Wealthy clients have had their hands full with tax considerations this year, including recent law changes and the sunsetting of many provisions of the Tax Cuts and Jobs Act (TCJA) at the end of 2025.
For instance, in 2026, the current lifetime estate and gift tax exemption of $12.92 million per individual will likely revert to some $5 million. “With the sunsetting of some of the TCJA provisions, some clients are up against that deadline to execute planning strategies,” said Thomas Pontius, senior financial planner at Kayne Anderson Rudnick in Los Angeles.
Advisors said it's crucial that clients and tax planners meet now to plan for tax law changes that may not happen years from now.
“General advice in the tax world is not as valuable as understanding the tax implications based on your specific circumstances,” Pontius said.
“Wealthy clients are often very busy with their career or business and often don’t have the time to think through the tax consequences of their investments and how they relate to their income,” said Erik Preus, head of investment solutions at Envestnet PMC in Minneapolis.
“The biggest mistake is not making time to plan, or addressing issues or concerns when there may be time constraints,” added Chris Murray, practice leader in Tax Services and partner at Aspiriant in San Francisco.
Now might also be time to grab a required minimum distribution from a retirement account after reviewing plan balances and asset allocations and “considered their current age, estimated life expectancy and forecasted after tax cash flow needs,” said Timothy P. Speiss, partner, Eisner Advisory Group LLC in New York.
Speiss also advised keeping an eye on possible future declines in the Federal Reserve interest rate and noted that clients could sell equities now at historic highs, despite periodic market ups and downs.
“Where do we stand on realized gains and losses YTD? This is typically a year-end conversation,” Speiss said. But “client discussions should occur now. ... If they have a tax-loss carryforward from previous years, is there a profit they might want to take now?”
Tax brackets are due to get tougher soon. “Don’t miss the opportunity to take advantage of the known, current low tax bracket by filling in income up to [threshold of] the next bracket,” said Jennifer Chomicki, senior director, Advanced Planning Strategies at Edelman Financial Engines in Fairfax, Va. “And watch your timing on selling appreciated stock and assets. That extra income may cause clients to pay more in Medicare due to IRMAA surcharges.”
Chomicki added that this year would also be a good time to consider a 1031 exchange when selling investment property to defer capital gains and that installment sales on any selling or assets or a business now can help defer taxes on some of the gain into later years.
Donor-advised funds continue to be popular for maximizing the timing and amount of charitable donation deductions while supporting charitable desires, Murray said, adding that retirement funding often needs attention, “whether it’s funding a solo 401(k) if a taxpayer has consulting income to looking at opportunities to do backdoor Roth IRA or mega backdoor Roth contributions. The opportunity to take advantage of tax-deferred or tax-free accounts is key to good planning.”
“Many wealthy clients, particularly business owners, have income that varies considerably year to year. This naturally leads to variability in their tax liabilities,” Preus said. “When this is the case, it can be very important for wealth investors to have certainty over the capital gains taxes associated with their investments. Being able to control gains realization with your investments, particularly in years where investors’ income is higher, can be a very powerful way to protect your after-tax wealth.”
Planning over the next year or so really means planning for the years beyond, advisors said.
“Tax laws will almost certainly change after 2025, when the income tax cuts from the TCJA are set to expire,” Preus said. “Even if some provisions are made permanent, there will likely be substantial changes regardless of which party prevails in the 2024 election.”