If you plan ahead for your taxes, you can save money by lowering your tax bill, getting the most out of your deductions, and streamlining your accounting. But consultants may not be able to help with tax planning unless their firm's compliance department gives them permission to do so. In these parts, there is worry that advisors will accidentally give tax advice, which could lead to legal action against them.
Consideration
If you want to help your client save the most money possible on taxes and put the most money into their retirement plans, tax planning should be at the heart of your financial plan. Even though this method can be very helpful for customers, it can be hard on advisors and their businesses.
It can be hard to tell the difference between tax planning and tax counseling and to understand how clients see them. To one end of the range is broad, overarching tax advice that doesn't get into the weeds regarding how it might work in a given client's scenario.
On the other hand, some planning processes are quite in-depth, going so far as to offer customized analyses and forecasts of potential plans in light of each individual client's situation. Clients can greatly benefit from these types of actions, but compliance teams may worry that the customer will view them as tax advice.
Consultation
Advisors add a lot of value by helping their clients lower their total tax burden, which is a key part of almost every financial planning issue. But advisors often find that they can't tell their clients about certain tax strategies because doing so would go against the rules set up by their organizations.
This is because giving official "tax advice," which means recommending that a certain tax strategy be used, can put the advisor and their organization in legal trouble. For advisors, it's important to know what tax advice is and how to share that information while following federal rules.
A meeting between an adviser and their client's tax expert is often used as a tax planning consultation. Most of the time, the conversation includes a thorough look at how a tax approach could affect the client's long-term financial goals and future financial well-being. Making a plan for the strategy, or at least talking about the practical implications of the strategy, is one way to do this.
Recommendation
Helping clients manage their finances includes providing them with guidance on tax planning. Aside from helping them save money on taxes and make the most of whatever deductions they may be eligible for, this strategy also gives them a road map they can follow to keep their financial plan on track no matter what the future holds.
Tax planning recommendations can be anything from broad information about the tax code to detailed estimates and comparisons of different options, as long as they don't suggest a specific course of action, which would be tax advice.
Advice on how to use accounting techniques such as contribution bunching or deferring taxable income into different periods is one example of tax planning advice. But unless the statutory tax rate changes significantly in the future, the tax savings from these solutions are only temporary.
The IRS does not stop financial advisors from giving tax advice, but there is no hard and fast rule about which tax methods are legal and which could be used to avoid paying taxes. Because of this, it is very important that advisors don't say anything that could be taken as tax advice.
Implementation
Implementation refers to the steps used to put a plan into action, whether that plan is a tax strategy or a new policy. The procedure can be costly and time-consuming.
Careful planning and teamwork are frequently the keys to the most successful implementations. They look at the client's overall financial, social, or political situation as well as the resources they have.
Tax planning can be done in a number of different ways. It can be as simple as making some educated guesses and thinking about the pros and cons or as complicated as making a detailed financial model or running a tax estimate in software. What really counts is how well you communicate with the client. The final product needs to be intuitive and easy to apply. Although the optimal strategy will differ depending on the individual client, there are some common considerations that all advisors should keep in mind.
Consideration
If you want to help your client save the most money possible on taxes and put the most money into their retirement plans, tax planning should be at the heart of your financial plan. Even though this method can be very helpful for customers, it can be hard on advisors and their businesses.
It can be hard to tell the difference between tax planning and tax counseling and to understand how clients see them. To one end of the range is broad, overarching tax advice that doesn't get into the weeds regarding how it might work in a given client's scenario.
On the other hand, some planning processes are quite in-depth, going so far as to offer customized analyses and forecasts of potential plans in light of each individual client's situation. Clients can greatly benefit from these types of actions, but compliance teams may worry that the customer will view them as tax advice.
Consultation
Advisors add a lot of value by helping their clients lower their total tax burden, which is a key part of almost every financial planning issue. But advisors often find that they can't tell their clients about certain tax strategies because doing so would go against the rules set up by their organizations.
This is because giving official "tax advice," which means recommending that a certain tax strategy be used, can put the advisor and their organization in legal trouble. For advisors, it's important to know what tax advice is and how to share that information while following federal rules.
A meeting between an adviser and their client's tax expert is often used as a tax planning consultation. Most of the time, the conversation includes a thorough look at how a tax approach could affect the client's long-term financial goals and future financial well-being. Making a plan for the strategy, or at least talking about the practical implications of the strategy, is one way to do this.
Recommendation
Helping clients manage their finances includes providing them with guidance on tax planning. Aside from helping them save money on taxes and make the most of whatever deductions they may be eligible for, this strategy also gives them a road map they can follow to keep their financial plan on track no matter what the future holds.
Tax planning recommendations can be anything from broad information about the tax code to detailed estimates and comparisons of different options, as long as they don't suggest a specific course of action, which would be tax advice.
Advice on how to use accounting techniques such as contribution bunching or deferring taxable income into different periods is one example of tax planning advice. But unless the statutory tax rate changes significantly in the future, the tax savings from these solutions are only temporary.
The IRS does not stop financial advisors from giving tax advice, but there is no hard and fast rule about which tax methods are legal and which could be used to avoid paying taxes. Because of this, it is very important that advisors don't say anything that could be taken as tax advice.
Implementation
Implementation refers to the steps used to put a plan into action, whether that plan is a tax strategy or a new policy. The procedure can be costly and time-consuming.
Careful planning and teamwork are frequently the keys to the most successful implementations. They look at the client's overall financial, social, or political situation as well as the resources they have.
Tax planning can be done in a number of different ways. It can be as simple as making some educated guesses and thinking about the pros and cons or as complicated as making a detailed financial model or running a tax estimate in software. What really counts is how well you communicate with the client. The final product needs to be intuitive and easy to apply. Although the optimal strategy will differ depending on the individual client, there are some common considerations that all advisors should keep in mind.
