Working Together: 17 Benefits of Tax Planning – Finger Financial Five #23

Jeremy Finger
Jeremy Finger
Table of Contents

“One hand cannot applaud alone.” – Arabian Proverb

My dad and I would fish in the ponds, lakes, and rivers around Carolinas.  We used a small 1 ½ man wooden boat.  I was the half man.  Most of the time, we used paddles to not scare the fish.  We could position the boat better if we worked together.  If we wanted to go right, we would both paddle on the left and vice versa.  If we wanted to go forward, I would paddle on the left, dad on the right or vice versa.

What if we did not work together?  I could be paddling backward and dad forward.  We would create a lot of disturbance in the water and not go anywhere.

Same is true with your financial advisor and your CPA or tax preparer.  When there is not any communication, or worse, no knowledge what the other is doing…. higher taxes.

I have seen failure to categorize a distribution as a rollover, fully fund their retirement account, fund their Health Savings Account, and missed opportunities for charitable giving, just to name a few.

Does your financial advisor work closely with your CPA?  As a Certified Financial Planner, it is very helpful to review the clients tax returns. Here are some of the reasons why your financial advisor should do tax planning:

  1. Making sure you are making maximum use of all retirement plans available to you.  I have seen people add money to their 401k, but not get all the company match.

  2. Check to see if you maximized or establish Health Savings Accounts.

  3. Tax loss harvesting.

  4. Tax GAIN harvesting.  Yes, that is a thing.  Sometimes clients are in a low enough tax bracket, that taking gains can make sense.

  5. Qualified Charitable Distribution – Are you setup to give money to charity to make maximum benefit to you? You can’t do this from a 401k and must be done from IRA. Must be over 70 ½.

  6. Tax location of investments. Are your investments in the proper location to be the most tax efficient?

  7. Tax efficient withdrawal strategies.  Proper withdrawal strategies could mean $100,000+ or more of after-tax money.

  8. Maintain appropriate tax credits like Affordable Care act, Health insurance, premiums, and ensure the clients modified adjusted gross income remains below these thresholds.

  9. Proper withholding amounts to avoid penalties and to tax payment scares during tax time.

  10.  Reviewing W2 information to see pretax investments are taken out as intended.  Taxes dollars withheld.

  11. Being able to see interest income amounts from cash and other investments.  This would be helpful to either optimize their location or change to a more tax efficient investment.

  12. Checking the capital gains of each investment.  Do the mutual funds you own cause any unnecessary tax liabilities?

  13. Take advantage of low tax years by doing ROTH conversions.  Increasing after tax amounts.

  14. Taking advantage of after-tax 401k contributions? Does your plan allow for that? Can you automatically convert to a ROTH??

  15. Can you bunch charitable contributions in one year to take advantage of itemized deduction? In a Donor-Advised Funds (DAF)  you may be able to donate low cost stock, without realizing capital gains and possibly deduct the contribution.

  16. Tax returns also show what percent of your investments qualified dividends versus ordinary income.

  17. Can you as a business owner, establish a retirement plan with your company to reduce taxes?

Sophisticated tax planning is always changing and is an ongoing process.  It is like this: your tax return is the final exam and tax planning is studying along the way.  Cramming is not very effective, so don’t wait to get your finances in order!

Feel free to contact us if you have any questions.  Click here to set up a phone appointment. 

Finger Financial Five Bonus:  Talked to a lady last week, who has been divorced for a while.  She did not realize that she could claim social security on his work record.  This is why it is so important to work with a CFP that sees your whole picture.  You never know what key details can make a meaningful difference in your financial life.  Just saying…

On the lighter side, my wife’s car has over 170k miles on it.  We are getting her another one.  She got a little upset at the thought of letting her old car go.  She saw Elliott grow up in the passenger seat of that vehicle.  Funny how certain things can be anchored to memories.

Hope all is well with you and your family,

Jeremy Finger, CFP®, CIMA®, CRPC®, CPFA

Founder & CEO
Wealth Management Advisor

Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information.  My intention is to share principles, so that you will have more clarity and peace, that help you make better financial decisions.

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Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.

This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.


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