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  • Charles Schwab and Co.

Should Tax Planning Be Part of Your Financial Plan?

As an investor, there’s good reason to be focused on how well your investments are performing. But you don’t want to overlook other considerations that are nearly as essential. The Schwab Center for Financial Research has found that while wise investment selection and asset allocation are among the most important factors for investing success—minimizing taxes and other costs is also key.

“Almost every financial decision you make has tax consequences,” says Hayden Adams, CPA, CFP®, and director of tax planning at the Schwab Center for Financial Research. “Tax planning goes beyond looking at your taxes at tax time, since by then it’s usually too late to make changes that significantly reduce your tax bill. Instead, looking at each investment decision from a tax perspective—before you make it—may help you avoid potential mistakes or actions that could eat into your earnings.”

Year-round tax planning can also help you:

  • Take full advantage of deductions and credits you may qualify for

  • Choose tax-efficient accounts and investments

  • Determine how selling or holding assets could impact your tax bill, and how to calculate your cost basis

  • Make tax-efficient retirement withdrawals

  • Determine tax-efficient ways to transfer or gift assets to heirs

“If you earn income and have at least a few assets, it’s a good idea to be thinking about ways to manage your tax liability,” Hayden says. “Tax planning can be especially impactful when you reach certain milestones, like buying a home, saving for college, switching jobs, or transitioning to retirement.”

“When you’re saving for an important goal or making a large purchase, there are so many tax rules and other factors at play,” says Hayden. “Without planning, it can be difficult to see how they may affect your overall financial plan short- and long-term.”

Here's an example: Say you plan to sell stock for a home down payment, which would give you a large capital gain. You could use tax planning to see if splitting your stock sale over two years might result in less tax than selling all your stock in a single year. Tax planning could also help you determine which shares to sell to minimize taxes on your gain. In turn, your potential tax savings might allow you to put more towards other goals, like education, retirement, or updating your new home.

“Anytime your circumstances change or you have a financial decision to make, it’s a perfect opportunity to take a close look at your tax situation,” Hayden says. “If you’re unsure what the changes may mean for your taxes—or which strategies to apply—a tax advisor or financial planner can help.”

Important Disclosures

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.


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