Derek Burnett
Derek Burnett is a Contributing Writer at Bottom Line Personal, where he writes frequently on health and wellness. He is also a contributing editor with Reader’s Digest magazine.
If you already have a financial advisor who helps you with your general financial plan, you might wonder whether it would be wise to hire an additional advisor who focuses only on taxes. As with most personal-finance questions, the answer is, “It depends on your situation.”
Your existing financial planner or advisor may be perfectly capable of giving you all the help you need when it comes to taxes. Financial advisors come in all shapes and sizes, and some possess such broad expertise that, in addition to being able to provide guidance on financial planning, retirement, and estate planning, they can advise you on minimizing your tax liability and even file your return for you.
On the other hand, you might work with a financial planner of more limited credentials who is fine with giving you broad tax advice but can’t—or won’t—file your return for you. In that case, you’d need to hire a separate tax preparation professional. Note that while some tax advisors will help with preparing and filing returns, many focus instead on the advisory aspect of tax expertise and would still have you go to a tax-prep firm at tax time.
In yet a third scenario, you may have hired an advisor with a limited scope of expertise, such as a financial therapist, finance coach, or credit counselor, who lacks the expertise to guide you on sophisticated tax matters.
And in some cases, a sudden windfall or change of fortune could leave you feeling like you’d prefer the opinion of a dedicated tax advisor, even if you generally trust your main advisor for everyday tax advice.
The main point is that you should always feel like your tax-related needs are being met by a fully qualified individual whose guidance you trust. Whenever that’s not the case, even if it’s only on a one-time basis, going to a dedicated tax advisor is probably a good idea.
To restate the case, most financial planners offer tax advice, but most tax advisors don’t offer financial planning. People who bill themselves as tax advisors are intentionally underscoring their preference to specialize in taxes.
Among the services you might seek from a tax specialist:
To put it bluntly and broadly, the main consideration when it comes to taxes is keeping as much of your money in your own hands, and not those of the government, as possible. That goes not just for today, or this year or next, but far into the future, including beyond your retirement and even your death as concerns your heirs or business successors. We call this “tax optimization,” or “minimizing tax liability,” and the key to being able to achieve it is having a profound and up-to-date understanding of the tax code.
Most financial planners have a solid grasp of things like which types of accounts are pre-tax or tax deferred, when you can make withdrawals without facing tax penalties, and so on. But because the tax code is so complex, maintaining an encyclopedic knowledge of its minutiae requires a certain degree of specialization. Unless your financial planner also happens to be a tax specialist, your ideal setup will be to have your financial planner guide you on the basics while a separate tax advisor makes sure you’re tax-optimized at every step of your plan.
The following are examples of life events that could call for specialized tax advice:
Begin your search with the terms “tax advisor” or “tax specialist.” Among the results, look for the designation “Certified Public Accountant” (CPA). No matter what job title a tax specialist uses, the CPA designation indicates that they are experts in the tax code and licensed to file tax returns (And again, if your financial planner happens to also be a CPA, you may not need outside help on taxes).
Of course, a CPA designation is not a sufficient basis on which to hire a tax advisor. As with selecting any financial advisor, you need to make sure they’re a good fit for you personally. Try to get a sense of what it would be like working with the person. Do they appear relaxed and willing to talk you through things, or abrupt and rushed? Here are some of the questions you’ll want to ask when interviewing prospective tax advisors:
