Close to half of U.S. investors assess their financial situation during tax season, according to a new survey.
The survey by Charles Schwab of more than 1,000 investors found that 46% of them said they focus on their overall wealth and financial situation when having their taxes prepared. About 41% of investors with a financial plan are “extremely confident” when preparing their taxes, compared to 25% without a plan. More than half (59%) of those surveyed expect to receive a federal tax refund this year.
Many investors approach tax planning and financial planning as connected activities, with 47% saying they believe the two are one and the same. And 44% indicated that tax planning plays a “major” role in how they invest and manage their wealth over time. Among affluent investors with $250,000 or more in assets, even more, 50% say tax planning plays a major role in informing their wealth plan.
“Active engagement in the investing process can make a big difference when it comes to achieving financial goals, and tax season provides an invaluable opportunity for people to think holistically about investing and financial planning,” said Joe Vietri, senior vice president and head of Charles Schwab’s retail branch network, in a statement. “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.”
Forty percent of all survey respondents said they have a written financial plan, and among those with a plan, 52% say tax planning is a specific component of their plan. The survey reveals that those with a financial plan are more likely to consider their total financial situation during tax season and more confident in preparing their taxes. Fifty percent with a plan treat tax time as an opportunity to address their overall financial situation, compared to 31% who don’t have a plan.
Among investors who incorporate tax planning into their financial plan, nearly half (48%) said they feel “extremely confident” as they prepare their taxes.
According to the survey, there is room for improvement when it comes to investors’ approach to tax planning. Over the course of the year, only 29% of those surveyed pay attention to the impact of taxes in their investment portfolios; only 15% use tax loss harvesting to minimize the impact of investment-related taxes; and just 21% include charitable contributions as part of a tax planning strategy.
Although tax efficiency can be a key factor in estate planning, only 195 of investors take the opportunity to develop or assess estate plans when reviewing their tax documents for filing.
“Tax planning shouldn’t just be a seasonal activity for investors,” said Vietri. “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.”
Approximately two-thirds of investors surveyed by Schwab use at least one tax-advantaged retirement account. Sixty-five percent have one or more individual retirement accounts, and 63% have one or more 401(k) accounts.
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