Taxes are an important part of everyone’s financial life and an often overlooked area of planning opportunity. With the right approach, advisors can help clients legally lower their tax liability, maximize deductions and credits available to them, and make sure they are withholding enough from their paychecks to avoid costly underpayment penalties come tax season.

Despite the obvious benefits of being able to help clients with their taxes, many advisors shy away from discussing such strategies because they fear crossing the line into giving advice, which carries heavy regulatory and liability consequences for both the advisor and their firm. The good news is that a clear distinction exists between tax planning and giving advice, and that distinction can be as simple as ensuring that any strategy considered or presented to clients is done so in collaboration with the client’s tax professional.

To understand this distinction, it’s helpful to break down the process of providing a tax-related recommendation into three steps: consideration, analysis, and projection. In the Consideration step, the advisor sketches out a strategy and analyzes its potential impact without taking the final step of making a recommendation to the client. The analyst may also include creating a visual representation of the strategy, but should clearly label it as a “consideration” rather than a “recommendation”.

At this point, the advisor will either take the final step of presenting the recommendation to the client with their tax professional present, or they will be able to provide a written document of the recommendation to the client. In either case, it is critical to ensure that the client’s tax professional is aware of any broader circumstances that could impact the strategy and is prepared to take on any legal liability for interpreting new or complicated tax rules.

For advisors who choose to engage in this level of planning, it is recommended that they stay on top of the latest developments in tax law and be plugged into tax programs to hear what other industry professionals are discussing. The advisor should also be able to connect with CPAs and attorneys to obtain their opinion on any new or different interpretations of existing rules before bringing them to the attention of their clients. Steuererklärung

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