Want to ramp up your advisory business? Draw up your strategies with income tax savings in mind.
Once upon a time, certified public accountants were the primary go-to source for clients’ income tax planning strategies. But investing has become so intricately woven with tax management — thanks to the American Taxpayer Relief Act of 2012 — that advisers are in a prime position to address clients’ portfolios with tax savings in mind.
“With a five-dimensional tax system, the opportunity to add value by mitigating taxation is a big opportunity,” said Robert S. Keebler, partner at Keebler & Associates. “You can increase the after-tax return on a portfolio. It takes pressure off the portfolio if you can be tax efficient.”
Here’s a quick summary of ATRA as it relates to your clients: Single filers with taxable income over $400,000 and married-filing-jointly filers with taxable income over $450,000 will be subject to a top marginal income tax rate of 39.6%, plus a top marginal tax rate of 20% on long-term capital gains.
Starting at the $250,000 (single) and $300,000 (married, filing jointly) levels, there's also a phaseout of personal exemptions and itemized deductions. There’s also the 3.8% surtax on net investment income, plus the 0.9% Medicare tax on wages. Both apply at $200,000 income level for single filers and $250,000 for married filing jointly.
Aside from ATRA, Mr. Keebler says there’s a second driving force enabling advisers to better cover some of their clients’ tax needs through financial planning and investment management.
“Technology allows advisers to enter this space easier than ever before,” he said. “In the past, you could argue a lot of this work needed to be done on excel spreadsheets and this required the analysis skills of a CPA. Now it’s driven by tech, and it’s open to a broader group of people.”
To that end, Mr. Keebler is drafting a list of 75 tax tips for advisers: “Best Income Tax Strategies for Financial Professionals to Generate Tax Alpha.” Here is a handful of them.
By Darla Mercado