Do Financial Advisors Prepare Tax Returns for Clients? (2024)

FAQs

Do Financial Advisors Prepare Tax Returns for Clients? ›

Typically, financial advisors work with their clients on specific tax issues, but they can also engage in tax preparation services.

However, it is important to understand that sharing a full copy of your tax return with your financial advisor can have a significant impact on your overall financial health. While often overlooked, robust tax planning is one of the most valuable pieces of a complete financial plan.

A Certified Public Accountant (CPA) is a trained professional specializing in accounting and tax-related matters. In contrast, a financial adviser is a professional in investment management, retirement planning, and other financial planning areas.

Financial advisors help individuals identify and develop a strategy to reach their personal financial goals. These strategies cover areas such as budgeting, investing, retirement planning, estate planning, and tax management. On the other hand, tax consultants (also called tax advisors) focus specifically on taxes.

A financial advisor is an investment professional who can assist you in creating and implementing a personalized plan to pursue your financial goals, from college planning to retirement and more. Often, financial advisors undergo special training and licensing that allows them to serve in this capacity.

Reviewing tax returns are an essential part of this process since it allows us to better understand our clients' financial picture, collaborate with their tax professional, and helps us prepare and advise certain tax strategies for the upcoming year.

They don't get caught in analysis paralysis and are good about making decisions for themselves. If you have a handle on your financial life, feel confident in navigating the material available to you, and enjoy doing it yourself, there is no point in hiring a financial advisor. You already have it well under control!

Salary and Career Path - CPA vs CFP

According to the Bureau of Labor Statistics (BLS), an accountant with a bachelor's degree can earn more than $78,000 per year on average, but a CPA can earn around $119,000. Certified Financial Planner (CFP) salaries in the United States range from $39,300 to $187,200.

A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.

Also, collaboration between your financial advisor and CPA can uncover strategies to minimize tax liabilities across your finances, including investment strategies, business assets, insurance needs, and retirement goals. This helps with decisions about areas like dividends, capital gains, and losses.

What can a financial planner do for me? ›

A financial planner is a professional who works with clients to manage their financial affairs, develop financial goals and create strategies to achieve those goals. Financial planners offer expertise and guidance for budgeting, investing, retirement, tax planning, insurance and estate planning.

While both offer guidance on investments, taxes and other financial matters, financial advisors generally focus on managing an individual's investment portfolios, while financial planners take a look at the entire financial picture and an individual's long-term goals.

While other types of advisors may focus on broader financial areas such as wealth management or narrower areas such as estate planning, a financial counselor generally sticks to fundamental areas of personal finance.

Source: 2021 Fidelity Investor Insights Study. Furthermore, industry studies estimate that professional financial advice can add up to 5.1% to portfolio returns over the long term, depending on the time period and how returns are calculated.

If your investable assets are under $250,000, it's likely best to seek help from a financial planner and invest on your own until you build up a larger nest egg. The simple reason is that you get more value from your advisory firm as your assets grow and your financial situation becomes more complex.

Bring relevant information about your finances

Bank account balances, including checking, savings and other deposit accounts. Details on other investment interests and valuable assets. Balances for any employer-sponsored retirement plans, including pension information.

You are probably aware the law protects your tax return information from disclosure to other parties by the Internal Revenue Service. IRC Section 6103 generally prohibits the release of tax information by an IRS employee. However, there are important exceptions that you should be aware of.

Just like working with a doctor or therapist, working with a financial advisor requires a level of transparency and candor that can be daunting. The more you share with your advisor, the better they'll be able to do their job and help you optimize your financial life.

Gift acceptance regulations in the financial advisory industry primarily focus on hindering unethical behavior and maintaining a certain level of honesty between advisors and clients. According to FINRA Rule 3220, financial advisors are only allowed to accept gifts valued up to $100 annually per person.