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There may be pervasive fable within the monetary planning neighborhood that advisors can’t legally give tax recommendation. Based on Ben Henry-Moreland, a licensed monetary planner and senior monetary planning nerd at Kitces.com, the fact is that monetary recommendation has tax penalties — whether or not advisors acknowledge it or not.
As Henry-Moreland defined throughout a current Kitces.com webinar, nearly each monetary planning difficulty has tax concerns, and advisors can present an excessive amount of added worth by serving to shoppers plan to pay revenue and capital positive aspects taxes in essentially the most environment friendly method.
Regardless of the distinguished function of taxes in monetary planning, Henry-Moreland mentioned, advisors are sometimes prohibited by their compliance departments from making suggestions for a particular plan of action on a sure tax technique. This in flip implies that advisors are sometimes left to determine on their very own the way to information their shoppers on tax-related issues with out crossing the road into “what the IRS considers capital ‘T’ and capital ‘A’ Tax Recommendation.”
Based on Henry-Moreland, it will be significant for advisors to grasp that most of the tax methods that they’d suggest aren’t meant to shelter revenue to keep away from taxation altogether. They’re as an alternative designed to make sure that revenue is taxed effectively, similar to by optimizing the timing or nature of revenue when it’s taxed. Such advisory insights are completely authorized and are more and more anticipated by shoppers working with planning professionals.
The important thing level is that understanding what constitutes tax recommendation versus tax planning that doesn’t go as far as to make a suggestion can assist advisors extra confidently have interaction with their shoppers on tax issues with out violating the principles set in place by their compliance departments, Henry-Moreland mentioned.
See the accompanying slideshow for a overview of 9 key tax details and concerns for wealth administration professionals, particularly these in search of to work with wealthier and extra subtle shoppers who’re anticipating assist on such issues. As Henry-Moreland emphasised, the potential for including worth by way of tax planning is super, as long as advisors are cautious to keep away from authorized pitfalls.
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