Tax advice is the guidance and support that a professional gives to clients about their tax status. These experts can help individuals and businesses minimize their tax bills, ensuring that they are paying only the taxes they legally owe. A tax advisor may also advise their clients on opportunities to take advantage of deductions and credits they are eligible for. Ideally, this information can be used to file accurate returns and avoid penalties or surprises come tax season.
A tax advisor typically needs to have strong mathematical abilities and a mastery of tax laws. These experts are often certified or licensed by the IRS and can be credentialed as CPAs, CFAs, EAs, or attorneys. They are also required to stay up-to-date on changes to the tax code and the latest changes in accounting software.
The tax code is the set of legal rules that determine how much state, local, and federal governments can charge you for services each year. These laws are created through a process similar to the creation of other government regulations, with legislators proposing changes and then voting on whether to pass them. Once passed, they are assigned a unique tax law number or code section and become part of the collection of laws known as the Internal Revenue Code (IRC).
A qualified tax advisor can help you reduce your taxes by claiming all the deductions and credits you are eligible for. They can also help you optimize the timing of when income is taxed, such as through Roth conversion strategies. While the IRS explicitly states that only designated tax professionals can give advice on certain strategies that are designed to shelter or avoid taxation, financial advisors are allowed to recommend more generalized strategies that simply optimize how money is taxed (e.g., by converting income to capital gains).
You should seek the advice of a tax advisor before making major life changes such as getting married or divorced, buying or selling property, moving, or retiring. A good tax advisor will be able to explain how these events could change the deductions and credits you are eligible for or which forms you need to file.
Similarly, if you are granted stock options through your company, a good tax advisor will be able to model the impact of early exercise or optionsvesting. They can also provide advice about tax-saving opportunities such as advising employees on the benefits of a qualified small business stock option (QSBS) plan, which can result in 100% exclusion of the tax on capital gains when shares are sold.
The best way to get tax advice is to hire a qualified professional who can provide guidance in a wide variety of situations. The cost of hiring a tax advisor can be recovered each year in reduced tax liabilities. Carta’s Equity Tax Advisors can help by modeling potential tax scenarios based on real data and answering individual employee questions, so you don’t have to spend time gathering all your financial documents beforehand. Steuerberatung