4 Tax Tips for Wealth Managers
October 14, 2014 9:10 AM
4 Tax Tips for Wealth Managers
Financial advisors get trained in taxes, but often it's just a basic framework for how to structure investments.
Hiring a CPA can help you bring a much deeper level of understanding to a client's tax situation.
Click through to see some of the reasons having a CPA on staff will help clients, or read this as a single-page story here.
Read the cover story: Are CPAs Key to Financial Planning's Future?
Hiring a CPA can help you bring a much deeper level of understanding to a client's tax situation.
Click through to see some of the reasons having a CPA on staff will help clients, or read this as a single-page story here.
Read the cover story: Are CPAs Key to Financial Planning's Future?
1. Understand implications of investment income.
From the Medicare surtax to the new, higher top tax rate, wealthy clients face a tax picture with widening complexity. While its never wise to let the tax tail wag the investment dog, knowing how investments impact the tax picture in ways that are not always obvious can save clients big.
Will selling an investment this year produce gains big enough to trigger the Medicare surtax? Should municipal bonds be pursued as a source of tax-free income? Do you want your tax-oriented financial planning from someone who has one course in tax or from someone who does it all the time? asks Michael Kitces, director of financial planning at Pinnacle Advisor Group in Columbia, Md.
Will selling an investment this year produce gains big enough to trigger the Medicare surtax? Should municipal bonds be pursued as a source of tax-free income? Do you want your tax-oriented financial planning from someone who has one course in tax or from someone who does it all the time? asks Michael Kitces, director of financial planning at Pinnacle Advisor Group in Columbia, Md.
2. Get smarter about asset location.
Investment professionals know that asset allocation is important, but so is asset location. The tax treatment of assets varies by which type of account theyre housed in. Bonds, for example, are better held in tax-sheltered accounts because their income is taxed at the ordinary rate of up to 39.6%. Stocks fare better in non-retirement brokerage accounts because long-term gains can be taxed at the favorable capital gains rate of 20% rather than the higher ordinary income rate.
Where assets are housed is a key component of Morningstars gamma factor, a way to calculate an advisors value. Proper asset location can boost returns by 20 to 50 basis points a year, Morningstar researchers have concluded.
Where assets are housed is a key component of Morningstars gamma factor, a way to calculate an advisors value. Proper asset location can boost returns by 20 to 50 basis points a year, Morningstar researchers have concluded.
3. Adjust retirement withdrawal strategies.
You know the stats: 10,000 baby boomers retire each day, a pace expected to continue for the next 19 years. If your boomer clients havent already made the shift to retirement, they soon will.
They are going to need financial advice on how to minimize taxes and generate enough income, says Roger Ochs, CEO of independent broker-dealer HDVest.
They are going to need financial advice on how to minimize taxes and generate enough income, says Roger Ochs, CEO of independent broker-dealer HDVest.
4. Probe tax returns to see what youre missing.
For a CPA, a tax return is like catnip. A talented accountant can spot not just missed opportunities for tax savings, but also potential gaps in a clients financial picture. I can look at somebodys tax return and in five minutes have a basic ideas of where they should be going with their wealth management, says Jack Oujo, a CPA and financial planner in Wall, N.J., whos affiliated with HDVest.
Can your clients shift income into another year to be eligible for a federal subsidy for health insurance on the new exchanges? (A family of four can earn up to $94,200 to be eligible.) Are they contributing enough to tax-deferred retirement accounts or too much?
Read more:
Are CPAs Key to Financial Planning's Future?
How a CPA Partnership Helped Build a $3.5B RIA
Expert Resources: Who Should Be on Your A-List?
Can your clients shift income into another year to be eligible for a federal subsidy for health insurance on the new exchanges? (A family of four can earn up to $94,200 to be eligible.) Are they contributing enough to tax-deferred retirement accounts or too much?
Read more:
Are CPAs Key to Financial Planning's Future?
How a CPA Partnership Helped Build a $3.5B RIA
Expert Resources: Who Should Be on Your A-List?
