How tax planning services really work and how much they will cost you

SmartAsset: Financial Advisor Tax Planning Services

Not all financial advisors offer tax planning services, but many will include them as an offer to manage your overall financial plan. Financial advisors who offer tax planning services will likely offer some or all of the following services:

  • Tax return preparation, including rental property and partnership returns

  • Maximize tax deductions

  • Scheduling of securities sales for the collection of tax losses, generally around the end of the year

  • Ensuring the best use of capital gains tax rates

  • Planning to minimize taxes in retirement

In addition to preparing for retirement and death, a financial planning tax advisor can also help assess the tax effects of other major life events. Some of them may include marriage, parenthood, and divorce.

Along with these specific tax services, tax planning financial advisors can help with other personal finance issues. These can include insurance, saving for college, portfolio management, debt management, small business financial plans, and more. In addition to taxes, financial advisors may specialize in other areas, including investment management, retirement planning, estate planning, and divorce.

Financial advisor tax planning fees

Like other financial advisors, those who specialize in tax planning use several different compensation models. Some are salaried employees of large financial institutions, but most use one or more of the following ways to generate income:

  • Flat rate: These advisors charge a one-time fee-for-service charge to generate an annual tax plan. You can give the customer the right to ask questions and sometimes update the plan for the year.

  • Hourly rate: Tax planning financial advisors may charge from $100 to $400 per hour, depending on their level of professional certification and experience and the complexity of the client’s situation, for providing tax advice.

  • Percentage of assets: Financial advisors who also manage a client’s investments may receive a fee of 1 to 2 percent of the assets under management.

  • Sales commissions: Advisors who provide advice on mutual funds, insurance, annuities, and other products may receive a commission from the sellers of the products. It can be difficult to know how much an adviser earns from commissions without asking the adviser.

Please note that many tax planning advisors use a combination of one or more of these compensation schemes. For example, an advisor may charge a fee in addition to a percentage. Also, costs vary by location. Advisors in and around major cities often charge much more than those in small towns and rural areas.

Selecting a financial adviser for tax planning

SmartAsset: Financial Advisor Tax Planning Services

SmartAsset: Financial Advisor Tax Planning Services

Many financial advisors who specialize in taxes have complementary areas of expertise. For example, they may be attorneys or certified accountants. Various professional certifications that may indicate that a financial advisor is likely to do a good job as a tax advisor. These are some of the most prominent:

  • Certified Public Accountant (CPA): This is the highest certification in accounting, which requires an extensive course of study, passing a rigorous exam, and obtaining a CPA license.

  • Personal Finance Specialist – This is a certification that CPAs can earn by studying, gaining experience, and demonstrating in-depth knowledge of personal finance.

  • Enrolled Agent (EA): The EA designation is granted by the Internal Revenue Service and allows holders to prepare tax returns and advise clients on tax matters. The EAs are all former IRS employees, who also passed an exam. However, EAs are not necessarily as well equipped as other financial advisers to guide clients’ non-tax affairs.

In addition to these, people with tax concerns may want to consider advisors with top-tier certifications, such as Certified Financial Planner and Chartered Financial Analyst. These well-educated and rigorously tested professionals can be expected to have a thorough understanding of taxes and their role in personal finance.

Bottom line

Financial advisors can help clients with tax matters by preparing returns, suggesting moves to minimize taxes, and making the most of deductions. They can also be important when planning for retirement, planning wealth, and crafting an investment strategy.

Tax Planning Tips

  • Tax planning can be complicated, but many financial advisors can simplify these issues and help you prepare for tax issues with your overall financial plan. Finding a qualified financial adviser doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview their advisors at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Use SmartAsset’s tax return calculator to see how much you will or will owe based on your personal finances, and you can start planning from there.

  • If you plan to itemize, be sure to save all your receipts for at least a few years after you file. It is not uncommon for the IRS to look at returns three to six years in advance of the return it is actually auditing. And depending on the deductions you take, such as the home office deduction, your return is more likely to trigger an audit.

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The post Understanding Tax Planning Services from Financial Advisors appeared first on the SmartAsset Blog.

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