Guide to Tax Planning

Sep 14, 2023 | Guides

Financial advisors constantly seek ways to increase value, create personalized solutions, and secure their client’s financial futures. Congress has passed a number of omnibus bills that have significant tax consequences, especially for high-net-worth households. This has put more emphasis on tax planning, an often-overlooked aspect of financial advice, proving its essential role in achieving these objectives. 

This blog will explore how integrating tax planning into your services can strengthen client relationships, maximize wealth accumulation, and diversify your service offerings. Additionally, we will share invaluable insights on staying up to date with changing tax laws and practical strategies to mitigate risk. 


Tax planning evaluates a client’s financial situation from a tax perspective and optimizes it so that they pay the lowest legal tax possible. However, this requires skill, precision, and a comprehensive understanding of tax law. 

The time spent on tax planning is worth it. Effective use has tangible benefits, ranging from maximizing wealth accumulation, and deepening client relationships, to diversifying advisor service offerings and revenue streams. 

Clients want advisors to help maximize their returns and effectively minimize their taxes. Orion Advisor Services surveyed over 2,000 end investors and found 80% said their advisors should provide tax planning services, with 90% of those polled concerned that tax obligations would erode their portfolios over time. 

But for the most part advisors aren’t doing this. Another study by Cerulli found that only 20% of advisors offer comprehensive tax planning. Looking at these two stats, it’s clear that many advisors are falling short of client expectations. 

Integrating tax planning into your services takes a lot of work. Advisors must stay updated on changing tax laws, address potential risks, and offer sound, timely advice. However, these challenges are far outweighed by the immense value and strategic advantage tax planning can bring. 

Enhancing Client Relationships and Retention 

By addressing tax concerns, advisors demonstrate their commitment to considering all aspects of a client’s financial situation. But every client’s tax situation is unique.  

Stay away from generic recommendations: focus on their specific needs. For example, a younger investor needs guidance on how to pay off their student loans while building wealth, while an older investor is more concerned with a comfortable retirement. 

In either case, there will be other factors you’ll need to consider, which will be different for each client. This makes you appear more engaged and keeps clients happy and under your management. 

You should also help anticipate and plan for future liabilities. Any scenario you present should include the tax ramifications. Advisors can foster transparency in their relationships by communicating these to the client.  

These suggestions revolve around open, transparent, and proactive communication. Studies have shown that advisors who communicate more frequently with their clients have a lower churn rate. 

This is backed up by research: a recent study showed that 9 out of 10 clients say that the frequency of communication with their advisor plays a significant role in staying with an advisor and in their decision to refer their advisor to others.  

Maximizing Wealth and Asset Growth 

One of the things clients expect you to do is to maximize their gains (and reduce their losses). Tax-efficient investment planning reduces tax liability, and there are several ways you can accomplish this.  

Tax-Advantaged Investment Strategies 

Tax-deferred and tax-exempt accounts such as traditional and Roth IRAs and 401(k)s are one way to limit liability. But contribution limits mean high-net-worth (HNW) clients will still have significant investments not shielded by these tax-advantaged accounts. 

Generally, investments that do not generate cash flows such as dividends or interest payments or equities that are being held long-term should be placed in taxable accounts. Other investments that do generate steady cash or expect to be traded for short-term capital gains should be placed in tax-advantaged accounts instead. 

Tax-Loss Harvesting 

Choosing when to use TLH is important. When markets are volatile, client losses could increase, which can be leveraged to limit tax liability for investments that are performing better. HNW clients will benefit the most, as they are subject to both a higher long-term capital gains rate as well as a potential 3.8% net investment income tax. 

Choosing which assets to harvest losses from depends on the client’s near-term strategy and whether or not the move is temporary or longer-term. Wash sale rules prohibit the purchase of the same or substantially similar investment within 30 days. After selling a losing investment, any reinvestment should align with the client’s overall financial plan and maintain an appropriate level of risk and diversification. 

Charitable Giving 

Many HNW clients have charitable efforts that they wish to support. Timing these donations appropriately can offer substantial tax benefits. For instance, if a client plans to donate in a year when they are already posting a loss but anticipates gains in the following year, delaying the charitable contribution will maximize tax savings. 

While the itemized deduction is the most popular way to lower tax liability, donor advised funds are a less common method that is becoming popular. Donations to these funds are irrevocable, and once in a DAF, they can only be used for charitable giving. These are sponsored by an IRS-qualified public charity and your client can recommend an investment strategy for their donations. 

