How advisors can become forward-thinking on taxes

Catherine Valega of Green Bee Advisory and Joanne Burke of Birch Street Financial Advisors

'Clients tend to care more about saving on taxes than maximizing their returns,' an advisor says.

For some advisors, tax season is well behind them. For others, the conversation about has just begun.

Certainly, that’s the case for Catherine Valega, founder of Green Bee Advisory, who recently became an enrolled agent, a credential awarded by the IRS that allows her to be a more tax-smart advisor and do tax prep not only for her firm but other clients as well.

“It’s crazy the things that I have been learning,” she says.

Even though the April 15 deadline to file income tax returns has passed, Valega plans to go back to her clients, review their taxes, and strategize tax prep for the years ahead.

“No one understands anything about taxes,” she admits. “I became an enrolled agent to learn more and learn how to help my clients. I’m probably the only one who’s going to be talking about taxes just a little bit more and be proactive moving forward.”

Valega noted that what she’s been learning in her tax prep course will also help her clients. “Can we increase retirement plan contributions? Can we make Roth contributions? What types of tax-efficient portfolio management should we start for the year?”

Valega said the main reasons she decided to focus on tax planning strategies, and why other advisors should be following her lead, are because most people don’t understand how the tax system works and clients tend to care more about saving on taxes than maximizing their returns.

“They certainly don’t understand how to use it to the best of their advantage,” she said. “Because it’s convoluted and scary, and no one learns this stuff, so I’m going to take all of my knowledge back to my client base, and really start doing tax-forward thinking.

“No one wants to pay $1 more than they should in taxes, nor should they, but no one really knows the strategies to help minimize their tax bill. There are strategies out there,” Valega added.

Joanne Burke shares a similar stance. A part of Burke’s spring cleaning involves getting together with her clients to collect and review their tax returns.

“I like to take a look at what they have, or even with new clients onboarding, to try to make a more tax-efficient strategy with regards to the investments,” the owner of Birch Street Financial Advisors says. “[That’s] trying to position the fixed income in the retirement plans, for example, and, when possible, keep the growth assets and the taxable accounts.”

Burke noted that while it’s not always a perfect situation, she plans to take some time within the next month to review her clients’ tax returns to see “what different investments pushed out and if there are ways for my clients to be more tax-efficient.”

Valega point outs that even though advisors’ clients may have completed their taxes on time, that doesn’t mean they shouldn’t think about them for another year.

“Because the tax prep is fresh in your mind, you really should strategize for clients, ‘What should I be doing to improve my tax situation for the following year?’” she said. “I think most people are going to do the opposite.”

PLANS FOR TAX REFUNDS

A recent survey by Lincoln Financial found people’s top plans for their tax refunds were to use the money to save for emergencies and pay down debt. According to the survey, 40 percent of adults reported that they would be allocating their tax refunds to a savings account.

“Putting money into an emergency savings fund can reinforce financial safety, especially during times of uncertainty,” Lincoln said in a statement.

In contrast, one of least popular plans for tax refunds was to use them to save for retirement.

Lincoln pointed out the Saver’s Credit, available through the IRS, provides a tax credit for eligible individuals contributing to an IRA or employer-sponsored retirement plan. This credit can help reduce tax liability and further incentivize retirement savings.