Tax Season Is Financial Planning Season for Many Investors

Tax planning and financial planning are one in the same for about half of investors, a Schwab poll found

Tax time is the ideal time to look at broader financial goals, Vietri says. Tax time is the ideal time to look at broader financial goals, Vietri says.

Tax season is a dreaded time of year for some people, but many others use the time to focus on their broader financial circumstances.

A new poll released by Charles Schwab found that 47% of investors surveyed (and 50% of those with $250,000 or more in assets) believed tax planning and financial planning were one and the same activity, and 44% said tax planning significantly influenced how they invested and managed their wealth over time.

Koski Research interviewed 1,066 general investors in mid-February, using a third-party online panel. Participants were screened to ensure they had minimum investable assets of $50,000.

“Tax season is a time of year when people have all their financial information top of mind, so it’s the ideal time to pay attention to broader financial goals and plot how you plan to get there,” Joe Vietri, head of Charles Schwab’s retail branch network, said in a statement.

Confidence Booster

Forty percent of all investors polled reported that they had a written financial plan, and 52% of those said tax planning was a specific component of their plan.

The survey found that 50% of those with a financial plan focused on their total financial situation during tax season, compared with 31% who did not have a plan.

Among investors who incorporated tax planning into their financial plan, 48% said they felt “extremely confident” as they prepared their taxes.

The survey showed that among the 59% of respondents who used a financial advisor to help them with their investments, 42% were “extremely confident” in preparing their taxes, compared with 31% who did not use an advisor.

Moreover, 66% with an advisor believed they were doing everything possible to reduce the tax effect of saving and investing, compared with 48% without onr.

“Having a plan or getting advice has a positive impact on investors’ confidence, both in the short term on topics like annual tax planning, but also when it comes to longer term goals like saving for retirement,” Vietri said.

However, many investors’ approach to tax planning left room for improvement, according to the survey.

Only 29% of respondents said they had focused on the effect of taxes in their investment portfolios over the course of a year.

In addition, a mere 15% had used tax-loss harvesting to minimize the effect of investment-related taxes, and just 21% had included charitable donations as part of a tax-planning strategy.

And even though tax efficiency can be important in estate planning, only 19% of investors said they had developed or assessed estate plans when reviewing their tax documents for filing.

“Taxes can have a significant impact on portfolio returns, which affects progress toward achieving long-term goals, so it should really be an ongoing focus,” Vietri said.

Refund Plans

Fifty-nine percent of respondents said they expected to receive a federal tax refund this year.

Forty-nine percent of those said they would save the refund, 34% would pay off debt and 23% would buy something special for themselves or another person.

In addition, 27% planned to invest their refund, 49% preferring equities and 16% bonds or CDs, and 8% intending to hold their refund as cash in their portfolio.

As to tax-advantaged retirement accounts, sixty-five percent of investors said they had one or more IRAs, and 63% had one or more 401(k) accounts.

--- Check out Taxes and Your Investment Portfolio: The 40-Year Effect on ThinkAdvisor.

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