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Why Your CPA and Financial Advisor Should Be Working Together

Why Your CPA and Financial Advisor Should Be Working Together

November 11, 2021

Imagine if you went to the doctor for a simple procedure, but when you got there it was just the surgeon. No attending physician, no nurses, or anesthesiologists. Most of us would be confused, worried, or even scared. We’ve come to expect that healthcare professionals should operate as a team and that even the most routine procedures will have multiple sets of eyes making sure that everything goes according to plan. Your finances are no different. Just as a surgeon can’t properly treat you without a team of doctors and nurses by their side, a financial advisor is hamstrung when expected to manage your finances in a vacuum.

Your Finances Don’t Exist in a Bubble

Every decision you make and every milestone you reach impacts your financial situation. Even within your finances, there are multiple pieces that affect one another, such as income tax planning, cash flow, risk management, investment planning, estate planning, retirement strategies, and more. That’s why it’s crucial to make sure the professionals you hire to manage individual aspects of your finances work together as a team. The two most common professionals you should consider integrating are your financial advisor and your CPA.

Why Should Your CPA and Financial Advisor Work Together?

There is actually a lot more overlap between taxes and the other aspects of a financial plan than most people realize. Before looking at the benefits of working together, it may be helpful to clarify the difference between a CPA and a financial advisor. 

  • A certified public accountant (CPA) views your financial plan from a tax perspective. Their goal is to make sure you’re following the tax law and not doing anything to get yourself into trouble with the IRS. They’re looking at things like whether you exceeded your annual retirement contributions, or if you paid enough self-employment tax.
  • A financial advisor views your taxes as one part of a comprehensive financial plan. Their goal is to make sure all of the individual parts work together to support and advance your long-term goals and objectives. They ask questions like: Are you making the most of your investment opportunities? Could you be contributing more to retirement? Is there a more effective savings vehicle available to you?

When a CPA and financial advisor look at the same thing, they view it from two very different perspectives. When these separate views are combined, they give you a more complete picture of the issue at hand.

The Benefits of Working Together

So, what are the benefits of working together? What insights can a financial advisor provide that a CPA may miss? There are a number of things that are easy to overlook when your focus is on taxes and not overall financial health and wellness. 

Here are a few examples of how a financial advisor may be able to reduce your tax burden:

  • Roth conversions. If you have a significant amount of money in a traditional 401(k) or IRA, it may be wise to convert your funds to a Roth IRA in a year in which you are in a lower tax bracket. This is because Roth accounts are post-tax and withdrawals are tax-free. Converting funds from a traditional account to a Roth account before retirement can save you big in taxes, but this strategy requires an understanding of your full financial situation in order to be properly implemented. 
  • Gifting opportunities. For those who are charitably inclined, being strategic about your gifting can save you a lot in taxes. Your CPA can manage the tax implications of a gift that’s already been given, but they are not actively looking for gifting strategies that can work as part of your overall financial plan. 
  • Tax harvesting. There is an upside to having an investment loss. If you sell it, you can offset the loss against investment gains and taxable income as a way to minimize your annual tax liability. This is another tool that may be overlooked by your CPA, since their main goal is to react once sales have been made, rather than proactively plan for sales. 

While these examples show what a financial advisor can do in a perfect world, their ability to strategize and make effective recommendations is only as strong as the information they are provided. The reverse is also true. You can’t expect your CPA to find all applicable tax deductions and credits if you only give them half the picture. Communication between financial professionals should be a two-way street so that your financial goals can be handled in a comprehensive and cohesive manner.

Build a Strong Team

If your CPA and financial advisor aren’t talking, they should be. We at 1on1 Financial will work together with your CPA to ensure your financial plan is fully integrated, maximizing your ability to achieve your financial goals and reduce your tax liability. Call our office today at 909-981-1720 or simply click here to schedule a free 15-minute introductory phone call!

About 1on1 Financial

1on1 Financial is an independent financial advisory firm specializing in guiding working and retired professionals, executives, and business owners along the path to financial well-being. Founded in 1997, we use a team approach to help our clients accumulate wealth, generate income, preserve their life savings, and strategically plan for the distribution of their estate. With more than 50 years of combined experience in the financial services industry, we remain true to our fundamental mission: to provide personalized guidance, treatment, care, and service so our clients can gain control of their future and feel confident in their financial life.