The Intersection of Tax and Financial Planning

Why handling your tax and financial planning together matters

It’s been a while since I’ve sent anything in a newsletter format. If you’re a current client of Flatiron Advisors Tax and Accounting or Flatiron Wealth Advisors, LLC, this Substack platform is new.

We’ve been busy running and improving the practice. Over the past 18 months, we’ve added two great teammates: a CPA who handles individual and business tax work and planning, and a tax preparer/bookkeeper who works with individual tax returns and business bookkeeping. They add to our team, which includes another CPA who handles business tax work and accounting, and my office manager who is undergoing a Financial Paraplanner certification process.

We’ve also been adding financial planning and investment management to our practice. And that’s what I wanted to share my thoughts about.

So, what is “The Intersection of Tax and Financial Planning”? As someone who focuses on our clients' planning, I find that effective tax planning is more difficult without understanding a client’s full financial picture. We frequently get questions that are easy to answer from a pure tax and technical angle. But we know the answers may not always be in the client’s best interest because of questions the clients didn’t ask or information we don’t have access to.

Often, many variables must be considered before a full answer can be given. Sure, I can give the tax-driven answer. But that may not be the answer the client needs. I could ask my client to ask their financial advisor. Then the advisor tells them to talk to their CPA. This is where I knew clients were either getting underserved or having to navigate between two people to get the best answer.

I’ve been involved in financial planning before. The first was back in 2008-2017 when I was with a broker-dealer. I took some time off and decided to relaunch as my own RIA in 2021. Only recently have I started to refocus on that. And it makes planning so much more productive.

Here are some examples:

The Deductible IRA/401(k) vs Roth IRA vs 401(k) Plan Decision

This question comes up frequently, and the answer depends on many different variables. What is your current tax bracket? How will your tax bracket compare during retirement? How many years do you have before retirement? What types of other assets do you have? Brokerage accounts? Roth accounts? Traditional IRA/401(k)s? Are you doing legacy planning? Ideally, all variables are combined into a model to help the client make the right choice that makes sense over his or her lifetime, not just this year.

What Can I Do to Shield Investment Income from Taxes?

The answer depends on your specific circumstances and the types of investments spread across your savings vehicles. First, we look at your overall portfolio allocations between equities and bonds and determine the most tax-efficient location for these investments. It may make sense to allocate conservative, interest-earning investments to your IRA and high-growth assets to your Roth. This can be a tax-efficient way to minimize taxes over your lifetime.

How Do I Save on Taxes with My Incentive Stock Options (ISOs)?

While this question is tax-centered, it also has a lot to do with financial planning. ISOs are very complicated from a tax standpoint, but they also require certain savings or cash flow to exercise them. This turns into longer-term financial planning. From a pure tax standpoint, we would consider the timing of exercises to ensure we don’t trigger the alternative minimum tax (AMT) or, at least, minimize it. We also want to consider cash flow timing, asset concentration in your portfolio relative to the risk you should be taking, how the new stock fits in with your overall portfolio, etc. Without handling your portfolio and planning, it becomes more difficult for us to advise you.

As a Business Owner, How Do I Maximize Retirement Plan Contributions?

When you own and control your business, you have a wide variety of retirement plan vehicles you can choose. Many advisors recommend SEP or SIMPLE IRAs for their simplicity. But they often result in limited contribution amounts and higher costs when you have employees that must be covered. Once we understand your full financial picture, we can recommend alternatives such as a 401(k) with a profit-sharing feature. A cash balance plan could allow for much larger contribution limits and tax savings. However, it is best to coordinate this with longer-term cash-flow needs and retirement-planning goals.

Why one advisor changes this

Integrated planning results in much better long-term tax strategies and overall financial planning. Questions that come up during the year are much easier to answer with the proper context. When an ISO exercise window opens, a business exit opportunity arises, a rental sale occurs, or any other major life event occurs, we have the necessary background to help you through the decision-making process.

Who this is built for

Not everyone needs this level of engagement. If your financial life is genuinely simple — W-2 income, a 401(k), no major transactions or life changes on the horizon — a good tax preparer and a low-cost index fund portfolio are probably fine.

If any of these describe you, the gaps above are real and probably cost you something:

• You have equity compensation: ISOs, RSUs, NQSOs, or an ESPP

• You own a business, even a small one

• You have investment accounts outside of a 401(k) that someone is actively managing

• You’re within ten years of retirement and haven’t modeled out what the transition actually looks like

• You’ve recently had, or expect to have, a major financial event such as a business sale, an inheritance, a divorce, etc., and want it handled as efficiently as possible

If you’re already a tax client of mine and you’re reading this thinking “I didn’t know you did this” — that’s exactly why I’m writing it. I probably should have said it sooner.

What’s next

I’m going to use this newsletter to write about the intersection of tax planning, financial planning, and investing - the stuff that falls between the lanes. Not product recommendations, not market commentary, not predictions. Just clear thinking about decisions that actually matter.

Next time: a Mid-Year Progress Check-Up for your annual planning goals.