End-of-year tax moves grab headlines (and clients’ attention), but early in the calendar marks a good time to start tax planning for the current year.

Jim Bertles, managing director at the Palm Beach, Fla., office of Tiedemann Advisors, sees wealthy clients currently concerned about domestic and international uncertainties, deficit worries and the federal government’s eventual need to raise revenue.

“Some clients are taking steps to lock in or protect their increased estate tax exemptions early in the year by transferring significant assets to their children and grandchildren,” he said. “We’re also seeing interest in moving irrevocable non-grantor trusts from high-tax to low-tax states.”

The Tax Cuts and Jobs Act roughly doubled the gift and estate tax exemption, said Oscar Vives Ortiz, CPA/PFS and member of the American Institute of CPAs personal financial specialist credential committee. “This was set to decrease in 2026. For taxpayers with taxable estates or those who had taxable estates in 2017, there were questions regarding whether gifts made during the higher exemption years of the TCJA would be clawed back when exemptions came back down.” IRS regulations have since clarified that use of today’s higher exclusion amount won’t result in a future clawback.

Clients on the fence about making a gift can look to today’s low interest rates, said Tara Thompson, director of research, wealth planning and analysis at Bernstein Global Wealth Management. “A client can set up an intentionally defective grantor trust and lend assets equal to or exceeding the exclusion to that trust at the applicable federal rate [which is low]. Should the client later want to take advantage of the increased exclusion and make a gift to the trust, they simply forgive all or a portion of the note,” Thompson said.

Some tactics from the past remain valid this year. That includes maxing out retirement accounts and considering a solo 401(k) if self-employed, and looking at wage withholding and considering whether to adjust for 2020. “For some, adjusting to take additional deductions or to maximize the 199A deduction can be advantageous,” said Kathleen Buchs, CPA at MAI Capital Management in Cleveland.

“Get your annual exclusion gifting done ASAP,” said Craig Richards, director of tax services at Fiduciary Trust Company International in New York. “The amount for 2020 remains at $15,000 per donee. Consider using any additional unified credit remaining to give gifts above the annual exclusion … most of the Democratic leaders are campaigning to reduce the amount of gift/estate tax exemption.”

Market ups and downs sometime facilitate end-of-year tax-loss harvesting. A slump in the fourth quarter of 2018, for example, provided harvesting opportunities to counteract hits such as the loss of the state and local tax deduction. Last year’s robust markets offered no such chance.

“I expect to have more clients, especially those who pay state and local income taxes, focusing on after-tax returns in the coming year,” said Thompson from Bernstein Global Wealth Management. “Many managers delayed rebalancing toward the end of last year to defer gains into 2020. Some of these rebalancing gains will likely be taken in the first quarter, leaving clients with early-year net gains.”

If practicel, convert from a corporation that uses the IRS Form 1120 to an S corp, which uses Form 1120-S. “This would possibly enable a taxpayer to receive the qualified business income deduction,” said Charlene Wehring, CPA and advisor with Avantax Wealth Management in Bellville, Texas.

Elsewhere, she adds, look at your capital gains carryovers from 2019. If you have a stock that you’re wanting to sell with a large profit and have losses carrying over from prior years, you may be able to offset the gains.

Real Estate And Taxes
Wehring also notes that if high-net-worth individuals sell real estate at a large gain, they can still defer the gain by doing a like-kind exchange.

Tax advisors also continue to tout the tax breaks of qualified opportunity zones.

Real estate can hold other surprises this year for wealthy clients, according to Ortiz, including if they sell significantly depreciated holdings—which can come with a high tax bill later.