With the extended July 15 tax deadline fast approaching and the November U.S. presidential election looming, taxes are now top of mind for many investors, and there are several ways advisors can help ease their clients’ minds and lessen their tax burdens for this year and 2021, according to Kalimah White, senior trust advisor for TD Wealth.
Higher taxes at all levels should be expected, as the federal government, states and municipalities continue to struggle to respond to the pandemic, she pointed out to ThinkAdvisor in a phone interview.
“Fear of the unknown” is the biggest issue for many investors now, she pointed out. After all, nobody knows when the pandemic will end and how it may impact those lucky enough to still have their jobs.
There is also a lack of clarity among many investors on how the Coronavirus Aid, Relief and Economic Security (CARES) Act affects taxes, White noted.
It is times like these that advisors can prove just how much value they can have to their clients. For example, investors may not realize that irrevocable trust planning and gifting can be used to remove assets from estates and decrease the federal estate tax burden, according to White. Advisors can also point out to clients who may not realize it that individual taxpayers can opt to request an extension until Oct. 15 to file their taxes if they need to this year, she said.
White pointed to five things that advisors should make sure they do with their clients to protect them against potential rising taxes and take advantage of tax savings options available to them:
1. Plan Early
Even if clients have already filed their taxes for 2020, it is a good idea for advisors to tell their clients to start planning as soon as possible for next year, White said.
After all, she said: “There will be some challenges coming down the line [and] you want to be on top of those things… You don’t want to be caught flat-footed.”
2. Stress the Importance of Health Savings Accounts
Advisors can ask their clients if they are using health savings accounts, which provide immediate tax deductions and grow tax deferred. Withdrawals are tax free for qualified medical expenses, she noted.
Advisors can also point out to clients that the IRS announced in March that it was “loosening the restrictions on those accounts” this year, she pointed out. As a result, plan sponsors can allow members to make changes to their health coverage elections, flexible spending accounts and dependent care coverage now, she said. So, if somebody didn’t opt to get coverage by the normal deadline because they didn’t need it at the time, but now suddenly do need it — maybe because a spouse lost a job — that person can now request it, she said.