Category: Financial Planning

How do Financial Advisors Plan for Client Taxes

Financial Planners assist their clients in a wide variety of financial areas, including tax return preparation and tax planning. Many financial advisors are skilled in tax issues and provide comprehensive tax advice to their clients, including tax problem resolution, taxes planning and return filing, as well as preparing estate, gift and trust tax returns.

Tax Preparation requires brief knowledge of different taxes and laws to reduce the potential risks involved in implementing different tax procedures according to Tax rates. Typically, financial advisors may work with their clients on specific tax issues, or they can also engage in tax preparation services. Many financial advisors who do taxes for their clients typically hold relevant certifications such as ICWA

Financial advisors sit down with their clients and work with them to maximize their tax returns along with the cash flow. Financial advisors typically gain insight into each client’s financial goals and unique situations, and only then do they provide advice on tax planning and tax preparation.

Difference between tax planner and financial planner

A financial planner helps you achieve long-term financial goals. They do this by analyzing your current financial profile, helping you to clarify and establish specific goals, and then creating a plan to enable you to reach these goals. These objectives might also cause a financial planner to be closely involved with your income tax situation, as well as with your investment activities.

A tax planner is generally a professional with specific expertise in the area of income taxation. Their involvement in your financial situation will center very specifically on the income tax aspects of your personal finances. In fact, the most basic function of a tax planner is to minimize the impact income taxes will have on your overall financial situation.

Financial Planning vs Tax Planning

We need to prepare a financial plan at the start of the financial year. This will help us gain a clear idea on how much to invest in which financial products so that we can save the most on tax. Going through the various rules and regulations for deductions under sections such as Section 80C, Section 80D, and Section 80G of the Income Tax Act should help us to use it to our advantage.

A good way to balance financial planning and tax planning is to consult an excellent Financial Planner who can guide us through these areas so as to ensure to save tax the most while making proper financial decisions.

What is the role of a financial planner in your tax planning?

Be a salaried person or self-employed or are recently retired from the job, the filing of taxes can be a very stressful job. A financial advisor will make sure that your taxes fit with your short and long-term financial strategy throughout the year. His task is to help identify the sources and types of income you have, how these will change over time, and how the tax will evolve with them.

Life events such as retirement or career change come with a change in income and other benefits. Your Planner helps to optimize investment planning through effective tax planning. He knows better what kind of products are suitable for you based on your tax status and also after considering your life goals.

Advantages of seeking the help of a Financial advisor while tax planning:

  • An Advisor does your asset allocation based on your risk profile After considering your financial goals .
  • Since he has a complete picture of his client’s financial situation, he is in a better position to recommend products for tax planning.
  • He also maintains a record of trading gains and losses, which can be easily shared with the accountant at the time of filing taxes.

A financial planner generally guides a client with regard to the tax planning process in the following ways:

  • Planning tax-saving investments at the beginning of the financial year by calculating how to maximise exemptions and deductions under various sections.
  • Claiming the tax-exempt reimbursements, such as medical or conveyance, from the employer by submitting bills and proof on time. Certain reimbursements like LTA cannot be claimed while filing returns.

  • Being clear about the way investments are taxed so that the client can buy and sell assets by paying minimal or zero tax, and can offset losses against the gains in a particular year.

  • Remembering to make tax payments on time by checking the deadlines. For instance, an individual needs to pay advance tax in three tranches by15th June, 15 September, 15 December and 15 March each year. If the client fails to do so, there will be penalty at 1% simple interest on the due amount per month.

When good tax planning and good financial planning collide/  Should you focus on financial planning or just tax planning?

Tax planning is important no doubt. But it should be a part of the overall financial planning exercise and not just an end in itself. To put it in simple words, Tax-savings should be the desired side effect of implementing a well thought out financial plan.

Debalina Roy Chowdhury

Dilzer Consultants