A tax advisor is an accounting professional with advanced training and knowledge of tax accounting and law. While tax consultants can have varying professional backgrounds, many are trained as certified public accountants (CPAs), tax attorneys, or enrolled agents, and they all help you create a tax strategy while remaining compliant with the law.
What does a tax advisor do?
The U.S. tax code is extremely complex.
Part of a tax advisor’s job is to understand the code and to stay on top of any changes the IRS announces so that they can help you legally reduce your tax bill if possible.
Some tax advisors are generalists, while others specialize in complicated tax areas like startup equity compensation, small business, and real estate, so when deciding which tax advisor is right for you, ask about their experience and expertise.
Proactive tax planning
The best tax advisors can advise you on opportunities that you can take throughout the year to reduce future taxes. For instance, if you were granted stock options by your employer, they might model different exercise scenarios to help you avoid paying the alternative minimum tax (AMT). Or, if you plan to sell a rental property, a tax advisor may inform you about the 1031 exchange, which allows you to put off capital gains.
To make smart tax decisions, you need to understand how different actions impact your taxes. A tax advisor can run different calculations based on decisions you’re thinking about to show you the tax impact.
For example, if you’re planning to move from California to Texas and also thinking about exercising stock options, your tax advisor could run the numbers to help you decide whether it makes sense to exercise now or wait until after your move.
Tax preparation and filing
A tax advisor can also help you prepare, optimize, and file your tax return. They can search for tax deductions and credits, like a mortgage interest deduction or residential energy credits, that can help reduce your taxable income or increase your tax refund.
When should you hire a tax advisor?
You may not need a tax advisor if you only have a W-2 income and take the standard deduction. But hiring a tax advisor can save you time and stress—and help you save real money—if you have more complex taxes. You might want a tax advisor if you:
- are self-employed
- own a business,
- have been granted equity as part of your compensation at a job
- hold assets like stock or real estate
It’s also good to talk to a tax advisor if you made—or are planning to make—any big life changes, like getting married or divorced, buying a home, moving, or retiring. A tax advisor can help you understand how events like these might change the deductions and credits you can claim, the forms you need to file, and your filing status.
Tax advisor vs. financial advisor
A tax advisor helps with taxes, while a financial advisor helps manage or invest your money. A financial advisor can’t give tax advice, and a tax advisor can’t give financial advice—unless you’re working with someone who is credentialed as both.
While tax advisors are usually CPAs, enrolled agents, or tax attorneys, financial advisor credentials include CFA (chartered financial analyst), CFP (certified financial planner), and ChFC (chartered financial consultant).
If you’re starting your career—or if you have mostly illiquid assets like stock options from your job—a tax advisor can help with tax planning strategies that could potentially increase the cash you have on hand. Later on, once you have more cash, a financial advisor can help you optimize your investments and grow your money over time.
|Tax advisor||Financial advisor|
|Explain equity basics||✅||✅|
|Build tax scenarios||✅||❌|
|Advise on tax deductions and credits||✅||❌|
|Give investment advice||❌||✅|
|Manage an investment portfolio||❌||✅|
Meet Carta’s Equity Tax Advisors
Not all tax advisors are experts in equity compensation
The taxes for equity compensation at private companies is very complicated, and most tax advisors aren’t specialists. General tax consultants likely won’t have the expertise to model equity-specific scenarios with you.
If you hold equity in a private company, ask about a tax advisor’s expertise before hiring them. You’ll want to work with someone who can walk you through the potential risks or rewards of early exercise or advise you on tax-saving opportunities like QSBS-eligible shares—which could lead to 100% exclusion of tax on your capital gains.
Get personalized tax advice with Carta Tax Advisory
Tax Advisory is an offering exclusively for Carta customers that includes companywide webinars and one-on-one sessions with accredited Equity Tax Advisors. These specialists are experts who can field all your employees’ equity and tax questions.
Since your company’s cap table and each employee’s equity grant are already on Carta, your Equity Tax Advisors can model potential tax scenarios based on real data to help employees make informed decisions—with less time spent gathering financial documents beforehand.
The Equity Tax Advisor team has given individual tax advice to more than 1,500 employees, with a nearly perfect 4.9 customer satisfaction score. To learn more, schedule a demo.
DISCLOSURE: This publication contains general information only and eShares, Inc. dba Carta, Inc. (“Carta”) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. ©2022 eShares Inc., d/b/a Carta Inc. (“Carta”). All rights reserved. Reproduction prohibited.