Knowing When to Consult a Tax Professional… Before it’s Too Late

By Andi McNamara, CFP® 
Vice President, Director of Financial Planning
Washington Trust Wealth Management

Even seemingly small life changes or financial decisions can have significant tax implications. While your wealth manager can provide a solid framework for your investment and financial strategies, there are times when you will need to consult with a tax professional to ensure that you’re not leaving money on the table. It’s important that you and your wealth manager discuss life events that affect your finances and decide together when it’s time to bring in a tax expert to take advantage of tax planning opportunities while they are actionable. 

Here are a few: 

1. You’ve Recently Retired and Your Income is Lower than Before

If you are about to or recently retired and have not begun Required Minimum Distributions (RMDs) or Social Security, you may have an “income trough,” a temporary period where your income and taxes are lower than past and future expected. This drop in your earned income opens up opportunities for tax optimization, such as converting a traditional IRA to a Roth IRA, realizing capital gains (and diversifying your portfolio!), or timing a liquidity event. Working with a tax professional can potentially save you substantial taxes over the long run and ensure you don’t unintentionally bump yourself into a higher tax bracket or trigger unwanted taxes on Social Security benefits.  

2. You Have Large Retirement Plan Balances and Upcoming RMDs

If you’ve accumulated substantial balances in traditional retirement accounts, Required Minimum Distributions (RMDs) could push you into a higher tax bracket or result in extra Medicare premiums (IRMAA). Your wealth manager and tax professional can help you strategize withdrawals or charitable giving (such as Qualified Charitable Distributions, or QCDs) to reduce your taxable income in the most tax-efficient way possible.

3. You’re Planning to Make a Large Charitable Contribution or You Give Annually

Charitable giving is a great way to support causes that matter to you, but it’s also a powerful tool for tax planning. If you're planning to make a large donation—either through cash, appreciated stock, or by using a vehicle like a donor-advised fund or charitable trust—it’s essential to consider how the timing and method of your contribution impact your taxes. For example, appreciated stock donations may help you avoid capital gains tax while still receiving a charitable deduction.  

4. You Have High Medical Expenses or Other Itemized Deductions

If you have very high medical expenses or other large, itemized deductions (such as mortgage interest or state and local taxes), timing your deductions can have a significant impact on your tax bill. By bundling multiple years’ worth of deductions into a single year, for example, you may be able to maximize your itemized deductions in one year and take the standard deduction in others. A tax professional will help you navigate the rules around medical expense deductions, which are subject to a floor of 7.5% of your adjusted gross income (AGI).

5. You’ve Experienced a Major Life Event: Death of a Spouse, New Marriage, or Divorce

Life events such as marriage, divorce, or the death of a spouse that bring emotional challenges also require immediate attention to your financial and tax strategies. For instance, if you've recently lost a spouse, your filing status will change, and you may lose some tax benefits like lower tax brackets or higher deduction limits. Alternatively, if you’ve remarried or gone through a divorce, estate planning, alimony, or splitting retirement accounts can create tax complications. Both your wealth manager and tax professional can help you navigate these transitions to ensure your financial plan adapts to your new situation.

6. You’ve Sold a Business or Experienced a High Liquidity Event

A significant liquidity event, such as the sale of a business or a large windfall from selling stock, can trigger substantial tax consequences, including capital gains taxes, estate taxes, and the potential for crossing into a higher income tax bracket. This might be a good time to start a charitable foundation, bunch many years of charitable contributions to a Donor Advised Fund (DAF), or fund a retirement plan. A wealth manager can guide you through the investment side, and a tax professional will be indispensable in structuring your sale or investment for maximum tax efficiency.

How Washington Trust Wealth Management Can Help

At Washington Trust Wealth Management, we work with your CPA as part of your financial team to assess the short- and long-term impact of diverse tax strategies to help you protect and grow your wealth. Using powerful financial and tax planning software, our wealth advisors carefully review and analyze your current position and projected future income and tax liabilities and can share that information with your CPA during the tax year while it’s actionable. Working together with your CPA, we can develop strategies that best work for you in minimizing your lifetime tax liability.