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This is the fifth in a series of 23 tax tips thatAdvisorOne will publish on each business day in March as part of our Tax Planning Special Report (see our Special Report calendar for a more complete list of topics to be covered and experts who will deliver their insights).
Today’s tip comes from Bernard Kiely of Kiely Capital Management in Morristown, N.J. Kiely is a CFP and CPA and has been a fee-only financial planner and provider of income tax services for individuals for more than 25 years. He is also a long-time member of NAPFA, where he serves as the dean of NAPFA University’s School of Taxation.
The Tip: Get Clients to Tell You Immediately When They Have a Big Bonus or Capital Gain
Often, being constantly aware of a client’s cashflow situation can provide an advisor with opportunities at the time of an event, rather than having to pick up the planning pieces later when there are fewer options. Kiely (left) stresses the importance of impressing on your clients the need to check with you immediately when they experience any big liquidity event, particularly if they are in line for a big bonus or capital gain.
He tells the story of a client of Kiely Capital Management who received an employment bonus of $1 million. Instead of checking with Kiely about what this would do to his taxes right away, the client waited until tax season, which is when Kiely found that the client owed $50,000 in additional taxes. Had the client gone to Kiely before the end of the tax year in which he’d received the bonus, he could have arranged to pay the taxes on the bonus that same year, and thus would have avoided $10,000 in alternative minimum tax (AMT) payments.
Along these same lines, Kiely also suggests that clients pay state income tax in the same year in which they receive a large boost in income, and that you investigate their assets to harvest tax losses against a big increase in income so that the eventual tax bite is minimized.
See our Tax Planning Special Report calendar for a list of future topics to be covered.