How to Create a âTax Planning Mindsetâ Instead of a Checklist
You talk the (tax) talk, but can you walk the walk? The industry loves to highlight the increasing importance of tax management and new tax-focused technology tools, many of them powered by AI. But is tax-savvy financial planning now becoming the norm? Not really, according to a panel at the American College of Financial Servicesâ Horizons retirement conference in Orlando this week. In fact, the experts found that full implementation of tax services has lagged, and while some firms are excelling, others still donât understand what they should realistically be building. While the answer will look different for each firm, advisors should be moving beyond annual tax conversations to a âlifetime tax-planning mindset.â âManaging taxes is like building a house,â said Dave Alison, president of wealth management at Prosperity Capital Advisors. âThe first thing you do is hire an architect to draft a blueprint, but thatâs only the start of the process.â Blueprints, like plans to manage taxes, just collect dust unless you hire someone to do the building and someone to maintain it. âA true tax-planning mindset means advisors are drafting, building and maintaining the house,â Alison added. If tax planning is like building a house, then the fundamental building blocks are probably strategic Roth conversions, said Jeff Levine, chief planning officer at Focus Partners Wealth. Other âbasic materialsâ would be proactive tax loss harvesting and annual gifting, and there are also more exotic materials to consider, depending on the clientâs situation, from the reinvestment of the proceeds of a business sale into a qualified opportunity fund to the establishment of a charitable remainder unitrust. âItâs not just about the tools in isolation,â Levine said. âItâs about moving away from the annual tax bill to considering the lifetime tax bill, or even the multigenerational tax bill.â Today, most advisors donât have the knowledge necessary to deliver on this vision, said Kevin Knull, CEO of TaxStatus. They also often lack the necessary data: - âClients just donât remember everything while youâre discussing and building their plan, and the tax returns donât contain all the information you need,â Knull said. - Visibility is a major roadblock. For example, direct indexing is a popular strategy today, but getting the most out of the technique (and maintaining legal compliance) requires full knowledge of the clientâs investments. âVery few advisors have 100% of a given clientâs wallet-share,â Knull said. An Evolving Approach. âIf youâre an advisor going from asset management to tax planning, buckle up,â said Dave McKnight, author and president of Power of Zero. âThis is not set it and forget it, even with powerful technology. Given the fiscal state of our country, we also need to plan now for higher tax rates in the future.â The post How to Create a âTax Planning Mindsetâ Instead of a Checklist appeared first on The Daily Upside.
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