As financial advisors, we’re continually working to differentiate ourselves from the competition, in addition to vying for potential clients’ attention. We’re up against investment hesitancy in the current market, do-it-yourself online tools and insurance agents. While we can’t promise more returns than the market can provide, we can set ourselves apart and improve clients’ bottom line by creating tax alpha.
Why Does Tax Alpha Matter?
Tax alpha is the added value that can be generated from effective, tax-intelligent planning and portfolio management. By applying tax-smart strategies, you can realize a higher value of after-tax returns for clients.
How to Implement Tax Savings for Clients
These are just a few of the strategies I like to start with to help clients reduce their tax liability:
Tax-loss harvesting has tax-saving potential. Financial advisors can harvest capital losses by selling investments that are performing below the original purchase price. Up to $3,000 can be applied annually to offset ordinary income, and any additional excess losses can be carried over to offset future gains.
Location, location, location. Any advisor worth their salt knows that strategically allocating assets among diverse account types can optimize tax outcomes. By placing assets in tax-exempt accounts like Roth IRAs or tax-deferred retirement accounts such as 401(k)s, a client can reduce their tax burden.
Postpone capital gains tax with a 1031 exchange. Also known as a “like-kind” exchange, clients can use proceeds from the sale of a business or investment property to buy a similar property – and pay taxes later. The 1031 exchange process is complex and requires some quick maneuvers to remain within federal guidelines, which is why our team approach at Wealthspring is so beneficial. Our financial advisors and CPAs work side by side to make sure clients are benefitting as much as they can, while planning ahead for tax returns.
Be strategic with charitable donations. Giving to charity brings personal fulfillment, but I also advise my clients to carefully consider the timing, amount and type of giving before proceeding. For example, donating appreciated securities instead of cash can have a tax benefit, by avoiding capital gains taxes and receiving a tax deduction for fair market value of the assets.
Transition your wealth wisely. Estate planning is one of the most important things we do for clients. By using tools such as revocable or irrevocable trusts, pre-death gifting strategies, family limited partnerships or even private family foundations, an advisor can help clients reduce their tax exposure and make sure assets are transferred to heirs in the most tax-efficient way possible.
These are just a handful of the strategies we rely on at Wealthspring, as tax laws evolve, and new opportunities present themselves. But one thing remains the same – creating tax alpha for our clients (and making sure they understand the strategic savings we’re recognizing for them) is the key to true holistic financial planning and sets Wealthspring Financial Partners apart from the rest.