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Tax Legislation and Staying Proactive in Your Client’s Tax Strategy

Michelle Riiska August 25, 2021

With newly proposed tax legislation looming, helping clients navigate this environment presents a big opportunity for today’s financial professionals. Tax strategy is all about giving clients an accurate depiction of the options available to them, within the context of their short and long-term objectives, to make the best decision on what to take advantage of.

As more and more people look for advice on these changes and the implications to their tax strategy and broader financial plan, a trusted advisor can be a source of guidance.

As the World Turns, So Does Tax Law

Almost every year there can be modifications to tax code that affect the general public. Sometimes these are minor adjustments that may only affect a small population. And other times, events can trigger a more sizable shift that really transforms tax law. There are several factors that can impact tax codes and spur changes.

First, an administration change in public office almost always triggers changes. If the party affiliation shifted with the administration change then there will almost certainly be change.

Indeed, there are other causes outside the political sphere that can create influence. The economic landscape and the state of monetary policy dynamics—like inflation—may be a conduit for modifications.

And then there are the uncertain events, such as the COVID-19 pandemic, that can create widespread disruption. The American Rescue Plan Act, also referred to as the COVID-19 Stimulus Package or the American Rescue Plan, was enacted in 2021 due to COVID causing some temporary changes that affect us all—including your current and prospective clients.

How to Be a Tax Resource

Tax legislation—big or small—undoubtedly has an impact. What financial professionals do to understand and leverage the changes can usually be quite valuable to the clients they serve.

For example, sometimes there are potential savings, other times there’s an advantage—such as saving early on to reap additional compound growth. Alternatively, there could be changes that would prove disadvantageous to a client, such as increasing tax rates or decreasing estate tax exemptions, which provides the opportunity to mitigate any negative effects through preparation.

Information Is Your Friend

Clients often aren’t aware of all their options. If they aren’t doing the research themselves, they wouldn’t know about a change and may miss out on an opportunity. Importantly, advisors need to stay abreast of tax legislation in order to provide value.

You can rely on finding the information through online resources, such as the IRS and Social Security, or if you are using financial planning technology or other software in your tech stack those changes may be automatically updated for you.

Be Proactive

With planning software, you may also have the ability to build in projected tax changes as assumptions, so you can really help prepare clients for what’s ahead.

Keeping an eye on things like tax brackets and contribution limits is critical, as is being aware of specialized information—like the child tax credit—which may affect a portion of your client base. Whether your clients are new to the workforce or aging to retirement, below are some key topic areas to think about for clients across many life stages: debt accumulation, wealth accumulation, preservation, and transfer:

  • Contributing to a health savings account (HSA)
  • Education planning with a 529
  • Establishing trusts and planned gifting
  • Estate planning and the allowable exemption limits
  • Itemizing deductions or taking the standard deduction
  • Naming beneficiaries
  • Repaying student loans
  • Saving for retirement
  • Utilizing life insurance
  • Withdrawing from retirement

The list above is by no means exhaustive, but it is meant to illustrate that each financial decision for the future likely has a tax implication associated with it.

Take retirement withdrawals for example. If your clients are approaching an age where you must take required minimum distributions (RMD) out of their 401(k) then you likely have built a strategy on this age assumption and whether they will be taking Roth or traditional contributions. If there is a change to the age that RMDs are required, this could make a big difference for people nearing retirement.

Partner with an Expert

If tax strategy is not a specialty of yours or your firm, there’s also a choice to outsource this expertise to ensure your clients still benefit from a full-picture financial review.

Partnering with a certified public accountant (CPA) or other tax professionals holding designations can be a great resource to augment your offering. For those using financial planning technology you can make sharing and exchanging information about a client’s situation easy through a secure portal.

Tax Legislation Projections in 2021

When tax legislation changes are around the corner—and they always are—it is up to financial professionals to know the changes and understand how to leverage the options for clients. Those who do so can more deeply serve current clients and develop meaningful relationships with new ones.

To learn more about what’s ahead or recently occurred in tax legislation in 2021, see a webinar below that I participated in with my colleague Madeline McAleer of the eMoney Financial Planning Group.

*Please note, CE credit will not be earned for on-demand webinars.

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

About the Author

Michelle joined eMoney over four years ago after working for an RIA where she first became acquainted with eMoney as a user of the software. She started her career at eMoney as a Customer Service Representative, which allowed her to use the skills she obtained as a Communications Major/Sociology Minor at Hawaii Pacific University to gain a great understanding of how our users utilize the software, and the questions clients may need answered through technology. She has since moved on to working with the Financial Planning Group where she works on escalated cases and participates in industry research. Michelle recently obtained the ChFC® marks and is looking to obtain her CFP designation. You can find her being overly enthusiastic about tax legislation in webinars, fishing the Elizabeth River, or coming up with new recipes that rival both the complexity and unpredictability of cryptocurrency.

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Welcome to
Heart of Advice

a new source of expert insights for
financial professionals.

Get Started

Tips specific to the eMoney platform can be found in
the eMoney
application, under Help, eMoney Advisor Blog.