9 Questions to Ask Your Tax Advisor Before Tax Season

When it comes to taxes, tax preparation is only half the story. If you’re like most people, you might be asking your tax questions at the wrong time–when your tax preparer is overloaded with work. Below are nine important tax questions you can ask and how your advisor should help address them.

But first, here’s why you shouldn’t wait until tax season to start.

Introduction

The key is to get ahead of the game and look at your own taxes before tax season. You should know enough about your situation to come up with questions to ask your tax advisor well before the end of the tax year.

No one likes taxes, but everyone recognizes they are a necessary evil.  With that said, there’s no reason to pay any more than you have to in taxes.  With proper tax planning, you know:

• That your tax bill is as low as it should (legally) be
• What you’re going to pay
• When you’re going to pay it

Most people might believe that taxes should be left to the accountants.  Although most federal tax returns should be prepared by a tax professional, like a certified public accountant (CPA) or enrolled agent.  But the good news is this: there are many tax-related things a financial advisor can (and should) do for their clients.  

Question #1:  What can I do to lower my taxable income as much as possible? 

This is probably the most common tax-related question.   

This often comes up under the topic of retirement planning. This is especially true for recent retirees or people who are planning to retire.  It seems that many people don’t focus too much on minimizing taxes while working. But when they retire, they really start paying attention to their tax burden. 

Your advisor should always be looking for ways to lower taxes. Sometimes, they’ll see a situation where you could be making a tax mistake, like improperly rolling over a 401(k).

Many times, it’s as simple as just avoiding financial events that cause a tax bill, like selling stock when you don’t need to incur capital gains.  Your advisor should always strive to try and find a more tax-efficient way to do something that’s really important to you. 

The more your advisor knows about your situation, the deeper they can go. For example, small business owners should be expecting to talk about things like:

• What tax deductions are available for small businesses
• How to take the home office deduction
• What other business expenses are deductible.

More importantly, your advisor should keep on top of changes to the tax code. For example, the Tax Cuts and Jobs Act (TCJA) and SECURE (Setting Every Community Up For Retirement Enhancement) Act created a lot of changes for business owners.

And keeping your taxable income as low as possible will help keep your tax liability low.

Question #2:  What will my tax bill look like this year? 

Even if things stay the same from year to year, most people are only concerned about one thing:

Am I going to owe money at tax time, or will I get a refund?

The problem is, most people ask this question too late. The best way to ask this question is to ask during the tax year. That’s when you get to influence the outcome.

For example, if you’re underwithholding taxes from your paycheck. There’s nothing your CPA can do when they’re filing your tax return. But during the tax year, a good CPA or certified financial planner can run a tax projection. Done right, this will help you make the right adjustments and get on track.

Your advisor should be able to do a tax projection based upon: 

• Previous years’ tax returns 
• Current income information (such as pay stubs) 
• Transaction information (such as IRA distributions or securities sales) 

Your tax advisor should be able to walk you through everything during your tax planning appointment.  They can also make any adjustments that you feel are necessary. This could be for:

• Expected taxable events, like IRA distributions
• Unexpected transactions, like the sudden loss of a job.

A tax projection allows you, the client, to preview everything while there is still time to make changes. This is better than waiting until tax season, when it’s too late to do anything but sign the tax return.   

Question #3:  Are there any changes in the new tax laws that might affect me?  

Since 2017, there have been 3 major changes to the tax code. This is a good question to make sure your tax professional is keeping on top of the latest information.

Every year, the Internal Revenue Service (IRS) updates its taxpayers guidance. The biggest tax professionals, such as tax attorneys and high-end CPA firms, are expected to keep up with this guidance.

But a good tax advisor should be able to keep up with changes as well. Especially changes that pertain to your financial situation.

Question #4:  Are my tax liabilities going up or are they going down? 

Another version of this question might be: “Are my taxes higher than last year, or lower?”  This makes sense, since everyone wants to see a downward trend.   

When your tax advisor builds tax projections, they should be able to go back 2 tax years and identify any trends.  For example, a 2022 tax projection would also have tax information from years 2020 and 2021.   

Why do we do this?  Because the most important questions often come up when looking at trends over time. Because your income will change over time.

Sometimes, it’s obvious, like when you retire.  Other times, the change might be subtle, like when several years’ of slight pay increases pushes you into a different tax bracket.   

Keeping track of these trends is especially important when you face significant financial decisions, which might impact your tax picture.  

Question #5:  How does _________ event affect my taxes? 

This could be anything. It could be a decision you’re about to make or an event you don’t have any control over. Depending on your circumstances, you’ll probably be asking about different things.

For example, independent contractors might ask about how being a 1099 worker affects their self-employment. A sole proprietor might be wondering about the right business structure. And new parents might be wondering about changes to the child tax credit.

Either way, whatever it is, people usually want to know the tax impact of changes in their life.

If there’s a decision to be made, taxes might play a role.  You probably wouldn’t turn down a promotion at work simply because your taxes might go up.  However, you might turn down a $20,000 per year promotion if you had to move from Florida to New York and pay $5,000 per year in extra taxes. 

Sometimes, an event occurs and you simply would like to know what the tax impact is.  It might not change the outcome, but you might need to make adjustments (like changing your tax withholdings) to ensure you’re on track. 

In any case, your advisor should take the time to sit down with you to make sure you’re asking the right questions about your tax situation.

Question #6: How will you help me get everything I need to prepare my tax return?

If your tax advisor actually prepares your tax return, this should be easy. Early in the tax season, you should receive a checklist and/or a questionnaire from your tax preparer. You should be able to follow the instructions and give your tax professional everything they need.

Sometimes, your tax advisor does not prepare your tax return. Many financial planners engage in tax planning, but do not do tax preparation. In that case, you should expect a checklist of information from your advisor.

In my financial planning firm, we used to provide our clients a checklist of items every January. This checklist would contain:

• A list of tax forms they can expect from their financial institution
• A list of major taxable events, such as Roth conversions or stock sales
• Any other additional information their tax preparer would need, like financial records

Either way, your tax advisor should have a system in place to give you the required information well before the tax deadline.

Question #7: How available are you during tax season?

If your tax accountant is like most, they are super busy during tax season. Not just March and April.

September and October are busy months as well, especially for accountants who serve business owners. Also, more and more people are filing tax extensions. This means more individual tax returns are filed in October than before.

Compare that to a tax-focused financial planner who works with accountants, but doesn’t actually do tax return preparation. That person is probably more available to take your emergency calls in March and April.

Question #8: Can I call you during the year for tax advice?

Most tax planning is done between June and October. If you have a good advisor, you should be sitting down at least once per year to discuss that year’s tax planning.

However, taxable events happen throughout the year. Your tax expert should be able to help you answer questions as they come up. This could be before the tax planning meeting, or after your discussion.

Either way, your tax advisor should be available throughout the year. Especially if a question comes up during tax season.

Question #9: How does tax planning fit in with my financial planning goals?

Tax planning is a crucial part of the financial planning process. And tax efficiency should help you reach your financial goals.

A good financial advisor will take the time to help you understand how your taxes could impact your finances. And help you find ways to achieve your financial goals while keeping your tax bill as low as possible.

Conclusion 

If your financial advisor doesn’t discuss taxes with you each year, you should ask them to help you.  And if they don’t help you, find a financial advisor who offers tax planning as part of their services.