What is the difference between tax preparation and tax planning?

Tax preparation is the annual process of reporting past financial activity to comply with IRS filing requirements. It records decisions that have already been made and locks in your tax liability for the prior year. Tax planning is a forward-looking process — analyzing your current financial situation, projecting income, and implementing legal strategies throughout the year to reduce the taxes you’ll owe before the year ends. Preparation tells you what you owed. Planning influences what you may owe.

How does proactive tax planning help reduce my tax bill?

Proactive tax planning reduces taxes by structuring decisions before they’re locked in. Strategies such as timing income recognition, optimizing retirement account contributions, harvesting investment losses, converting pretax funds to Roth accounts at lower rates, and coordinating charitable giving may all produce lower taxable income. The key is that these moves have hard deadlines — most require action before Dec. 31 — so they require planning, not just filing.

What are the “notch years” in retirement tax planning?

The notch years refer to the period between when you retire and when required minimum distributions (RMDs) begin. During this window, many retirees experience unusually low taxable income. That gap may represent a significant opportunity to convert pretax retirement funds to Roth accounts at lower tax rates than you paid during your working years and at potentially lower rates than your heirs would pay on an inherited traditional IRA under the 10-year distribution rule.

How do Roth conversions help my children or heirs?

When you convert traditional IRA funds to a Roth IRA, those assets grow and distribute tax-free. If your heirs inherit a Roth IRA, they may withdraw funds within the 10-year window without paying income tax on the distributions. By contrast, inherited traditional IRA funds are fully taxable as ordinary income when distributed. If your peak work years line up with the 10-year distribution window, the inherited tax burden may be substantial. Roth conversions done in your notch years may reduce that burden significantly

Should I consider Roth conversions even if I don’t need the money right now?

Roth conversions are most valuable precisely when you don’t need the money, because that typically means your income is lower and the conversion may occur at a favorable tax rate. For clients in their notch years — the time between retirement and RMDs — running the numbers with a wealth advisor may reveal meaningful conversion capacity that won’t exist following the start of RMDs. The question isn’t whether you need the money now — it’s whether paying tax today at known rates is preferable to paying tax later at uncertain rates.

Is it worth making a donor-advised fund contribution this year?

A donor-advised fund (DAF) contribution may make sense in years when your income is unusually high — from a business sale, large Roth conversion, or other income event — because you receive the full charitable deduction in the year of contribution and may direct grants to charities over multiple years. When you fund a DAF with appreciated securities, you also avoid capital gains on the appreciation. Given the 0.5% AGI hurdle on itemized charitable deductions under the One Big Beautiful Bill Act of 2025, coordinating DAF contributions with high-income years may produce better outcomes than annual cash gifts.

Do I need to make estimated tax payments if I’m doing a Roth conversion?

Yes. If a Roth conversion generates significant taxable income outside of wages, you may owe quarterly estimated payments to avoid an IRS underpayment penalty. The safe harbor rules allow you to avoid penalties if your payments meet a certain threshold based on prior-year or current-year liability. Before initiating a large conversion, review your estimated payment schedule with a tax advisor to help ensure it’s calibrated correctly for the additional income.

How do I find a financial advisor who does proactive tax planning, not just filing?

Look for a fiduciary, fee-based registered investment advisor (RIA) that offers integrated tax and financial planning — not just portfolio management. Mercer Global Advisors offers comprehensive wealth management that coordinates tax, investment, and estate planning in a single relationship. If you’re a client and not using Mercer Advisors tax planning and preparation services, discuss them with your wealth advisor. If you’re not a client, a complimentary consultation with a Mercer Advisors wealth advisor may be a good first step in assessing whether your current approach is leaving planning value on the table.

Where can I learn more about the One Big Beautiful Bill Act changes?

The IRS website (irs.gov) provides official guidance on new legislation, though interpretation in the context of individual planning requires a personalized analysis. The Mercer Advisors wealth management team reviews legislative changes and their implications for our a client’s specific financial plan on an ongoing basis. For a summary of the changes discussed in this guide, consider scheduling a planning conversation with a Mercer Advisors wealth advisor.

Is a CPA enough, or do I need a financial advisor who does tax planning?

These are complementary but different relationships. A CPA typically focuses on preparing and filing your return accurately — an essential function. A financial advisor who integrates tax planning looks at your broader financial picture year-round and makes forward-looking recommendations that help influence your tax outcomes before the year closes. For clients with complex financial pictures — significant investment assets, business interests, retirement accounts, or estate planning needs — a coordinated approach between a CPA or tax-planning professional and a financial advisor could produce significantly better outcomes than either relationship alone.

How does holding positions and avoiding capital gains compare to tax-loss harvesting?

Both approaches are valid, and they aren’t mutually exclusive. Avoiding unnecessary capital gains by thoughtfully managing holding periods is always sound. Tax-loss harvesting adds value by systematically capturing losses in down positions, which may offset gains elsewhere in the portfolio and reduce current-year taxable income. Done well and consistently — rather than only at year-end when the best opportunities may already be gone — systematic loss harvesting may produce meaningful tax savings over time without fundamentally altering your investment strategy.

What’s the difference between a qualified charitable distribution and a regular charitable deduction?

A qualified charitable distribution (QCD) is made directly from your IRA to a charity and never flows through your income — meaning you pay no income tax on that distribution, regardless of whether you itemize. A regular charitable deduction requires you to take the income (pay the tax), donate the cash, and then deduct it, subject to AGI limits and the requirement that you itemize. For clients over age 70 ½ with significant IRA balances, a QCD may be meaningfully more tax-efficient than a regular deduction, particularly at income levels where itemizing doesn’t provide a full benefit.

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All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. Hypothetical examples are for illustrative purposes only. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio.

Tax preparation and filing services are provided by Mercer Advisors Tax Services, LLC. Clients will sign a separate agreement when engaging Mercer Advisors Tax Services that defines the services provided and any additional fees that may apply.

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