A small, but growing, number of advisors have been adding tax planning to their service offerings in recent years.
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Nearly one-third, 29%, of advisors provide tax planning services personally, according to respondents in a recent Financial Advisor Confidence Outlook (FACO) from Financial Planning. Of those who don’t offer tax planning, 44% are considering adding it, and 47% have informal referral systems for tax planning.
And while advisors who have added these services say that a more holistic style of planning increases the value they can provide to clients, it can also mean a rush during tax time.
They say spreading the work out through the year and collaborating with outside professionals can help lighten the load.
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The value that adding tax planning can bring
When Steven Crane, founder of Financial Legacy Builders in Dayton, Ohio, started leaning heavily into tax planning a few years ago, he said it came from a place of frustration.
“I kept seeing clients do everything ‘right’ on the investment side, but then give a big chunk of it back in taxes because no one was connecting the dots,” he said. “For the middle-class families I work with, taxes aren’t a side issue; they’re one of the biggest drags on progress. Once we started proactively planning around that, the client’s response was immediate. It made the work feel more real and tangible to them.”
Overall, Bridges said, the response from clients to including tax planning has been overwhelmingly positive.
“One client recently told me it just made sense for us to handle their taxes since we already understand their full financial picture,” he said. “That level of trust and efficiency is hard to replicate when tax preparation is handled elsewhere.”
Having passed all three tests to become an enrolled agent with the IRS, Alex Bridges, wealth advisor at Tiverton Wealth in The Woodlands, Texas, has also integrated tax planning into the overall planning process through a separate entity, Tiverton Tax.
“From the beginning, I believed that if I am going to be the central advisor in my clients’ financial lives, I cannot ignore taxes,” he said.
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Spreading out the work to beat the rush
Activity definitely increases this time of year, Bridges said, especially starting in the second half of March as deadlines approach.
“I block dedicated time for tax work, which allows me to focus on tax planning,” he said.
To combat this rush, Crane said he tries his best to push most of the real planning outside of it.
“During tax season, people are reactive,” he said. “They’re looking backward, trying to file and move on.”
The real value of tax planning is forward-looking, making decisions throughout the year that change outcomes later, said Crane.
“If you wait until March or April, most of the damage is already done,” he said.
Jason Gordo, president and co-founder of Modern Wealth Management in Monterey, California, said that the tax planning that occurs during tax-filing season is mostly related to opportunities that are still available for the prior year tax reporting. In addition, his firm analyzes potential moves for the current year that may be implemented later in the year, as tax management opportunities arise or before year-end.
“The heavy lifting in tax planning occurs throughout the second half of the current tax year,” he said.
Increasing collaboration to lighten the load
From a workload standpoint, Crane said many advisors make incorporating tax planning harder than it needs to be. He has seen other advisors try to do everything themselves or treat tax planning like a separate service instead of integrating it into their overall process.
“The biggest shift for me was simplifying it and focusing on the few areas that actually move the needle, things like income timing, Roth versus pretax decisions and withdrawal strategy in retirement,” he said.
It’s become expected that tax engagement among clients always rises as deadlines near, said Gordo. The firm takes a collaborative approach among various team members in response to increased client activity around deductions, liabilities and filing needs, he said.
The firm employs several layers of employees focused on specific areas of tax planning: Tax-planning CPAs join financial planners in client meetings throughout the year. Tax-reporting CPAs handle the filing work. And tax team members handle the tax filing support.
“However, because our planning CPAs work with clients and prospective clients year-round, much of the planning work is completed before tax season, significantly reducing the seasonal surge,” he said.
Crane said advisors need to get comfortable collaborating with outside professionals to reduce the feeling of overwhelm.
“You don’t have to be the CPA, but you do need to understand how tax decisions impact the broader plan,” he said. “When advisors and CPAs are aligned, clients get much better outcomes and the workload becomes more manageable for everyone.”
