Tax planning is a crucial part of financial management, and tax season presents a prime opportunity for financial advisors to assist clients in proactively reducing their tax liabilities and maximizing savings.
Tax prep alone may not address the real-time strategies necessary for a client to have the healthiest tax profile. Advisors can help clients identify ways to lower their tax bills, maximize deductions and provide strategic guidance in the current tax year and years to come.
And, with a new administration in place, advisors can navigate potential changes — such as extending tax cuts in the 2017 tax overhaul known as the Tax Cuts and Jobs Act — that might affect their clients’ situations.
Here are four topics that advisors can lean into to establish an ongoing conversation that can aid in fostering relationships and building trust.
Importance of Financial Hygiene
Financial hygiene should be practiced year-round, not just during tax season.
At the beginning of the year, advisors should educate clients on effective withholding elections and make sure that their preferences are updated. This is also an ideal time for clients to revisit their 401(k) contributions and allocations, with a mindfulness of how a bonus or large payment should be directed. Advisors might ask questions such as, “Are you contributing the maximum that you can to your 401k?,” “Are you aware of your options for traditional or Roth contributions?,” or “Are you taking full advantage of your company match?”
In 2025, new guidelines regarding contribution limits will be introduced, and this information should be shared with clients so they can plan accordingly:
- For those younger than 50, the new maximum contribution limit will be $23,500.
- For clients older than 50, there is a catch-up contribution of an additional $7,500.
- For clients aged 60-63, there will be an additional catch-up contribution amounting to $11,250, akin to a super catch-up.
Advisors have a responsibility to offer guidance on the types of investments and the timing and taxation associated with them; decisions in these areas can have significant tax implications for a client's annual filing.
Notable Changes for Tax Year 2025
The adjustments for tax year 2025 will generally apply to income tax returns filed starting in tax season 2026, and it’s advised that advisors regularly visit the IRS website to ensure that they stay up to date on any changes that might affect their clients.
Two tax items that are likely noteworthy to many taxpayers are:
Standard deductions:
- For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction rises to $15,000, an increase of $400 from 2024.
- For married couples filing jointly, the standard deduction rises to $30,000, an increase of $800 from tax year 2024.
- For heads of households, the standard deduction will be $22,500 for tax year 2025, an increase of $600 from the amount for tax year 2024.
- Estates of decedents who die during 2025 have a basic exclusion amount of $13.99 million, increased from $13.61 million for estates of decedents who died in 2024.
Other notable adjustments for tax year 2025 include:
- Marginal rates
- Alternative minimum tax exemption amounts
- Earned income tax credits
- Medical savings accounts
Legislation and Shifts That Could Create Tax Implications
Key provisions from the TCJA are set to expire Dec. 31. If Congress doesn’t renew or amend the legislation’s tax provisions, individual filers will see a rise in their income tax rates, a lower standard deduction, changes to itemized deductions and a rollback of the child tax credit.
These changes could reshape the financial outlook for many Americans.
Individual tax rates:
- When the TCJA expires, marginal tax rates for individuals will revert to pre-2017 levels, including a maximum rate of 39.6% from 37%. Generally, Democrats are hoping to raise the top rate, whereas Republicans support lowering marginal rates.
Standard deductions:
- The 2017 legislation nearly doubled the standard deduction for both single and joint filers when it went into effect in 2018. Once the bill expires, the standard deduction will return to pre-2017 levels, with an adjustment for inflation.
Revisit Tax Returns After Tax Season
When the tax season rush subsides, reviewing clients’ personal and business tax returns can help uncover a wider view of their financial portfolio, including increasing retirement savings in traditional or alternative strategies, investing in tax-advantaged accounts, exploring tax-deferral options, developing or updating charitable strategies, efficient business income strategies and registration considerations and handling estate tax returns.
Clients often leverage multiple professionals, have uncoordinated accounts and lack synchronization in their financial behavior. As such, they may not be sharing all relevant information with their advisors, who need to have a complete picture for the strongest and most effective financial strategy.
Building trust through addressing all corners of the balance sheet and goal planning like retirement, education, legacy and charitable giving, tax, estate and family dynamics help establish the importance of having a coordinated approach to financial hygiene. Understanding a client’s tax situation is crucial for offering the best planning advice.
What’s Next?
April means that clients are primed for proactive conversations about their taxes. Advisors should seize this opportunity to discuss their individual tax situations and strategize for the remainder of the year — and beyond. Consider using newsletters to highlight key tax changes and useful tips, as well as social media to connect with both existing and prospective clients.
And, of course, nothing replaces face-to-face discussions to address specific needs and build stronger relationships.
Jen Hollers heads high-net-worth solutions at LPL Financial, a wealth management firm supporting financial advisors with business models, services and technology resources.
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