Tax advice is a specialized field that can help clients save money while complying with the law. Advisors can offer guidance on how to minimize their taxes, both through investment choices and lifestyle decisions. They can also help keep their clients aware of emerging tax considerations that might call for changes in financial plans or investments.
Advisors should be careful to distinguish between tax planning and actual tax advice, however. If an advisor gives a client specific recommendations with concrete action steps, they could be considered to have crossed the line into practicing before the IRS and need to get a CPA or tax attorney sign off on their work. This can be particularly risky when it comes to tax strategies that are based on complex interpretations of the Internal Revenue Code and could potentially result in a penalty.
The main purpose of a tax advisor is to reduce a client’s overall tax burden by utilizing tax deductions and credits. Deductions are expenses that can be subtracted from a person’s taxable income, reducing the amount of their tax bill dollar for dollar. Credits, on the other hand, are reductions in a person’s tax liability that are valued at the same amount as the amount of their tax bill.
A tax advisor can help a person decide whether or not they should itemize their deductions, take the standard deduction, and claim other special deductions like health care expenses or childcare costs. They can also help a person figure out the value of their property for real estate transactions and determine the tax implications of business-related investments. In addition to lowering a person’s tax bill, a tax advisor can also help them avoid compliance issues by keeping their tax forms up to date. This is especially important because the IRS can garnish wages and levy bank accounts to collect back taxes that aren’t reported properly.
Another benefit of working with a tax advisor is helping a client plan for life’s major milestones from a tax-related perspective. A wedding, graduation, birth, or divorce can all have a profound effect on a person’s savings and tax liability. Working with a tax advisor can help a person plan for these events and navigate them from a tax-related standpoint to make the most of their opportunities.
Finally, a tax advisor can help a person prepare for an audit by helping them gather documentation and submitting it to the IRS on their behalf. This can be particularly helpful if a person is self-employed or has multiple sources of income that aren’t easily separated out for tax purposes. A good tax advisor will also be able to provide a list of potential tax deductions that their client may not be aware of. They can also help a client figure out the best way to distribute their assets during a settlement or divorce to minimize tax impacts. Steuerberatung