At some point, you may have wondered why your financial advisor asks for your tax return. After all, isn’t that something your CPA should handle?

It’s a totally reasonable question. 

On the surface, tax returns may seem like just another annual, check-the-box responsibility — one that has little to do with your investments or retirement plan. But your tax return offers a wealth of insights that can help fine-tune your financial strategy and potentially save you thousands over your lifetime.

Here’s why sharing your tax return can greatly enhance the advice and planning you receive.

Your tax return breaks down every stream of income you have — wages, Social Security, rental properties, dividends, capital gains, and so on.

Why does this matter?

By analyzing these income streams, we can assess cash flow, tax efficiency, and long-term strategies, aligning your financial plan with your current and future needs.

For example, let’s say you’re retired. Medicare premiums increase once your income exceeds certain thresholds ($106,000 for single filers and $212,000 for married filers in 2025). If your tax return shows you’re just barely over the line, that could trigger hundreds of dollars in extra Medicare costs.

A small adjustment — like shifting withdrawals to a Roth IRA or donating through a Qualified Charitable Distribution — could keep you under the threshold and save you from an avoidable premium hike.

In short, your tax return provides an overall tax picture, helping us answer key questions, like:

• Are you paying more in taxes than necessary?
• Can we structure your income to minimize unnecessary tax exposure?
• Are there tax-efficient ways to maximize your retirement income?
• Can we help you plan for major liquidity events, like a business sale or stock vesting?
• Would charitable giving or donor-advised funds help lower your taxable income?

Most CPAs focus on minimizing your tax bill for the current year, which is important. But what about next year? And the next decade?

Financial advisors take a long-term view. With your tax return in hand, we can identify opportunities to reduce your lifetime tax liability, not just your tax bill for this year.

That includes an analysis of:

• Your tax bracket and how it impacts investment and withdrawal strategies
• Deductions and credits that you may not be utilizing fully (e.g., charitable contributions, medical expenses)
• Opportunities to optimize retirement contributions and tax-advantaged accounts
• Projections for future tax liabilities and ways to minimize them proactively
• Significant year-over-year changes that may necessitate financial plan adjustments

For example, let’s assume you’re in a lower tax bracket this year due to reduced income in early retirement.

Instead of waiting until you’re forced to take required minimum distributions (RMDs) at 73 — potentially pushing you into a much higher tax bracket — you could strategically convert some of your pre-tax IRA funds into a Roth IRA at a lower tax rate.

By doing this:

• You lock in a lower tax rate now rather than paying higher taxes later.
• Future withdrawals from the Roth IRA will be tax-free (as long as they meet IRS guidelines).
• You reduce your future RMDs, which could help keep your Medicare premiums lower.

A Roth conversion can be a powerful tool for tax efficiency, but the timing and amount matter. This is why reviewing your tax return annually can uncover these kinds of opportunities.

Your financial advisor and CPA each play critical roles in your financial well-being. But they shouldn’t work in silos.

By sharing your tax return, we can work directly with your CPA to coordinate your financial plan and tax strategy.

For example, if your CPA flags a large capital gain distribution, we might recommend offsetting the liability with a tax-loss harvesting strategy, selling underperforming assets to reduce taxable gains while simultaneously rebalancing your portfolio. This allows us to realign your asset allocation — whether it’s shifting to a more conservative mix, maintaining diversification, or capitalizing on market opportunities — without triggering an unnecessary tax burden.

This type of proactive collaboration ensures you’re getting the best of both worlds: strategic investment planning and tax optimization.

Tax laws and regulations are constantly evolving. For example, key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025, which could result in higher income tax rates for many households. The current 22% bracket may revert to 25%, the 24% bracket could increase to 28%, and estate tax exemptions could be cut in half.

By periodically reviewing your tax returns, we can identify adjustments that may be necessary in response to new tax laws or regulatory changes. Whether it’s an update to retirement account contribution limits, changes in deductions, or new tax credits, staying ahead of the curve can prevent surprises and unnecessary costs.

Ultimately, the more we understand about your financial picture, the better advice we can give. Your tax return is one of the most detailed financial documents available — it helps fill in the gaps that investment statements alone can’t provide.

Additionally, tax returns can sometimes reveal reporting inaccuracies or overlooked errors that could impact your financial plan. Mistakes such as misreported income, missing deductions, or incorrect cost basis calculations on investment sales can lead to unintended tax consequences. By reviewing your tax return, we can help flag discrepancies, confirm everything aligns with your overall strategy, and coordinate with your CPA to correct any issues.

At the end of the day, providing your tax return is not a requirement, but doing so enables us to offer the most holistic and well-rounded advice for your financial future.

The goal of requesting your tax return is not to invade your privacy but to serve as a better advisor and offer guidance that aligns with your goals. The more complete a picture we have of your financial landscape, the more valuable and personalized our advice can be.

At Pine Grove, we encourage open conversation. If you’re ever unsure about why we request your tax return — or how we use it — just ask. Transparency and trust are the foundation of a successful advisory relationship, and we’re here to help ensure that you receive the most effective guidance possible.