A Financial Advisor’s Role In Your Tax Picture

by | | Taxes

financial advisor

If you have a financial advisor, or are considering one, they should:

  • Know taxes inside out.
  • Be actively involved in your tax picture.

MANY (if not most) financial advisors are neither. Below, we cover the tax expertise you should demand and the tax-related services your financial advisor should provide.

Tax Expertise

In short, a financial advisor should know the contents of our complete guide to taxes off the top of their head. They should hold a designation such as the CERTIFIED FINANCIAL PLANNER™ professional, demonstrating a certain level of tax expertise.

Tax-Related Services

A financial advisor should do your tax planning, handle your self-employed retirement account, and consult on locums vs. W-2 work. Some financial advisors prepare tax returns; most don’t (and that’s OK). See below for further comments.

Tax Planning

If you don’t use an accountant, your financial advisor should do your tax planning, tell you how much tax to pay when, review a draft of your self-prepared tax return, and do a Zoom screen share with you to fix any errors before you file the return.

If you use an accountant, your financial advisor should work closely with that person. Your advisor can still do your tax planning if your accountant just prepares your tax return.

Self-Employed Retirement Account

If you have any locums income, your financial advisor should handle your self-employed retirement account from start to finish. They should:

  • Compare a SEP IRA and a solo 401(k) for your individual situation.
  • Select the right account and set it up for you.
  • Calculate your maximum contribution each year and help you fund it.
  • Manage the investments in the account if you want them to.

W-2 vs. 1099 Work

A financial advisor should be able to answer this very common question for locums docs:

How much do I need to make per hour for locums work, to equal what I’d make at a W-2 job?

We get this one all the time!

With locums, you must pay self-employment tax, and you pay for your own benefits (unless you have benefits through a W-2 job already).

So, you need to make more per hour with locums than at a W-2 job. The question is, how much more? To find the answer, your financial advisor should compare two factors side-by-side: net cash flow and amount saved for retirement.

Net Cash Flow

The first factor is net cash flow. “Net cash flow” means spendable money in your bank account. Gross earnings – taxes, benefits, and retirement = spendable money in your bank account. It’s not what you make, it’s what you keep.

Amount Saved For Retirement

The second factor is amount saved for retirement. Usually, you can put away more for retirement with locums than with W-2. So, if a locums gig gives you less net cash flow because you’re socking away more for retirement, that might be just fine with you.

Tax Preparation

Some financial advisors prepare tax returns in house. Most don’t, instead referring to accountants they trust. In that case, your financial advisor should collaborate with your accountant so you get coordinated advice and a seamless experience. Your advisor should request a copy of your tax return from your accountant each year, and use the return to inform everything the advisor does for you.

Peace of mind is very important when it comes to taxes. You want to sleep well at night, confident that you’re paying the least possible tax.

Want a no-obligation review of your finances? Request a FREE Financial Pulse Assessment™ online. We’ll review your scorecard and send you a short video, including comments on your Tax Rate and how to reduce it. No need to talk with anyone unless you want to.

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