Your CPA and Your Financial Professional – Dynamic Duo

Financial Planning

They may not be fighting crime exactly, but this dynamic duo should definitely have “hero” status when it comes to protecting and building wealth. When these professionals work together to identify problems and find better solutions, you will have the confidence of knowing you have a more comprehensive approach to planning your financial future.

How You Benefit

Pretty much every financial decision is a tax decision and each advisor plays a unique role in defining your strategy. Your financial professional can provide in-depth knowledge of the market, investment products, financial planning approaches and other considerations when it comes to building and protecting your wealth, whereas, your CPA can identify opportunities and tax-planning strategies to help you keep more of the income you have earned or inherited. Working together, they get a more holistic view of your financial situation and can plan for a better end result.

Where Collaboration Counts

Applying tax-smart investment strategies appropriately can be complex – even for more seasoned advisors. That is where a collaborative approach between your CPA and your financial professional can significantly improve your bottom line. Here are just a few proactive ways to reap the benefits of integrated planning.

Taking an After-Tax Yield Approach to Investing

All too often, financial advisors focus on the initial return on your investments without any concern for potential tax liabilities down the road. With ongoing dialogue between your CPA and your financial professional, you can focus instead on strategies that yield the best after-tax results.

Saving Valuable Time

You can save a lot of time when your advisors work together. Instead of meeting individually with each and then trying to translate what was said between the two, take yourself out of the equation for the most part and let them collaborate on your planning strategy. It is more efficient and there is less chance of a missed investment opportunity or an unforeseen tax liability. Of course, you will still want to meet with each to understand and help execute the plan, but there is no need to play the middleman.

Applying Tax-Loss Harvesting

For those who are not too familiar with the strategy, tax-loss harvesting refers to identifying and selling an asset at a loss and then reinvesting in other assets that might help strengthen the portfolio. Assuming the client has more capital gains losses than gains, the amount is then applied as a credit against future tax obligations. Your client can offset up to $3,000 a year on federal income taxes and carry over the rest of the credit to subsequent years. It is a way to reduce some of the loss of an asset — especially one you feel will not recover even when the market does.

Taking Smart Required Minimum Distributions

There are tax ramifications to drawing down your retirement income that can impact your after-tax spending power. Which accounts you pull from and what type of accounts you set up (e.g., IRAs vs. Roth IRAs) all have tax consequences, but a consultative approach between your financial professional and your CPA can help make sure you focus on reducing tax liabilities during retirement so your income can stretch further.

Having More Than One Advisor

While each advisor has a unique set of skills, having two separate advisors with a deep understanding of your finances, albeit from a different perspective, can be a benefit. Consider it your personal set of checks and balances. Instead of putting your trust in only one advisor, you will have two set of eyes reviewing your finances to help avoid financial pitfalls.

Who Benefits Most?

Taking a team approach to getting financial advice can benefit anyone, but there are three unique scenarios where the benefits can be quite significant. If you find yourself in any of these situations, stop separating your finances into discrete categories: investments, taxes, insurance, estate planning, etc. and start a collaborative relationship between you and all your advisors.

Small Business Owners

If you own your own business, you understand there are many more complexities to consider when it comes to taxes and investment planning — especially when it comes to retirement. Leaving your business to heirs, selling to an investor, and providing retirement income for you and your family are all decisions you are better off making with a tax and financial professional team.

Legacy Planners

Creating a will or trust can have a significant impact on your wealth and your loved ones. It requires the expertise of tax and financial professionals (and potentially an estate attorney) to get it right and avoid significant tax and legal liabilities. Here is where a lockstep approach between advisors can provide a plan that meets your wishes and most benefits your heirs.

Affluent Investors

If you are in the fortunate position of having abundant wealth, there are unique investing and tax situations to consider. What types of accounts to leave to heirs, donating specific assets to charities to reduce taxes and tax-loss harvesting are just a few strategies. That is when a team approach between your financial professional and your CPA can really benefit.

Don’t Have A Financial Planner Yet?

Make 2022 the year you start getting serious about planning for the future. Talk to your CPA about getting started. If possible, consider meeting with both advisors to set the stage for a mutually beneficial arrangement for everyone. It is a great time to set expectations about your goals, how you want to communicate and what you want them to accomplish.

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