October Tax Planning Meeting with Your Client
Now that the tax-extension due date of October 15th is behind us it’s time to shift our focus towards conducting end-of-year, tax planning meetings with our clients. A semi-annual tax checkup is a wonderful opportunity to strategize, create an action list and further the client-planner relationship.
Here are some tax-planning strategies that are worthwhile exploring.
Strategy #1 – Tax Loss Harvesting
You’ve probably heard it said that a “paper loss” isn’t really a loss until you sell the security. Here’s the problem with that thinking – companies don’t always come back or if they do it could take a really long time. So, the individual holds a portfolio of “dogs” and there’s real opportunity loss. Your job is to help the client take the difficult steps of: realizing that the investment did not perform as expected, selling the security, recognizing and reaping the loss, and moving on to better investment opportunities.
Strategy #2 – Explore Available Tax Credits
Tax credits are golden dollars; they are applied dollar-for-dollar against tax liability. During your client meeting discuss new and existing tax credits (e.g., qualified tuition for higher education, home-buyer credit, energy-related credits, child credits, etc.).
Strategy #3 – Consider a 2010 Roth Conversion
The $100,000 income cap on Roth Conversions was eliminated in 2010. Moreover, the income recognition of converted assets can be spread over two years rather than fully in the year of conversion. (Refer to my post entitled, “To Roth or Not to Roth – That’s the Question.”)
Strategy #4 – Timing of Income Recognition
Exercising incentive stock options may have material alternative minimum tax implications. Selling stock with short- or long-term capital gain will generate tax liability. Discussing both the impending tax implications and fundamental buy/sell/exercise rationale will help to dictate current or deferred action.
Strategy #5 – Clean Out the Closet
I once heard a CPA (tax professional) say that she always reminded her clients to clean out their closets before year end. Yes, the client would be entitled to a charitable deduction; but moreover, it was a renewing process. (Having just relocated out-of-state after 20 years in one residence I am a huge advocate of this suggestion.)
I welcome your comments.
