Tax planning is an essential part of any comprehensive wealth management plan. It affects everything from your retirement savings to your estate plans. To help further explain the deep connection between tax strategy and long-term financial confidence, I've invited Catherine McLester, CPA, to share her expertise on questions my clients frequently ask. Catherine is a licensed CPA with over 20 years of experience. She received her undergraduate and graduate degrees from Wake Forest University, started her career at Deloitte Tax LLP and has had her own practice for the last 14 years. She specializes in small business and individual income tax and accounting.
I've seen how proactive tax planning can create significant advantages. This conversation highlights how our collaborative approach with tax professionals can help you build and preserve wealth.
What benefits should clients expect from hiring a professional tax accountant?
A professional tax accountant should be seen as a trusted advisor, in the same way that you view your financial advisor. Once you build a relationship with a CPA, you should reach out to them when new or unexpected life events happen. These events take many forms including (but not limited to!) the purchase or sale of a second home/rental property, the decision to start a small business, the decision to invest in a partnership or other business and the decision to retire. Your CPA can work in tandem with your financial advisor to provide tax estimates on investment strategies that are being considered and, at the most basic level, can take the burden of preparing your tax returns off of your plate.
What is the difference between marginal and effective tax rates?
Your marginal tax rate is the rate that applies to your specific income tax bracket. Your effective tax rate is the actual percentage of tax that you pay on your income after all deductions and credits are considered. Depending on the situation, those numbers could be fairly close together or they could be multiple percentage points apart. Each situation is unique.
Which is better: a tax credit or a tax deduction?
In the case of most expenses that qualify for a tax benefit, you either get a deduction or a credit so you don’t need to decide which is better – you want to take advantage of any and all deductions and credits that apply to you. A tax deduction reduces your income but does not represent dollar for dollar savings on your ultimate tax liability. To determine the tax savings of a deduction, you would multiply the deduction times your effective tax rate. A tax credit reduces the tax liability dollar for dollar.
When would you itemize deductions vs take the Standard Deduction?
The standard deduction is usually taken by taxpayers who have very low mortgage interest expense and nominal charitable contributions for the tax year. Taxpayers who itemize tend to have larger mortgage interest expense, make charitable contributions of a moderate amount and also reach the $10,000 state and local tax cap.
What are some easy ways to reduce your tax bill?
The primary advice that I share with all clients is to maximize your pre-tax retirement savings whether that is through your employer’s retirement plan or through deductible IRA contributions (when applicable). For small business owners, I highly recommend working with your CPA to ensure that you are taking advantage of one of the various retirement plan options available – there are multiple options and different scenarios lead to different choices. If you are working with a financial advisor as well, I would recommend using the expertise of both advisors to ensure that the best overall strategy is chosen. As a secondary piece of advice, keep good records! Don’t lose out on things like charitable contributions or small business expenses because you didn’t take time each month to organize your data.
What kind of deductions do tax payers qualify for in 2025?
Taxpayers with young children will still be eligible for the child tax credit and potentially the child and dependent care credit if the family is a two-wage earner household and the child is under 13. For taxpayers who are 70 ½ or older and are withdrawing funds from their retirement accounts, the Qualified Charitable Distribution (QCD) can be an attractive option to meet charitable giving goals and also reduce taxable income. Taxpayers who are not eligible for the QCD may want to consider chunking their charitable contributions in order to gain the maximum benefit. Charitable giving options like these should be discussed with both your financial advisor and CPA beforehand to ensure the outcome will be as expected.
What are some good goals to set when it comes to tax planning?
Tax planning starts with first making sure that you are taking advantage of all deductions that you are eligible for based on your day to day income and life situation. From there, I think taxpayers should set retirement and philanthropic goals for each year and work to ensure that those contributions are structured in a way that provides the largest possible tax benefits. Once you have worked through these first three items, the final task is to work with your tax professional to ensure that you are smoothing out your tax liability throughout the year via either correct withholding or estimated tax payments. Many taxpayers believe that they are missing out on “magic bullets” to eliminate taxes but, in reality, good planning and recording keeping along with the help of tax advisors and financial planners will do the trick.
What’s the best way to stay up to date with tax laws and changes?
Staying current with national news outlets is a great way to see what is on the horizon and I recommend using multiple sources to obtain varied perspectives. If the amount of information and speculation seems overwhelming, skim the headlines and start reading once something seems closer to actually being enacted. Rely on your tax professional and, depending on the tax topic, your financial advisor to be current on changes and feel free to reach out if you read something that you think may apply to your specific situation.
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As Catherine pointed out, tax planning is integral to wealth management. The most effective financial strategies take a broad view of investment decisions, retirement planning, charitable giving, and tax considerations to build out a cohesive approach.
Wealth managers are the conduit between all of life’s professionals.
As Catherine pointed out, tax planning is integral to wealth management. The most effective financial strategies take a broad view of investment decisions, retirement planning, charitable giving, and tax considerations to build out a cohesive approach.
Wealth managers are the conduit between all of life’s professionals.
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Disclosure:
LPL Financial does not offer tax advice.