NEWS & RESOURCES

Tax planning focuses on after-tax outcomes for clients to invest and plan for their goals in the most tax-conscious manner ­– not just during tax season, but all year long. It’s common practice to see financial advisors not holding their CPA designation, but in today’s world certain firms are taking a more integrated approach to managing clients’ financial plans and portfolios because almost every client seeks tax guidance.

As a financial advisor, I work closely with my clients to identify key opportunities for tax efficiency throughout the year by collaborating with my firm’s CPAs. Here are a few areas I’m discussing with my clients to keep their financial plans tax efficient as we say goodbye to Tax Day but focus on the rest of the year to seek opportunities.

Unified Managed Accounts (UMAs)

Unified managed accounts (UMAs) are investment accounts that allow investors to hold multiple investment types, such as stocks, bonds, and mutual funds, in a single account. When your CPA and financial advisor are working together under the same roof, there are several benefits to using UMAs:

• Integrated tax management – This integration allows for coordination of the timing of trades, harvest tax losses, and optimizes your portfolio’s tax efficiency. By working together, they can help you minimize your tax liabilities and maximize your after-tax returns.
• Holistic financial planning – This approach helps develop an investment strategy that aligns with your financial goals, risk tolerance, and tax situation – all while keeping your personal values in the forefront of your financial plan.
• Increased transparency – By increasing transparency, this gives you a clear view of your investments and their performance. Your CPA and financial advisor can work together to provide you with regular performance reports and analysis, which can help you make informed investment decisions.

Eliminate Short-Term Capital Gains
Investment losses can be frustrating, but did you know they can also provide some financial benefits? Tax loss harvesting allows investors with taxable accounts to use those losses to offset capital gains, potentially avoiding a higher tax bill. If you still have losses remaining, you can deduct up to $3,000 to offset your ordinary income each year, and even carry over additional losses for future years.

Maximize Roth Contributions for Future Tax-Free Growth

A Roth IRA is a unique individual retirement account that is funded with after-tax money and offers tax-free growth and withdrawals later on. This tax-free growth can potentially provide significant benefits over the long term, especially if you expect your tax rate to be higher in retirement than it is today. Additionally, Roth accounts have no required minimum distributions, which means you can leave the funds in the account to continue growing tax-free for as long as you like.

Revisit Your Estate Plan to Increase Opportunities 

The clock is ticking on the 2017 Tax Cuts and Jobs Act (TCJA) estate planning provisions, which are set to expire by the end of 2025. This means that the doubled estate and gift tax exclusion may revert to its pre-2017 level. If you’re concerned about this, you may want to consider taking action, such as accelerating gifting or donating appreciated assets before the deadline. It’s worth noting that you can give up to $17,000 per donor to as many individuals as you like without incurring gift taxes, and if you’re married, both you and your spouse can gift this amount to each person without triggering taxes.

The Bottom Line

Effective tax planning is an essential component of any financial plan. From minimizing your tax liabilities to managing your cash flow, there are many benefits to staying on top of tax management to keep your financial plan tax-efficient in today’s environment. It’s important to partner with an experienced tax professional and financial advisor who can create a customized plan that fits your specific financial needs. By taking a proactive approach and paying attention to the details of tax planning, you can effectively increase your after-tax returns and establish a solid foundation for building lasting wealth.