Five Ways Advisors Can Ease Clients’ Tax Concerns Now

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With the extended July 15 tax deadline fast approaching and the November U.S. presidential election looming, taxes are now top of mind for many investors, and there are several ways advisors can help ease their clients’ minds and lessen their tax burdens for this year and 2021, according to Kalimah White, senior trust advisor for TD Wealth.

Higher taxes at all levels should be expected, as the federal government, states and municipalities continue to struggle to respond to the pandemic, she pointed out to ThinkAdvisor in a phone interview.

“Fear of the unknown” is the biggest issue for many investors now, she pointed out. After all, nobody knows when the pandemic will end and how it may impact those lucky enough to still have their jobs.

There is also a lack of clarity among many investors on how the Coronavirus Aid, Relief and Economic Security (CARES) Act affects taxes, White noted.

It is times like these that advisors can prove just how much value they can have to their clients. For example, investors may not realize that irrevocable trust planning and gifting can be used to remove assets from estates and decrease the federal estate tax burden, according to White. She pointed to five things that advisors should make sure they do with their clients to protect them against potential rising taxes and take advantage of tax savings options available to them:

1. Plan Early

Even if clients have already filed their taxes for 2020, it is a good idea for advisors to tell their clients to start planning as soon as possible for next year, White said.

After all, she said: “There will be some challenges coming down the line [and] you want to be on top of those things… You don’t want to be caught flat-footed.”

2. Stress the Importance of Health Savings Accounts

Advisors can ask their clients if they are using health savings accounts, which provide immediate tax deductions and grow tax deferred. Withdrawals are tax free for qualified medical expenses, she noted.

3. Clarify CARES Act Tax Implications

Advisors should make sure they let clients know how they can take advantage of the CARES Act, White said.

The CARES Act has a few provisions related to charitable giving. First, it created an above-the-line $300 deduction for charitable contributions. As a result, clients who can’t itemize deductions can still receive a small deduction for a donation. The act also increased the deductible limit for cash gifts to a public charity from 60% of adjusted gross income to 100% of adjusted gross income.

Perhaps most significant is the waiver of required minimum distributions for 2020 as part of the CARES Act. Normally, one must withdraw and pay taxes on an RMD before making a Roth IRA conversion. Not this year, White noted.

The CARES Act, meanwhile, also has a provision that allows employers, including the self-employed, to defer the payment of the employer portion of Social Security taxes due by the end of 2020. Fifty percent of the deferred payments would need to be made by the end of 2021, with the other half by the end of 2022. Advisors should make sure their clients who may be impacted by this are aware of it, especially those clients who are self-employed.

4. Consider a Move

It might make sense for an advisor’s client to move to a different state that has low property taxes, or one that has low or even no income taxes, especially if they are close to retiring or have already retired, White said, or if they have just lost a job due to the pandemic. So it might be a good idea to point this out to a client who lives in a high-tax state such as California or New Jersey, White noted.

Florida might not be so attractive right now due to the spread of the coronavirus there. But Nevada is another state with no income tax that might be a good choice.

5. Factor in Potential Election Outcomes

Make sure clients’ portfolios are prepared regardless of the outcome of the November election, White noted. And, circling back to the first point, she said “now is the time” to start planning for this — not after the election.

A lot of it comes down to where your clients live and how much wealth they have. For example, it is widely expected that if the Democrats win back the White House and the Senate, while holding on to the House, they will look to make significant changes to the sweeping tax overhaul enacted in 2017 and boost income and estate taxes on the highest earners, as well as raise corporate taxes.

Regardless of the election’s results, however, White warned that costs related to the pandemic may require income taxes to rise, and a reduction in federal estate and gift tax exemptions could also be required.


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