The Advisor Institute: Coach's Corner
Turning taxes into teachable moments

Practical messages intended to help you elevate the success of your practice.

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      By David GordonDirector, Eaton Vance Advisor Institute

      While the precise contours of the Biden administration's capital gains and income tax increases remain obscure, the lay of the land is clear — taxes will increase for many Americans. How can you turn tax increases into teachable moments before knowing the final details?

      We suggest viewing the proposed tax increases as an opportunity to refresh existing and prospective clients' understanding of basic tax planning principles — and reinforce your role as an After-Tax Advisor.

      A tax-loss harvesting teachable moment if an increase to the long-term capital gains tax rate is top of mind:

      "Tax-loss harvesting opportunities can present themselves in all kinds of markets, which is why it's important to loss harvest systematically and often. Building a reserve of realized tax losses could benefit your portfolio in the event of gains, as we can use the reserve of losses to reduce the gains on which you pay taxes. Would making a plan to systemically build that kind of reserve make you feel more at ease right now?"

      A concentrated stock teachable moment:

      "We don't need to be all right or all wrong, given the concentration of highly appreciated stock in your portfolio. If you are concerned about paying a higher capital gains tax rate in the future for your large unrealized gains, let's consider for a moment selling some or all of the position to take advantage of today's lower capital gains tax rate. Would you be comfortable paying taxes today in order to perhaps avoid a larger potentialtax bill later?"

      An ordinary income tax teachable moment:

      "If the tax you pay on ordinary income increases, deductions become more valuable, as they help reduce your taxable income at the top rate you pay. Would you be comfortable exploring the types of deductions that could help reduce the amount of income subject to a higher ordinary income tax rate?"

      An estate tax and lifetime gift exemption teachable moment:

      "Have you thought about how a potential reduction in the estate tax exemption or the lifetime gift exemption might impact your estate plan? It may be a good time to connect with your estate planning attorney about possibly accelerating your distribution of assets to heirs to take advantage of today's higher exemption."

      Each of these teachable moments allows you to demonstrate your value as an After-Tax Advisor regardless of the details of a final tax plan.

      Bottom line: The prospect of tax increases presents a perfect opportunity to turn the topics of taxes into teachable moments. Show your clients that you understand the importance of tax planning.

      tax forward