By leveraging tax planning techniques, your tax advisor may help you minimize your current-year taxes. This can include utilizing tax-loss harvesting or strategically moving funds between taxable and tax-deferred accounts.
When choosing a tax advisor, look for the following qualities:
Deductions and Credits
Whether it’s tax deductions for home ownership or investing strategies, your financial advisor will be well-versed in how you can save money with the federal and state governments. These professionals study the complex tax code yearly to offer insight into how it can be applied to your situation.
Choosing the right tax advisor requires consideration of their qualifications and credentials. Look for a CPA (Certified Public Accountant) like the Wichita Tax Advisors Wichita CPA, EA (Enrolled Agent), or tax attorney with specialized training and expertise in tax matters. They should also be able to provide references from other small business owners who have used their services.
A good tax advisor can create value for their clients in a way that maximizes cash savings. Yet crossing the line into ‘tax advice’ can introduce legal liability for them and their firm’s compliance department. An uneasy balance requires a clear understanding of what constitutes good tax advice and what is considered bad.
Tax Planning
Many financial advisors have a keen understanding of tax law and can create long-term strategies for their clients to help them legally save money. This can make a huge difference for someone trying to invest, start a college fund for their children, grow their small business, or save for retirement.
However, some advisors must be more careful with guiding tax planning strategies because doing so could expose them to legal liability. They may want to stay within the territory of tax advice, which they typically leave up to attorneys, CPAs, and EAs.
When interviewing prospective financial advisors, ask about their approach to tax planning and what type of strategies they employ. This can give you an idea of how familiar they are with federal and state tax laws and their problem-solving skills and attention to detail. It also gives you a good idea of whether their services would fit your particular needs.
Tax Audits
The IRS conducts statutory audits on taxpayers to ensure the information submitted in a tax return is accurate and reliable. Various factors, including suspicious activity, changes in financial reporting, or business operations, can trigger this.
A tax advisor can assist clients with preparing for and dealing with an IRS audit, representing them before the agency if necessary. They also research existing and proposed tax legislation to keep up with any changes that could affect their clients.
While any professional can offer tax preparation services, a qualified and experienced tax advisor is an essential partner for businesses and individuals seeking to reduce their tax liability and maximize deductions. To find the right tax advisor for your needs, look for one with certifications like a CPA or an enrolled agent and experience with the types of strategies that help clients minimize their taxes. They should be passionate about applying tax law to support your financial goals and provide creative ideas for legally saving money.
Tax Compliance
On one hand, financial advisors want to help clients with their taxes – it’s a large part of the value they provide. But they are crossing the line into tax advice risks, putting them at liability for violating regulations (and potentially creating trouble with their firm’s compliance department).
Generally, a good rule of thumb is to avoid strategies intended to dodge taxes. The IRS is very familiar with these strategies and keeps lists of them, requires disclosures from advisors who recommend them, and imposes penalties for their use.
You can assess a candidate’s tax knowledge by asking them to explain how certain real-world financial situations or scenarios impact their taxes. This can also give you insight into their analytical skills and attention to detail. Keeping up to date with changes in tax laws is essential for any advisor. To stay informed, consider attending events and webcasts hosted by industry-leading firms focusing on specific tax topics. Read more exciting articles on Tech new master
