Yet another year has been filled with tax changes, most obviously the Inflation Reduction Act. It may be hard for clients to sift out what’s most important about the new legislation, along with other tax changes that didn’t garner as many headlines. That's why advisors say wealthy clients should start preparing for their taxes now.

“High-net-worth clients must begin to think about their 2022 tax compliance much earlier than March or April of next year,” said James G. McGrory, a partner with Armanino LLP in Philadelphia. “A wealthy client who has the information regarding the family gifting they made during 2022 in order can have their 2022 gift tax returns prepared in January 2023, rather than waiting until later in the year. A client with foreign bank accounts can have their 2022 Form 114 prepared and filed in January.”

Tax compliance was complex for wealthy clients last year, especially as international information return reporting for pass-through entities became a mandatory filing requirement. “This new requirement caused many partnership and S corporation tax returns to be extended and submitted closer to the September 15 filing deadline,” McGrory said. “This resulted in many individual income tax returns for wealthy clients not being able to be completed until closer to the October 15 extended due date.”

Yet another aspect of the pass-through credit complicated matters, advisors said.

“The main issue for my clients actually started in December of last year and continues this year: the pass-through entity credit,” said Robert S. Seltzer, a CPA at Seltzer Business Management in Los Angeles. “Practitioners realize that certain tax documents such as K-1s frequently come in late. Sending the other documents that come by mid-February, such as W-2s, 1099s and 1098s, early can make their tax preparation process proceed much more smoothly.”

Possible estate tax law changes also drove many wealthy clients to establish and fund trusts, McGrory added. “Wealthy clients were required, some for the first time, to file federal and possibly state gift tax returns, including providing some very complex and lengthy disclosures to the IRS,” he said.

“The key to easing the stress of tax season is to stay organized,” said Lisa Cappiello director at Personal Wealth Advisors at EisnerAmper in New York. “Taxpayers should ... ensure address changes have been updated for tax reporting, engage a tax preparer, and [be ready to] file an extension if necessary. Be prepared if there’s money owed, and have a plan for expected refunds.”

Use prior year taxes as a starting point to gather information and focus on anything new in 2022. “Documents pertaining to the sale or purchase of a home, a home refinancing, gifting of stock or large cash or non-cash contributions and items eligible for tax credits should be gathered and organized in advance,” Cappiello said.

Clients need to take note of changes over the previous year, another advisor said.

“Open a new brokerage account? Did you sell your business? Did a child start college?” said Melissa Labant, principal in the Washington, D.C., office of CLA. “Compile a list of any payments or expenses during the year for which you think you may be entitled to a benefit. These may include charitable contributions, estimated tax payments, business expenses, IRA contributions and education-related expenses.”

Recent IRS increases in the standard deduction means wealthy clients should explore bunching itemized deductions for 2022 and then plan on taking the standard deduction for 2023, McGrory said, adding that now’s also a good time to start gathering charities’ confirmation letters for deductible contributions.

President Biden’s student loan relief will produce many more borrowers benefiting from tax-free loan forgiveness, assuming the relief survives court challenges, Labant said. “You may also have clients that benefit from the extension or expansion or energy-efficient incentives, although some of the most favorable provisions don’t apply until next year,” she said. “Congress will also need to address the tax provisions that expired at the end of 2021. That is the area ripe for the most complexity.”

Provisions being retroactively extended to the beginning of 2022 in January or February next year could delay the start of filing season “or create an administrative mess for both tax practitioners and the IRS if individuals must amend their tax returns,” she said.