Tax Planning Considerations Financial Advisors Should Share with their Clients in 2023
A recent Grant Thornton survey of tax executives found that over 50% were either re-evaluating their tax planning considerations for 2022 with potential legislation in mind or actively implementing changes in response to legislative developments.
Tax planning considerations for 2022 include a variety of internal and external factors:
- COVID-19 pandemic
- Economic volatility
- Global tax agreements
- Inflation
- Interest deductions
- Legislation
- Remote work
- Research cost recovery
- Revenue recognition
- Supply chain issues
Use tax planning strategies to minimize the cumulative lifetime taxes for your clients and their beneficiaries so that avoidable taxes don’t diminish vital savings.
What are you doing to ensure your client’s family doesn’t end up with a bill to Uncle Sam upon their death?
Engage in tax-loss harvesting and use those losses to achieve gains through other investments that have significantly appreciated during the bull market that led up to 2022. This helps to rebalance the portfolio and control style drift and does not subject the client to taxes.
You can also swap funds of similar exposures to avoid IRS wash sale rules.
You should review the client’s holistic financial plan, so you can recommend tax planning strategies that will result in lower taxes long term.
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Consider Roth Conversions of Devalued Assets
Look at the individual retirement account (IRA) portfolio and select the assets that have seen the greatest devaluation. Then, convert those underperforming holdings to Roth IRAs.
If those assets recover from the current market downturn, the Roth IRA would recover tax-free!
Consider IRA withdrawals if the client has cash flow analysis concerns. Roth conversions could be beneficial if your client’s heirs are in the same or higher bracket.
Consider Exercising Stock Options
One of the most significant tax considerations for 2022 is timing. Knowing when to act and when to wait is essential.
For instance, you should consider exercising stock options when share prices are down to help reduce income taxes on non-qualified stock options (NSO), and alternative minimum taxes (AMT) on incentive stock options (ISO).
Work with Your High-Net-Worth Clients to Create Larger Deductions
Did you know that 92% of high-net-worth investors expect their advisor to provide tax advice, but only 25% of them are receiving it?
One of the most important tax considerations for 2022 and beyond is to be proactive to changes in the market, not reactive. This will help you forecast accurate predictions that will save your customers money.
By putting solutions and strategies in place to anticipate changes, you will differentiate yourself from other advisors and tax professionals, allowing you to charge more considerable financial planning fees.
For affluent clients in high tax brackets who have non-qualified money, you should consider direct indexing separately managed account (SMA) strategies with aggressive daily tax loss harvesting. This creates large deductions with the wild daily volatility of the stock market.
Have Your High-Net-Worth Clients Gain through their Generosity
For your wealthiest investors, consider giftings a portion of their assets to irrevocable trusts now, while the gift tax exemption is high and valuations are low.
The client will get more return on their investment from a taxable estate while consuming less of the gift tax exemption now that valuations are reduced.
Financial advisors must be aware of many tax planning considerations for 2022 as they work to win business through tax planning.
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Financial Professional Use Only
The information provided in this presentation is not intended as investment advice or legal advice. The information provided is for informational and training purposes only. The information in this presentation was accurate as of the time of the material was created. Tax laws and rulings can frequently change. Please discuss the client’s current situation with an accountant or tax advisor.