Tax Prep for Financial Advisors: Don't Forget These Three Crucial Components

Christine Simone
January 19, 2023

If you’re one of the few financial advisors who offer a holistic planning approach and help clients with taxes, there are likely components you pay specific attention to, such as tax strategies to lower clients’ taxable income in retirement. For comprehensive financial planners who want to include tax planning strategies in their clients’ financial plans, you’re going to want to hear three crucial components you might be forgetting about. And as a bonus, these three tax preparations will also come in handy with retirement planning and healthcare planning. 

Medical Tax Deductions

The medical tax deduction is worth considering for any individual or family that has large, unreimbursed medical expenses that exceed 7.5% of their adjusted gross income, even if they might not typically itemize their tax deductions. In 2023, the standard deduction for single filers is $13,850 and for joint filers, $27,700. Aside from everyday costs like doctor’s visits, prescription copays, and health insurance premiums, your clients can deduct medical expenses such as wheelchairs, home improvements for increased accessibility, lead-based paint removal, and more. However, if your client pays for medical expenses using money from a flexible spending account or health savings account, those expenses aren't deductible because the money in those accounts is already tax-advantaged. All unreimbursed medical expenses incurred as a result of COVID-19 are tax deductible. It might not be worth the extra work to attempt to claim an itemized tax deduction if your clients’ medical expenses are moderate. Instead, it might be better for them to take the standard deduction which is the amount that most tax users may deduct from their income to reduce their tax bill if they do not itemize their tax deductions. 

Example of a HealthPlanning Analysis where a medical tax deduction is available.

Claiming the standard deduction is usually the easier way to do taxes, but if your client has a lot of itemized deductions, add them up and compare them to the standard deduction for their filing status.

Example of a HealthPlanning Analysis where a medical tax deduction is not available.


For clients already on Medicare or who are reaching Medicare eligibility soon, IRMAA is a factor you and your clients will want to consider. The income-related monthly adjustment amount (IRMAA) is based on a client’s tax filing status, the current year’s adjustment amount, and their modified adjusted gross income from two years prior. In 2023, the standard base monthly premium for Part B is $164.90 and can be as high as $560.50 per month whereas the monthly premium for Part D can add up to $76.40/month on top of the cost of your chosen drug plan. To calculate 2023 IRMAA, which is added to these base premiums, the Social Security Administration (SSA) will look at your client’s tax return from 2021. Their Medicare premiums and IRMAA determination is sent to them every year in the fall. Below is a table of expected total costs, which include both the base amount and IRMAA charge.

These costs impact your client’s financial plan, so it’s better to be proactive and plan for them in advance. If your client has a few years until they’ll enroll in Medicare, they might want to take steps now to control their modified adjusted gross income (MAGI) and potentially limit IRMAA.

HSA Contributions and High-Deductible Health Plans

For clients who aren’t on Medicare yet and can enroll in a high-deductible health plan, one tool to utilize is a Health Savings Account (HSA). We often advocate for Health Savings Accounts because of the triple-tax advantages they are. An HSA allows your clients to contribute pre-tax, or tax-deductible, money to a savings account and lower their taxable income. They can then invest those contributions and the earnings from those investments can grow tax-free as well. If they withdraw the money for qualifying medical expenses those withdrawals won’t be taxed either. An HSA can also be used as a way to build money for your client’s retirement since they can withdraw money for any reason penalty-free after they turn 65 — they’ll just have to pay income taxes on money used for non-medical expenses. Because of the tax-free growth, your clients should carefully consider when it’s best to pay for medical expenses out of their own pocket vs. using their HSA funds. As their financial advisor, you can guide them on what decision is more appropriate for their situation. As mentioned at the start, HSAs are only available with high-deductible health plans. So your client will also need to consider their health utilization, needs, and preferences before choosing to enroll in a high-deductible health plan.

Moving Forward

These are all important considerations to keep in mind before, during, and after tax season. Since it’s tax season now is a great time to bring these factors up to clients. This in turn can make it easier to talk about healthcare costs and health plan optimization strategies with clients, which will ultimately lead to a more well-rounded financial plan.

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