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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Indeed, there are other causes outside the political sphere that can create influence. The economic landscape and the state of monetary policy dynamics\u2014like inflation\u2014may be a conduit for modifications.<\/p>\n
And then there are the uncertain events, such as the COVID-19 pandemic, that can create widespread disruption.\u00a0The American Rescue Plan Act<\/a>, 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\u2014including your current and prospective clients.<\/p>\n Tax legislation\u2014big or small\u2014undoubtedly has an impact. What financial professionals do to understand and leverage the changes can usually be quite valuable to the clients they serve.<\/p>\n For example, sometimes there are potential savings, other times there’s an advantage\u2014such 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.<\/p>\n 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.<\/p>\n You can rely on finding the information through online resources, such as the\u00a0IRS<\/a>\u00a0and\u00a0Social Security<\/a>, or if you are using financial planning technology or other software in your tech stack those changes may be automatically updated for you.<\/p>\n 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.<\/p>\n Keeping an eye on things like tax brackets and contribution limits is critical, as is being aware of specialized information\u2014like the child tax credit\u2014which 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:<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n When tax legislation changes are around the corner\u2014and they always are\u2014it 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.<\/p>\n 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.How to Be a Tax Resource<\/h2>\n
Information Is Your Friend<\/em><\/h4>\n
Be Proactive<\/em><\/h4>\n
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Partner with an Expert<\/em><\/h4>\n
Tax Legislation Projections in 2021<\/h2>\n
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