Tips to help make this year less painful for wealthy clients

From charitable giving to capital gains and Roth conversions, ways to ease tax bills

Nov 30, 2014 @ 12:01 am

By Darla Mercado

Though just a few weeks remain in 2014, there's still time to implement year-end tax-planning strategies.

This was a painful year for many wealthy taxpayers as they contended with higher levies on their 2013 returns from the American Taxpayer Relief Act of 2012.

“When ATRA was enacted on the first day of 2013 and the new tax rates came in, people didn't understand how different it was going to be,” said Gavin Morrissey, senior vice president for wealth management at Commonwealth Financial Network. “It was an expensive lesson learned by everyone.”


Advisers are dealing with clients who wrote large checks to the tax man in April and whose assets have climbed in value. The S&P 500 is up nearly 14% this year, which sets the table for potential capital gains taxes.

Here are a few tips for advisers on how to spare clients from getting scalped.

Search for ways to harvest losses. Though going through a client's holdings for loss opportunities at this time of year is a given, the bull market we've been through means advisers should look even deeper.

“The market is high, so this year is different,” said Jean-Luc Bourdon, a certified public accountant and personal financial specialist at BrightPath Wealth Planning. “There are few opportunities for loss harvesting, and we're looking for opportunities to avoid capital gains taxes.”

(More: Higher taxes loom for fund investors)

Talk to clients about donor-advised funds and charitable opportunities. Mr. Bourdon uses donor-advised funds for clients who are inclined to give cash each year.

If you need to rebalance a client's holdings, think about donating that appreciated stock to charity. That way, the client avoids capital gains and garners a charitable deduction.

Bonus: Clients who held the stock for more than a year get the full-market-value deduction for the contribution, Mr. Bourdon said.

A survey from UBS Wealth Management Americas of more than 2,200 wealthy and affluent investors found that 91% of millionaires participate in philanthropy each year, and nearly 40% donate at least $100,000 in their lifetime. Giving isn't limited to the wealthiest investors, either.

“Charitable planning is on the table for high-net-worth clients and for those who aren't but who want to front-load charitable giving into the future,” Mr. Morrissey said.

Don't forget about the Roth conversion.

"The Roth conversion is more valuable than it was before as rates go up,” said Bruce D. Steiner, a tax attorney at Kleinberg Kaplan Wolff Cohen.

This offers a chance to combine strategies. If a Roth conversion makes sense for a client at a given time, offset the income tax on the conversion by using the deduction you get from a charitable gift, Mr. Morrissey said.

Consider accelerating deductions where possible. Clients who expect to earn a lot this year might want to consider accelerating their deductions and deferring their income as much as they can, to minimize the hit they will take on income taxes.

“Not many people have the option of timing the receipt of income, but talk to your tax preparer and see if there's anything you can do in the last month that can make a difference,” Mr. Morrissey said.

Think about creative sources of deductions. Do you have a client who racked up considerable medical costs over the course of 2014? Mr. Bourdon suggests weighing the impact those outlays might have on the person's tax return.

Taxpayers can deduct the amount by which total medical costs exceed 10% of adjusted gross income, or 7.5% if the taxpayer or spouse is over 65.

“We reach a period where we incur high medical expenses, so when we hear that a client is in a care facility or is having a health crisis, we think about what it means for the tax return and how much that deduction will be,” Mr. Bourdon said. “Medical expenses can be so significant — they'll make a big change in your tax situation.”


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