Itemized deductions require your client to have a specific charity: DAFs allow your client to get the tax benefit immediately without naming a recipient. And if the money isn’t used right away, it grows like any other investment, further maximizing your client’s donation.  

Retirement and Estate Planning 

The above recommendations help your clients manage tax liability in the short term. But equally important are the potential liabilities your client may deal with in retirement and their heirs after your client’s death. With retirement, leverage the tax-free benefits of the Roth IRA, as the client can withdraw funds tax-free. 

Using a life insurance policy as an asset can limit your client’s heirs’ tax liability if they pass. Unlike other investments, funds disbursed from a life insurance policy are tax-free. 

The Type of Client Matters 

How you employ the above suggestions will vary. Younger clients are in the wealth accumulation phase, so choosing the most tax-efficient investments, managing student loan payments (if any), and taking advantage of tax credits are the most important. 

For small business owners, business-related tax deductions, capital gains tax management, and the strategic use of retirement plans can all be valuable tools. Families will be concerned with saving for their children’s education, child-related deductions, and adequate life insurance coverage. Strategic tax planning here involves maximizing the benefits of these credits and deductions based on the family’s income, number of children, and other factors.  

Retirees will need assistance with tax-efficient drawdown strategies for their retirement accounts. HNW clients will likely need assistance with all the above, with the added concern about tax liabilities for their heirs. Having tax-efficient investment strategies for each client type you’ll come across ensures that no client pays more taxes than they need to. 

Mitigating Risks and Adapting to Changing Tax Laws 

The U.S. Tax Code is complex and challenging for even seasoned professionals to understand. Making it more difficult are frequent changes to the law, making it critical to stay on top of the correct interpretation. 

This said, it’s still your responsibility to ensure your work is tax compliant. One way to do this is to understand what the IRS may consider tax optimization and tax avoidance. 

Tax optimization involves moving your client’s assets around to help them pay the lowest legal tax. But if you attempt to shield the client’s assets from taxes permanently, the IRS will likely see that as tax avoidance.  

Ben Henry-Moreland and Steven Jarvis at offer several other ways to keep you in the clear when it comes to taxes: 

  • Don’t try to interpret new changes unless you’re a CPA. This is an easy way to find yourself in trouble. You’ll also want to avoid recommending anything tax-related without clear guidance.  
  • Don’t give your opinion on any proposed or pending changes. Until you have official guidance, steer the client away from discussing or mentioning those changes yourself. Leave this liability to the CPAs. 
  • Avoid recommending strategies involving businesses, trusts, or related parties. The IRS is likely to scrutinize these types of actions closely, and if it appears as if there’s an attempt to hide income, you will have legal exposure. 

Henry-Moreland and Jarvis recommend that if a request involves legal filings, foreign based entities, or appears to attempt to shield income or assets be taxed, it should be directed to the appropriate tax professional.  

Expanding Service Offerings and Diversifying Revenue Streams 

Offering tax planning services naturally complements the work that you already do for your clients. It also makes your services more attractive, as clients appreciate having a single point of contact versus several to manage their financial situation. 

Tax planning also provides an additional revenue stream above and beyond your regular financial planning duties. You can offer it separately or as part of a comprehensive package, and if you’d like, focus on specific niches like young investors or small business owners by familiarizing yourself with the specialized tax situations those types of clients typically find themselves in. 

Don’t take all of this on yourself, though. Tax planning is an excellent opportunity to network and collaborate with other professionals, such as CPAs, EAs, and tax attorneys. These networking opportunities can lead to new business, too. 

Offering Financial and Tax Planning Together Makes Sense 

Your job is not merely about growing the assets under our management but enriching your clients’ financial lives. Integrating tax planning into your service offerings will better position you to meet and exceed client expectations. 

Tax planning allows you to build deeper, more meaningful relationships with our clients by addressing one of their biggest financial concerns, tax liability. It demonstrates your expertise and commitment to their long-term wealth preservation. 

Tax planning also maximizes wealth and asset growth. When combined with financial planning, you can offer your clients a comprehensive asset management service that will help you retain your clients and attract new business. 

Don’t view tax planning as an added burden but rather as a golden opportunity to serve your clients better, diversify your revenue streams, and ensure the long-term sustainability of your business. 

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice.

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