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Starting a conversation with current and prospective clients after tax season can be as simple as asking: “Would you like to discuss ways to avoid a tax surprise next year?”
Advanced planning is key to helping clients avoid after-tax surprises. Ask yourself these questions to prepare for client conversations in the weeks ahead.
- How could asset location improve the client's investment experience? Making smart investment recommendations requires an understanding of the tax consequences for different types of investment returns, proceeds or profits, such as realized capital gains or dividend income. Determining a client's total tax rate can help you identify an investment approach that helps minimize their portfolios’ tax exposure while maximizing potential after-tax returns.
- Would the client benefit from systematic tax-loss harvesting? Systematic tax-loss harvesting can help create a reserve of tax losses that the client can use in years to come to reduce the amount of gains that might be subject to taxes. You can also offer to work with their tax professionals to identify how systematic tax-loss harvesting can help improve future tax outcomes.
- For clients with concentrated positions, have you discussed tax-efficient solutions to improve diversification? Explore the total amount of capital gains taxes clients would pay if they hypothetically sold some or all of their stock positions.
- For charitably inclined clients, do they have a planned giving strategy in place? When clients contribute stocks directly to a qualified charity or planned giving vehicle, no federal capital gains taxes are due on the contribution. They may also be eligible to receive a charitable-income tax deduction for the full fair market value of the gift, subject to a limit of 30% of adjusted gross income with a five-year carry forward on unused deductions.
- Did clients owe more than they withheld? The client could ask their employer to withhold more from the remaining paychecks this year to avoid a recurrence. That extra withholding would occur over the time remaining in the calendar year. They could also discuss quarterly estimated tax payments with their accountants to correct underpayment of taxes and the potential resulting penalties.
- Are clients receiving a large and unexpected refund? While it's nice to get a refund, it's money that could have been working for the client all year—instead of the IRS.
Sharing your thoughts on these questions with your client and their accountant can go a long way in building a better tax outcome next year.
Bottom line: Help clients diagnose the cause of an unpleasant tax surprise quickly while it's top of mind and initiate corrective action.
Advanced planning is key to helping clients avoid after-tax surprises.”
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