The definition of synergy is “the interaction or cooperation of two or more organizations, substances, or other agents to produce a combined effect greater than the sum of their separate effects.” When it comes to your investments and taxes, having an advisor that understands your complete picture can lead to a significant improvement to your financial bottom line.
Most people will dump their 2022 tax documents and information on their tax preparer in February or March, long after the tax year is over. The tax professional, often working long hours that time of year, can’t change what happened the prior year and may not have time to offer good advice on the upcoming year. So, while the taxes get done, there often isn’t much tax planning involved.
Investment advisors, with limited tax expertise and no access to their client’s tax returns, often make assumptions that aren’t actually reflective of their client’s tax situation. They may assume that deferring taxes is preferred even in years when a client may be in a low tax bracket. They can’t suggest an amount to convert to a Roth without mocking up the current year’s taxes. And most of them are clear that you should “consult your tax advisor” before implementing their advice.
Ideally your financial advisor can have both investment and tax expertise to fully understand the tax implications of investment moves and proactively suggest strategies that will minimize your taxes over the years.
This time of year is ideal for tax planning as most of the year’s income and gains have been determined and the tax laws are set. Investment moves, partial Roth conversions, generating additional deductions, taking tax losses or gains can be done to reduce your taxes, often by a lot. Multi-year planning can also yield big savings especially for people approaching or in the early years of retirement.
At Vintage our advisors have extensive tax expertise with CFPs and CPAs on staff working together and some advisors with both credentials. To learn how we may generate some synergy in your finances, contact our office today.