Taxes are a necessary cost of living, and it’s important to minimize your liability whenever possible. A good way to do that is by claiming all the deductions and credits you’re eligible for, filing your taxes on time, and making sure you’re not paying more than you need to come tax season. A skilled tax advisor can help you develop a plan to reduce your tax liability while remaining compliant with the law.
A skilled tax professional has years of experience with the tax code and stays on top of changes in the IRS regulations. They can help you understand what your tax bracket is and how it’s changing, what types of income are taxable and when they are taxable, itemizing vs. standard deductions, and any other unique circumstances that might affect your tax bill.
In addition, a tax advisor will be able to advise you on strategies designed to help you lower your tax liability, such as IRA contribution limits, Roth conversions, and deferral plans. However, if an advisor is not credentialed as a CPA, enrolled agent, or tax attorney, they cannot recommend or implement strategies that could be considered tax shelters or otherwise illegal.
The United States’ tax code is comprised of two books and has an estimated word count that rivals the Harry Potter series. It can be difficult for financial planners to create a tax strategy without crossing the line into “tax advice.” In fact, many financial advisors are prohibited from giving tax-related advice by their compliance departments. This is due to the high risk of legal and financial liability that arises from providing bad advice, which isn’t always covered by an advisory firm’s E&O insurance.
Although the rules surrounding what constitutes tax advice vary by firm, a general rule is that any information that a client might reasonably rely on to make a tax-related decision or avoid a penalty is considered tax advice. This includes information such as a client’s personal tax filing status, the types of income he or she receives, and his or her deductions.
The best time to get tax advice is before a financial transaction takes place, but this is not always feasible. In these cases, a skilled tax advisor can review past transactions and provide recommendations on how to mitigate future tax liabilities. In some cases, the cost of working with a skilled tax advisor can be recovered in reduced taxes and savings each year. If you’re interested in reducing your tax liability, a Moss Adams professional can assist. Just reach out with questions or concerns, and we’ll be happy to discuss your options. Steuerberatung