This Los Angeles financial advisor thinks tax planning should be part of every client relationship. Reducing your taxes is an integral part of a comprehensive financial plan as well as any wealth-building strategy. If nothing else, reducing your tax liability will allow you to put more money towards your most important financial goals and reach financial freedom faster and easier. The value of tax planning is even bigger for self-employed and small business owners. These tax savings could be in the millions of dollars over the next decade, depending on your income and how you earn that income.

Even among clients who were are just utilizing another financial advisor for investment management, tax efficiency is essential to optimal portfolio performance (after all, it’s not just what you make but what you keep). According to Orion Advisor Solutions, many advisors lack the tools to even begin offering tax planning; other financial advisors are not even allowed by their firms to offer tax guidance.

The saying, “What you don’t know won’t hurt you,” does not apply when it comes to your taxes today, tomorrow or in retirement.

You Deserve Expert Tax Planning Guidance

You, as the consumer of professional financial advice, should expect more when it comes to tax management. The days of saying put more money into your IRA and calling it tax planning are over. Let’s be honest; most of you reading this likely make too much money to deduct your IRA contributions. According to a new survey from Orion (which queried 2000 investors), tax advice is something that clients consider extremely important. Anecdotally, as a fiduciary financial planner who works with many high-income business owners, many retirement plan contributions are motivated by their tax savings, beyond just what is needed to retire comfortably at some point in the future. With a well-designed Cash Balance Pension Plan, you could shelter hundreds of thousands of dollars of income from taxation each year. This could add up to millions of dollars in tax savings over the next decade.

A staggering 80% of investors believe that their financial advisors should be focusing on the minimization of their taxes. Similarly, 90% of respondents believe that taxes can erode the growth of their investment accounts over time. I believe that your Los Angeles financial advisor should be proactively suggesting tax planning strategies to help you keep more of your hard-earned money.

By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™

Top Financial Advisor Los Angeles David Rae — Top Tax PlanningFinancial Advisor Los Angeles David Rae

Some advisors totally skip over tax-loss harvesting, while others only perform this valuable service once at the end of the year. This lazy approach to minimizing taxes can mean missed opportunities when the stock market gets volatile, as we saw near the beginning of the COVID-19 pandemic going mainstream. This resulted in the shortest bear market on record around March 2020. If your Los Angeles financial advisor missed this huge opportunity to reset your tax basis within your portfolio, they might have missed a big opportunity to minimize the taxes on your investments for years to come. Put another way, they are costing you money in the form of higher-than-necessary capital gains taxes each year. If you are missing short-term tax harvesting opportunities, you are also increasing the taxes you pay on your earned income. Tax harvesting is especially valuable for Californians who face sky-high taxes on their capital gains.

According to the Orion survey, 86% of financial advisors believe that being able to quantify and report to clients the ongoing effect of tax management is essential to growing their financial advice businesses. But it would seem a much smaller number provides anything coming close to real tax planning. Few Los Angeles Financial Advisors or Palm Springs financial advisors even take the time to collect and review their clients’ tax returns.

Albert Einstein Smoking A Pipe — (Original Caption) 1/2/1921-New York, NY: Professor Albert Einstein, the famous German scientist whose … [+] BETTMANN ARCHIVE

“The hardest thing in the world to understand is income taxes.”

-Albert Einstein

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What Is Los Angeles Tax Planning Advice?

Investopedia offers this definition of tax planning, “Tax planning is the analysis of a financial situation or plans to ensure that all elements work together to allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax efficiency. Tax planning should be an essential part of an individual investor’s financial plan. Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.”

Tax planning should go beyond telling you to save more for retirement, which may result in a tax deduction. It should include strategies to help you pay the least amount of taxes over your lifetime, not just the current tax year. At the same time, it may help you find all of the tax deductions you are entitled to today. Furthermore, ensure that your investments are managed in a tax-efficient manner to not increase your overall tax burden.

Opportunities for proactive tax planning are even larger for those who are self-employed or small business owners. This can also include those with a side hustle or other self-employment income. Setting up the right corporate structures can directly affect your overall rates each year. Likewise, setting up the right retirement plan can dramatically increase your tax savings, as well as help minimize things like the 3.8% Obamacare surtax.

Los Angeles Tax Strategy Example: High-Income Business Owner

I was speaking with a business owner who was looking at a multi-million-dollar business income this year (shared with a business partner). His current advisor told him to fund a traditional IRA. He was not excited about the $8,000 tax deduction ($7,000 max contribution plus $1,000 catch-up contribution). He found me via my article The 19 Most Valuable Tax Deductions For Your Small Business and wanted to know how much I thought I could help him.

At first glance, setting up the proper retirement accounts could help shelter hundreds of thousands of dollars of income from current taxation each year. With the high business income, this owner and his partner could shelter closer to $1 million this year with a Profit Sharing 401(k) and Cash Balance Pension Plan combination. This colossal retirement plan contribution limit is based on their income, ages, and the fact that they also had several family members working in the business, which helped increase the potential maximum contributions and tax savings. I am aware not everyone is able or willing to contribute at this level, but at the same time, it is important to know your options.

At their income levels, they could possibly save over $5 million in taxes over the next decade with this one tax planning strategy alone. If contribution limits or tax rates increase, the tax savings could be even bigger.

Your tax preparer and Los Angeles financial planner should work together to help you keep more of your hard-earned money. I am not opposed to paying taxes, but I am opposed to paying more taxes than is owed. Having an income where taxes are an issue is a good problem to have. Advice without implementation is worthless. Much tax-planning advice is given by CPAs but never implemented. I often hear from prospective clients, “My CPA has been telling me to do this for years.”

Why Isn’t Your Financial Advisor, Financial Planner Or CPA Not Telling You About Valuable Tax Planning Strategies?

There are over 300,000 financial advisors, 103,000 Certified Financial Planners(TM) and over 600,000 CPAs in the United States, and they all have different ways of getting paid and offering financial guidance. Most do not offer tax planning. A large number of financial advisors are not allowed to offer tax planning strategies to their clients by the firm they work for. Many CPAs are paid to file your taxes not offer proactive tax planning advice. Even among Certified Financial Planners, tax planning is often just a side note, if offered at all.

For example, one of my favorite tax planning strategies for successful business owners is the Cash Balance Pension Plan. In 2022, there were just over 22,000 active cash Balance Plans. With these few retirement plans in place, you see that most financial professionals have never set one up, let alone specialize in optimizing the Cash Balance Plan for your specific tax planning needs.

Tax Planning Advisor Video David Rae Financial Advisor LA and Bob Decastro Fox 11

Update: With Trump as President, DRM Wealth Management expects some major tax changes by the end of 2025. Either a new tax plan will be passed, or the old Trump Tax Plan will expire. Either way, your taxes in the future will change. When the rules of tax planning change, what you are currently doing will likely also need to be adjusted to minimize the taxes you are paying each year. Work with your fiduciary financial planner to ensure you are getting the absolute best tax planning and financial planning guidance.

If your current financial advisor does not offer top-notch tax planning, feel free to reach out and see how Financial Planner LA can help you keep more of your hard-earned money. We work with clients across the country.

Who Is Financial Planner LA?

DAVID RAE, CFP®, AIF® is a Los Angeles-based financial planner with DRM Wealth Management, a regular contributor to Advocate Magazine, Huffington Post, and Forbes, not to mention numerous TV appearances. He helps smart people across the USA get on track for their financial goals and minimize their tax bills. For more information, visit his website at www.davidraefp.com

Progressive Financial Planner for Progressive Americans. DRM Wealth Management Is LGBTQ+ Owned and Operated.