A tax advisor is a financial professional who has the knowledge and skills to advise clients on their taxes. They can help them save money that would otherwise go to Uncle Sam and help navigate complex tax code issues that a layperson might not be aware of. They also know how to set up and maintain a business’s tax-deductible structure. In many cases, hiring a tax advisor makes more sense than doing the work yourself. The question is, how do you determine who can truly provide you with the right kind of advice?
There are several different types of tax advisers. The most qualified are licensed certified public accountants (CPAs) and enrolled agents (EAs), who have both the formal education and the real-world experience necessary to provide thorough strategic advice. Other types of tax advisors include specialized tax consultants and even some attorneys who specialize in tax law. While these specialists may have valuable insights, they often lack the overall experience that credentialed CPAs and EAs possess.
To avoid crossing the line into providing Steuerberatung it’s important for advisors to communicate clearly with their clients. They should avoid putting themselves in a position where their advice is construed as a recommendation or action step, and they should always follow the three-step process of Consideration, Consultation, and Recommendation when offering any guidance on a strategy.
It’s also important for advisors to understand the distinction between their responsibilities and those of a client’s tax professional. An advisor should never suggest a tax avoidance strategy without first consulting with a client’s designated tax professional to ensure that they are not in violation of IRS rules or running afoul of their compliance department. It’s also wise for advisors to use caution when communicating about any strategies that could be considered tax avoidance, as the line between tax planning and tax advice can sometimes be a fine one.
In addition to being a critical part of the investment process, tax planning can be an integral part of a holistic approach to financial advice. A good tax advisor will be able to identify the various ways their clients’ investment activities might impact their tax status, and they should be able to recommend specific steps that can be taken to minimize taxes.
Life changes are more than just emotional milestones; they can have serious implications for savings, income, and the taxable status of individuals. For example, a wedding, divorce, or the birth of a child can change a person’s taxable status or their ability to take advantage of certain tax deductions.
Whether you need to minimize your taxable status, organize your tax records, or set up an account to invest in tax-advantaged assets, it is important that you find the best tax advisor for you. While there are a number of smart, newly credentialed advisors who can handle most tax situations, you should prioritize finding a seasoned professional with the expertise to tackle the most complex issues.