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Top 5 Tax Tasks to Tackle With Clients Before Year-End

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What You Need to Know

  • There is still time before the end of year to help your client improve their financial position.
  • Advisors should prepare a client's tax report before meeting with their CPA.
  • A potential increase in taxes means it's wise for clients to covert traditional IRA funds to a Roth.

As 2021 enters its final days, there is still time to do meaningful planning to help improve your client’s financial position and solidify your relationship.

Here are five areas that you should address with your clients:

1. 2021 Tax Estimate

Set up a meeting with your client’s CPA and prepare a 2021 tax estimate. This can be valuable in uncovering opportunities that you and your client can address before the end of the year.

Start by preparing a tax report for the CPA outlining the income, gains/losses, and capital gains for the year. Not only is this a great way to add value for your client, but you build a relationship with their CPA, too.

2. Tax Loss Harvesting & Rebalancing

Using the tax report, review your client’s gains and losses for the year. Markets have been generous the last two years, but you may still have losses that could be harvested.

Be sure to review your client’s most recent tax return to identify if they have carry-forward losses that could be used. This may present an opportunity to sell assets that have appreciated greatly with little or no tax liability.

Rebalancing at the end of the year may make sense for a client. You can realign assets with their goals, objectives and risk tolerance. Just make sure this is coordinated with their year-end tax picture in mind.

3. Review Retirement Accounts & Year-to-Date Contributions

Review retirement accounts and see what contributions were made this year. Clients may be able to defer additional monies by increasing their withholdings on the remaining checks this year. Self-employed individuals could bonus themselves and defer it toward their retirement.

4. Roth Conversions

The future of taxes is always in question: Will they be higher or lower? Many believe that higher taxes are coming to help pay for the stimulus to the economy throughout the pandemic.

Those who have large traditional IRA balances may consider paying taxes now and converting some of their balance to a Roth IRA. This could effectively reduce your clients’ taxable income in the future and create a pool of assets that will grow tax-free.

5. Charitable Giving

Many of your clients are charitably inclined. Learning about the organizations and causes they are passionate about can deepen your relationship with them. You may learn you have something else in common with them or be introduced to an organization that is of interest to you, too.

A charitable contribution or conversation about a donor-advised fund may be helpful to them. You may be able to get this completed before the end of the year or it may start a conversation that continues next year and for the future.

Year-end planning is a win-win and allows you to have meaningful conversations that are not directly investment-related. Clients see great value in the advice and guidance we provide, and this allows you to shine.

Helping clients plan for their current year’s taxes will require a conversation with their CPA and naturally showcases your ability to plan. Their CPA will be happy that you have brought the client’s full picture to the discussion, allowing them to help proactively plan for their client, too.

Once the clock strikes midnight on January 1, 2022, many of the tools available to us as planners and our clients are no longer there. Use these waning days of 2021 to add value, build stronger relationships and set yourself up for an amazing 2022.

Lawrence D. Sprung, CFP, is founder and wealth advisor at Mitlin Financial and host of the podcast Mitlin Money Mindset.