When Do I Need a Tax Advisor vs. Financial Advisor?


tax advisor vs financial advisor

tax advisor vs financial advisor

Taxes can be confusing and you might have questions about how to file or the best ways to minimize what you owe to the IRS. But who do you turn to for advice? A tax advisor may be an obvious choice but you might also consider asking your financial advisor for tax tips.

Understanding the differences between a tax advisor and a financial advisor can make it easier to get the help you need.

What Is a Tax Advisor?

A tax advisor is someone who is licensed to prepare tax returns and most often holds a professional designation in a tax-related area. For example, a tax advisor may be a Certified Public Accountant (CPA). Tax attorneys and IRS-enrolled agents could also fall under the tax advisor umbrella.

Tax advisors work to help their clients minimize tax liability while operating within the boundaries of tax law. As mentioned, they can also help to prepare tax returns but that may be a small part of what they do.

In terms of who a tax advisor can help, their clients may be individuals, small business owners or corporations. Tax advisors may specialize in working with a specific client demographic or niche. For instance, they may cater to high-net-worth investors or corporate businesses.

Tax advisors have in-depth knowledge of the tax code which they use to shape their advice. Again, the advice they offer can depend on the type of client they’re working with but the end goal is typically the same: to help clients legally minimize their tax liability to the greatest extent possible.

If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

What Is a Financial Advisor?

A financial advisor is someone who specializes in giving financial advice. Similar to tax advisors, financial advisors may hold professional designations that reflect their expertise. For example, a financial advisor may be a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) or Chartered Financial Consultant (ChFC).

Financial advisors can also offer tax advice, including guiding clients on how to minimize tax liability. However, their advice is typically given within the context of executing a broader financial planning strategy.

For instance, say an advisor is working with a high-net-worth client. They may advise the client on which tax-friendly investments to consider to maximize returns while reducing their tax obligations. Financial advisors don’t help prepare tax returns unless they’re specifically licensed to do so.

Tax Advisor vs. Financial Advisor: Which Is Better?

tax advisor vs financial advisor

tax advisor vs financial advisor

A tax advisor isn’t necessarily better than a financial advisor or vice versa. They’re simply equipped to help their clients in different ways.

Some of the things that distinguish tax advisors from financial advisors include:

  • Which certifications or designations do they hold

  • What those designations allow them to do

  • Tax law knowledge and expertise

  • How do they structure their fees

  • The type of advice they provide

Again, a tax advisor is licensed to prepare tax returns but that’s not always true for financial advisors. Tax advisory services may be focused on one thing and one thing only: taxes. Financial advisors, on the other hand, can offer advice on a much broader range of topics.

Do You Need a Tax Advisor or a Financial Advisor?

Whether you need a tax advisor, financial advisor or both can depend on your situation. If you run a business, for example and trying to keep up with changes to the tax code is making your head spin then you might seek out a tax advisor’s help.

A tax advisor could walk you through different scenarios, like how to write off depreciation for business equipment or what rules you need to observe when setting up a retirement plan for your employees. Your advisor could also prepare and review your tax return to make sure you’ve claimed every credit or deduction you’re eligible for and that they’re properly documented in case you’re targeted for an audit.

On the other hand, you might work with a financial advisor to create a succession plan for the business once you’re ready to hand it over to someone else. Your advisor could also discuss the best ways to save for retirement so that you don’t fall short of your goals once you leave the business behind.

That’s just one example of a scenario where someone might benefit from having both a tax advisor and a financial advisor. You can still benefit from working with either one, even if you don’t own a business.

For example, say you inherit $2 million from your parents when they pass away. You might need a tax advisor to help you navigate the various tax issues that go along with receiving a large inheritance. Meanwhile, your financial advisor can offer advice on what to do with that money and how to use it to further your own financial goals.

How to Choose a Tax Advisor or Financial Advisor

Choosing a tax advisor or financial advisor to work with starts with doing some initial research. While you may be motivated to find an advisor as quickly as possible, it helps to know what questions to ask so that you can choose a reputable person to work with.

Here are some sample questions that you might ask a tax advisor:

  • What are your professional credentials?

  • Are there any specific areas of tax law that you specialize in?

  • Do you have a typical client profile or do you focus on a certain niche?

  • What are your fees?

  • How often will we meet to discuss tax issues?

And, here are a few things that you may want to ask a financial advisor:

  • What professional designations do you hold?

  • Are you a fiduciary?

  • What kind of clients do you typically work with?

  • Do you specialize in any particular area of financial planning?

  • How do you structure your fees?

  • How often will we meet?

  • What is your preferred method of communication?

If you’re not sure where to go about finding an advisor, you could start by asking friends and family who they work with. You can also use an online matching tool to get personalized advisor recommendations for professionals in your local area.

The Bottom Line

tax advisor vs financial advisor

tax advisor vs financial advisor

Whether you decide to work with a tax advisor vs. a financial advisor is a personal decision and you may find that both are necessary to help you reach your financial goals. Taking time to consider an advisor’s background, credentials and fees matters when searching for the right professional to work with.

Financial Planning Tips

  • Researching financial advisors can be time-consuming and you may feel overwhelmed by the number of options available. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • One of the most important things to consider when choosing an advisor is how they get paid and the fees they charge. Fee-only advisors only charge fees for the advice they offer. Fee-based advisors, on the other hand, may charge fees for their services but they can also earn commissions from recommending financial products.

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