There’s pervasive delusion within the monetary planning neighborhood that advisors can’t legally give tax recommendation. In keeping with Ben Henry-Moreland, a licensed monetary planner and senior monetary planning nerd at Kitces.com, the fact is that monetary recommendation has tax penalties — whether or not advisors acknowledge it or not.
As Henry-Moreland defined throughout a current Kitces.com webinar, nearly each monetary planning subject has tax issues, and advisors can present a substantial amount of added worth by serving to shoppers plan to pay earnings and capital beneficial properties taxes in essentially the most environment friendly method.
Regardless of the outstanding position of taxes in monetary planning, Henry-Moreland mentioned, advisors are sometimes prohibited by their compliance departments from making suggestions for a selected plan of action on a sure tax technique. This in flip signifies that advisors are sometimes left to determine on their very own tips on how to information their shoppers on tax-related issues with out crossing the road into “what the IRS considers capital ‘T’ and capital ‘A’ Tax Recommendation.”
In keeping with Henry-Moreland, it is vital for advisors to know that most of the tax methods that they might suggest will not be meant to shelter earnings to keep away from taxation altogether. They’re as a substitute designed to make sure that earnings is taxed effectively, equivalent to by optimizing the timing or nature of earnings when it’s taxed. Such advisory insights are completely authorized and are more and more anticipated by shoppers working with planning professionals.
The important thing level is that understanding what constitutes tax recommendation versus tax planning that doesn’t go as far as to make a suggestion may also help advisors extra confidently have interaction with their shoppers on tax issues with out violating the foundations set in place by their compliance departments, Henry-Moreland mentioned.
See the accompanying slideshow for a evaluate of 9 key tax information and issues for wealth administration professionals, particularly these in search of to work with wealthier and extra refined shoppers who’re anticipating help on such issues. As Henry-Moreland emphasised, the potential for including worth by way of tax planning is great, as long as advisors are cautious to keep away from authorized pitfalls.