More On Tax Planningfrom The Advisor's Professional Library
- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
- Annuities: Estate Tax The value of certain types of annuities may be included in an estate’s value. Understanding the intricacies of these inclusions is a critically important aspect of estate planning.
A national tax study by BMO Harris Financial Advisors, released last week, found that although many taxpayers confidently prepared their own returns, they felt less smart about tax-efficient investing.
Forty-eight percent of those surveyed did their own tax returns, and 83% were confident that their completed tax returns would take advantage of all of the tax deductions, tax credits or other tax savings that might be available to them.
However, 45% of respondents admitted they didn’t know much about investment solutions designed to reduce overall tax liability, including protecting their investments from tax liability and transitioning them in a tax-efficient manner to the next generation.
Only 44% of survey respondents understood how capital gains were taxed, and 47% understood how dividend income was treated for tax purposes.
Pollara conducted the online survey of 1,000 Americans 18 and older between March 7 and March 10.
“There’s a sense of confidence this tax season as Americans across the country prepare their tax returns in advance of the April 15 filing deadline,” Mike Miroballi, president of BMO Harris Financial Advisors, said in a statement.
“However, it’s critical that people have an appreciation of and basic knowledge about how tax rules impact all their assets, including their investments.”
Miroballi said a financial professional could work with clients to determine investment solutions that best fit their specific needs and goals, including reducing tax liability and transitioning assets to the next generation in a tax-efficient manner.
Indeed, a wide spectrum of investors seeks tax and estate planning advice, according to UBS Wealth Management Americas.
The BMO Harris study also found that those expecting a tax refund planned to do these things with the money:
- Cover household bills and/or reduce credit card balances and other non-mortgage debt: 42%
- Save or invest: 35%
- Fund vacations or purchase leisure items: 16%
- Do renovations: 13%
- Donate their tax refunds to charitable causes: 10%
- Pay down their mortgages: 8%