their process and how they track progress.


  • How do you go about creating a tax plan for your clients?

  • What type of strategies do you see performing well?

  • How do you tailor those strategies to my situation?

  • What are the signs that the strategy “works”?

  • When will you make adjustments?

  • How does tax planning fit into your investment philosophy?

There are many good answers to these questions, but you want to hear that they have a process in place and take it seriously.

This question should also reveal what your current financial advisory team or potential advisor does to constantly add value. Beyond what they lay out during an initial plan, they should update tax plans annually. Doing so ensures you’re staying up to date with significant life changes that could impact your tax situation, like retiring, selling a business, selling significant positions in company stock, buying a house, marriage, etc.

Sometimes you’ll only need minor tweaks, but in other years new opportunities present themselves. For example, when your income is lower in early retirement, you may consider a Roth conversion.

Even though it could increase your taxable income, you could pay less in the long run if you aren’t collecting social security, pension income, required minimum distributions from retirement accounts, etc. You want to make sure your advisor can recognize and act on these sorts of advantageous opportunities.


Question 2: Based On My Situation, How Can I Improve My Tax Standing?


Once you ask this question, expect your advisor to ask you several questions in return because they’ll have to deeply understand the inner workings of your plan to give the most appropriate recommendations.

To do this correctly, they’ll want to look at your most recent tax returns and develop additional questions, which may include the following,


  • Are you taking advantage of every credit and deduction available? If not, are there small things you can do to increase eligibility for things like ACA credits, reduce your IRMAA surcharges, or lower your AGI?

  • Are you managing your capital gains? If not, they should offer specific actions to take to get a better handle on them.

  • Does a Roth conversion make sense?

  • Could tax-loss harvesting help offset larger gains this year?

  • Is your asset allocation tax-efficient? Are you investing in mutual funds, ETFs, index funds, etc., with lower ongoing tax liabilities?

These are just some examples; there are so many other possibilities! The strategies you should implement depend on your unique circumstances and goals.


Question 3: How Can I Strategically Include Charitable Giving Into My Tax Plan?


Many people make regular charitable gifts, but only some consider how to do so in the most tax-efficient way. That’s unfortunate because there are so many tax-friendly ways to give that can reduce your tax liability even further and maximize the value of your gift.

Retirees, in particular, have several great tools that your advisor should be familiar with.