by Michael Evans, Founder & Wealth Manager

If a powerful genie were to grant us one wish related to your financial well-being, I would wish for you to have a tax professional who proactively shares a copy of your state and Federal tax returns with your financial advisor each year, preferably before you actually file them. Instead, most tax preparers simply have you sign and file your returns once they’ve filled in all the blanks. Then you both breathe a sigh of relief that it’s over for another year.

That’s too bad, because if your financial advisor hasn’t also weighed in on your returns, you may be leaving important tax-planning opportunities on the table and paying too much in taxes. Today, let’s look at why and how we like to collaborate with tax preparation providers to help our clients avoid overpaying the IRS—this year and over time.  

Tax Preparation vs. Tax Planning

First, it helps to recognize that tax preparation and tax planning are two different skill sets: 

Tax preparation is retrospective: Your CPA typically helps you report your taxable income, and claim deductions and credits already incurred as you file your annual returns. Their focus is on annual events—the “trees,” if you will.  

Tax planning is progressive: Your tax-planning financial advisor or wealth manager helps you consider how your greater tax strategies might help or hinder your ability to reach your long-term goals. Our focus is on your proverbial forest of wealth.

Both roles are important. Both require an experienced hand. And both are most effective when managed in unison. 

Proactive Tax Planning: The Missing Link

When a prospective client first reaches out to us, it’s frustrating when we review their completed returns and spot important tax-saving opportunities we COULD have planned for, had we been part of the process earlier on.  

Again, most CPAs are fine, hardworking professionals, well-versed in current tax code. But the nature of their work means they spend far more time recording tax-related events that have already happened to you, and watching out for regulatory “red flags” that could trigger an audit. 

Fair enough. But that’s why your financial planner is essential to your long-term tax strategies. At Cogent Strategic Wealth, we help hard-working professionals like you craft and adjust a multi-year, lifetime tax-reduction plan in the face of ever-evolving tax codes. To achieve this, we seek to engage with your tax preparer, describing to them our wider, tax-mitigation goals. Once we’ve had this conversation with a CPA, they usually see how and why it makes sense to collaborate on your behalf, to serve your best interests, upfront and ongoing. 

Tax Planning for the Unknowns

The truth is, tax payment fatigue is real. So are countless future tax code unknowns. But whether you’re saving, investing, spending, bequeathing, or receiving wealth, there’s scarcely a move you can make without considering how taxes might influence the outcome. No wonder taxpayers get nervous when there’s lots of talk about higher taxes, with little certainty on what may come of it, and who it might affect. 

So, how do you plan for what you cannot know (and would probably rather not think about to begin with)? While the particulars may evolve, it seems there is always an array of tax breaks to encourage us to save toward our major life goals—such as retirement, healthcare, education, emergency spending, charitable giving, and wealth transfer. With a little planning, you can reach your goals without getting strung out by the process and paying too much in taxes.

Tax Seasons and Lifetime Wealth

For example, when it comes to tax planning, it’s easy to fixate on each season, and lose sight of the years you have to generate the most after-tax wealth. For this greater goal, we focus on creating the lowest lifetime, cumulative tax bill, rather than the lowest possible tax bill each year. To tend to both, we look for three things, as we review your annual tax returns: 

  1. Potential Mistakes: It never hurts to have an extra set of experienced eyes take a fresh look at your returns; our financial know-how allows us to catch things others might have missed. 
  2. Current Adjustments: Reviewing your tax returns lets us identify any planning updates needed to help you accomplish your goals with as little tax pain as possible. Any number of events could show up on your return, and trigger a conversation about how to best manage them moving forward. For example, maybe we can take advantage of a tax-loss carryover, establish a DAF so you can itemize your charitable deductions in the year ahead, or manage your upcoming income levels based on approaching retirement plans. 
  3. Future Planning: The more familiar we are with your annual returns, the more effective we can be at helping you make small adjustments annually, to avoid bigger tax bills over time. For example, realized capital gains show up on your tax return, while unrealized gains remain relatively hidden in your investment accounts. Carefully tracking both helps us better plan for when and how to incur taxable gains during your working years and into retirement. (Please don’t shoot the messenger, but you usually can’t entirely avoid paying taxes on your income at some point or another!)

    Tax-Planning Opportunities, and Your “Why” Behind Them

    If you’re a high-achieving professional, there are many year-round opportunities to achieve tax efficiency as you pursue your lifetime goals. Even if your personal plans haven’t changed, tax laws evolve as well. Staying current can be arduous, especially when your time is better spent elsewhere. We can accomplish so much through a detailed analysis of your tax returns, followed by a conversation about what we find in key areas such as: 

    • Identifying your marginal (highest) and effective (overall) tax rates
    • Understanding the tax impact of qualified versus ordinary dividends
    • Minimizing short-term versus long-term capital gains
    • Tracking deductions taken and missed
    • Recording loss carryforwards 
    • Tracking tax-exempt interest
    • Optimizing your saving and cash flow strategies
    • Planning for Social Security benefits
    • Managing employer equity compensation 
    • Managing a business owner’s savings and compensation strategies 
    • Leveraging tax-efficient charitable giving 

    These and many other logistics contribute to spending more time with family and friends, so you can achieve your most important goals, such as: 

    • Funding your children’s higher education
    • Funding your own retirement 
    • Covering health care costs
    • Enjoying your overall lifestyle 
    • Creating a legacy
    • Giving generously 

    Lifetime Tax Planning for High-Income Earners

    In short, effective tax planning can be well worth the effort, especially if you have a financial planner to assist you. If you add them up—Federal income, state income, sales and property taxes—your total lifetime taxes can approach 60% of every dollar earned. 

    By working with an advisor like Cogent, you can learn about and implement best practices for minimizing that percentage in ways your tax preparer may not be prepared to offer. 

    The scenarios above represent only a handful of tax-planning events you might encounter during your hard-charging career, and onward into a time when you’ve made work optional. Whether you’re building or maintaining your lifestyle spending plan, tax-planning remains integral every step of the way. Each financial move you make can and should be leveraged for tax efficiency. Better still, a fiduciary wealth manager can combine your disparate moves into an integrated whole, so you can relax, knowing your money is being tax-efficiently tended to.  

    We at Cogent have dedicated ourselves to assisting high-achieving families like yours with designing, building, and protecting their ideal wealth plan. Because life is full of curveballs, we also create Strategies for a Lifetime of Transitions.   

    Put another way, it takes more than an annual tax return to seamlessly integrate ideal tax planning into your greater financial plans. Your CPA may be great at accurately reporting past taxable events, but it takes a wealth advisor, armed with your annual tax-return data, to successfully juggle all of your airborne financial interests at once. Especially if you think you are paying too much in taxes and tipping the government!

    Could you use an experienced hand to keep your total wealth at play? We’re here to help! We’ll show you how to adopt a Cogent tax plan today, optimized toward minimizing your lifetime tax burden and maximizing the after-tax wealth you get to keep as your own. Give us a call today to schedule your personalized Cogent Conversation. 


    The opinions expressed by featured authors are their own and may not accurately reflect those of Cogent Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

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