As clients try to adjust to yet another tax regime under a new administration in Washington, D.C., what should advisors’ advice be for them through the rest of the year?

“One of the largest unknowns is when the tax changes will go into effect,” said Jason Field, financial advisor at Van Leeuwen & Company in Princeton, N.J. “If the tax changes are retroactive, then it becomes more difficult to plan.”

Under a proposal floated in September by the U.S. House of Representatives’ Ways and Means Committee, the capital gains tax for high-income taxpayers would rise to 25%. The new rate would be retroactive and apply to gains realized after September 13, 2021. (The top rate would be 28.8% when combined with a 3.8% surtax on net investment income.)

“Wealthy clients feel like they have a target on their back,” said Kara Harmon, partner at Moneta in St. Louis. “Tax increases are [their] hot topic right now.”

Capital gains exposure is one area to watch in the fourth quarter. “After years of strong growth, clients might find themselves in a completely different allocation—and likely higher risk exposure—than their original plan called for, based almost entirely on the growth of the stock side of their portfolio,” said Jeff Winn, managing partner at International Assets Advisory in Orlando, Fla.

Pulling income into the current tax year should be a priority. “For example, if a company is able to pay annual bonuses in December instead of waiting until March, executives earning more than $450,000 would pay up to 4.6% less in taxes,” Harmon said.

That means it’s important to turn again this year to such time-tested strategies as tax-loss harvesting, she added.

Bill Smith, national director of tax technical services at CBIZ MHM’s National Tax Office in Washington, D.C., recommended maximizing the qualified business income (QBI) deduction before the break is curtailed.

Taxpayers who qualify for exclusions to the net investment income tax for trade or business income would find themselves subject to this tax under new rules, Smith added, and said they “should act quickly to close deals by year’s end.”

Field said to also make sure to maximize all benefits that allow you to defer income, “such as a 401(k), IRAs, deferred compensation programs or any other retirement account contributions.”

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