Financial Advisor Magazine: Best practices: 2024 income tax planning

As you plan for the year ahead, you may be thinking about how the IRS’ changes to income tax brackets and standard deductions—which include a 5.4% bump in bracket thresholds—could impact the 2024 income tax planning season. When it comes to helping high-net-worth (HNW) clients navigate the impact, tax planning best practices remain the same.

Connecting today

You’ll likely experience a surge of questions from clients about the IRS’ adjustments, and this is a great opportunity to get more integrated into your client’s big picture. Keeping their financial goals core to the conversation, it’s a good time to talk about the fundamentals. Deferring income could provide tax reduction benefits or bunching itemized deductions into the current year to take a standard deduction the following year, can help clients save money over the longer term.

The inflation-adjusted lifetime exemption—the amount of money or assets the IRS permits you to give away over the course of your lifetime without having to pay the federal gift tax—enables many to give more than ever before. This amount is $13.61 million per individual in 2024. Proactive conversations about options for philanthropy and grants are an important component of tax planning. Whether gifting to a charity, leveraging an IRA to make direct contributions, or supporting a child with a 529 plan gift, giving can come with some tax benefits.

Ask your clients to connect with their CPA to discuss tax loss harvesting, liquidating assets depending on personal needs and market performance, and positioning their portfolio to maximize the benefit of the lower tax rate on long-term capital gains investments and qualified dividends. They may also consider municipal bonds, which generally have no federal income tax. Although changes to income tax brackets happen every year, all of these strategies remain relevant.

Preparing for tomorrow

When connecting with your clients about tax planning in the near term, you can discuss what they should be keeping tabs on for the future. As we move into a presidential election year, tax chatter will pick up. It will be important to parse through political promises. The sun-setting of federal estate tax exemption laws and the IRS’ heightened focus on enforcement and audits can impact estate tax planning and exemptions for HNW clients.

The IRS is funding thousands of new agents and technology, including AI and analytics solutions to improve oversight with a specific focus on HNW taxpayers, foreign tax reporting, digital assets and pass-through entities such as LLCs, GPs, LPs and S-Corporations, among others. While this may create concern about non-compliance rates and aggressive tax strategies, it’s important to get ahead of it. Talking to your clients about the benefits and the importance of transparency can help bring clients some peace of mind.

With the federal estate tax exemption anticipated to go away by the end of 2025 per the Tax Cuts and Jobs Act of 2017, financial advisors, tax professionals and their clients should prepare. The current rules cover higher standardized deductions, reduced estate tax, lower tax rates at all levels, qualified business income and a $10,000-limit on state and local tax deductions. It would cost $3.3 trillion to extend each of the tax exemption rules for 10 more years, so given the cost, you should start preparing for how these changes will impact clients.

Every year, tax brackets change to accommodate the changing market environment, which gives advisors this opportunity to revisit and have conversations with clients about other timely IRS rulings. Incorporating a “tax wellness checkup” into your end-of-year routine when fielding questions about 2024 changes shows that you have a finger on the pulse of the developments most pressing for your clients’ financial plan.

Important Information
The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the strategies or any security in particular, nor an opinion regarding the appropriateness of any investment. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional.

Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax, penalties and/or interest which may be imposed by the IRS or any other taxing authority; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor. Accordingly, Clients should confer with their personal tax advisors regarding the tax consequences of investing with SIMC and engaging in the tax-management techniques described herein (including the described tax loss harvesting strategies) based on their particular circumstances. Clients and their personal tax advisors are responsible for how the transactions conducted in an account are reported to the IRS or any other taxing authority on the Client's personal tax returns. SIMC assumes no responsibility for the tax consequences to any Client of any transaction.