The Tax Mistakes Your Financial Advisor Might Be Missing

When your financial advisor and CPA don’t coordinate year-round, important opportunities may get missed and mistakes can get made:

• Withdrawing from the wrong accounts
• Missing Roth conversion windows
• Not coordinating capital gains

In this quick video, we go over the biggest tax mistakes we see, plus review how you can prevent them.

Transcript

Hello. Let’s say you’re working with a financial advisor and everything looks great on paper. Your portfolio is doing well and you’re on track for retirement. But then April comes around and your tax bill is much higher than you expected.

Or worse, years later you realize you’ve been paying more than you needed to and no one caught up. Does this sound familiar? Your financial advisor may be doing everything right from an investment perspective, but what happens when taxes aren’t part of the conversation?

Common Tax Planning Gaps Between Financial Advisors and CPAs

I’m Chris O’Shea, the Chief Investment Officer and a CPA at Financial Consulate, and today I want to walk you through the most common tax mistakes that could be costing you more than you think.

First, most financial advisors aren’t CPAs and most CPAs aren’t financial advisors. This is not a criticism, it’s just how the industry works. Your financial advisor focuses on your investment and your CPA focuses on preparing your tax returns. But in between those two, there is often a gap.

This gap can mean missed opportunities when it comes to minimizing your taxes throughout the year. Let me give you some specific examples of what we see when advisors and CPAs aren’t coordinating.

Tax Mistake #1: Taking Retirement Withdrawals From the Wrong Accounts

Mistake #1 is taking withdrawals from the wrong accounts. Your advisor might pull money from your traditional IRA because that’s where most of your assets are. But if your CPA had been in the loop, they might have suggested pulling money from your taxable brokerage account instead to keep your income lower and avoid triggering higher Medicare premiums or making more of your Social Security benefits taxable. Before you take any distribution, ask your CPA how it will affect your overall tax picture for the year.

Tax Mistake #2: Missing the Roth Conversion Window in Early Retirement

Another mistake we see is missing the Roth conversion window. Let’s say you retire at age 62. You’re not taking Social Security yet, you don’t have required minimum distributions from your IRAs yet, and your income drops. That’s often the perfect time to do strategic Roth conversions where you move money from your pre-tax IRA to your Roth, which is tax-free while you’re in a lower tax bracket. But if your advisor doesn’t have the full picture, or if your CPA doesn’t know your retirement timeline, that window essentially closes. The year you retire, especially if it’s early in the year, sit down with both your advisor and your CPA to map out a multi-year Roth conversion strategy.

Tax Mistake #3: Not Coordinating Capital Gains and Tax-Loss Harvesting

The third mistake we often see is around capital gains, specifically not coordinating them. Maybe your advisor rebalances your portfolio and realizes some capital gains. That is perfectly normal, but if your CPA had known that was coming, they might have suggested harvesting some losses to offset those gains. Or maybe you were already expecting higher income that year, your advisor could have held off on that rebalancing to avoid piling on more taxable income and more taxes. Make sure your advisor knows about any big income changes coming your way (bonuses, business sales, anything unusual) before they make portfolio moves.

Why Coordination Between Your Financial Advisor and CPA Matters

So what happens when your advisor and CPA work as one team? At Financial Consulate, almost half of our advisors are also CPAs. We bring both perspectives into your financial plan, reviewing your last three years of tax returns, and always thinking ahead about tax implications in real time. We’re not hearing about your financial decisions for the first time during tax season. We’ve been working together with you all year long, helping you make smart decisions.

A Real Example of Coordinated Retirement Income and Tax Planning

Let me give you an example. We worked with a retired couple who wanted to make sure they could still enjoy their lifestyle while minimizing taxes. They took $48,000 from their taxable brokerage account, $70,000 from Social Security, and $12,000 from their IRA to give to charity. When we looked at their situation, we found a way to minimize taxes by strategically placing their income. In the end, they paid zero in taxes that year—not a single dollar. And that’s because we coordinated everything from where their money was coming from, to how they gave to charity. Together, we made sure they kept more of their money.

Why Tax Planning Should Be Part of Your Financial Strategy Year-Round

Your financial advisor might be doing everything right when it comes to your investments, but if taxes aren’t part of the conversation year-round, you could be paying more than you need to. If you’re working with an advisor and a CPA who aren’t in constant communication, it might be time to ask, how are you coordinating my tax strategy?

Integrating Investment Management and Tax Strategy

At Financial Consulate, we pride ourselves on being a team that sees the full picture, your investments, your taxes, and your life. We help you make smart decisions, not just for today, but for the future you want to live.

How to Talk With a Financial Advisor About Tax Planning

If you’re curious about how we can help you integrate tax planning with your financial strategy, reach out today. You need to feel confident you’re not leaving money on the table. You can reach our team at 410-823-7283, or you can schedule a time to talk at your convenience through our website.

Thanks for watching, and see you next time.