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By Eaton Vance Advisor Institute

Heading into the thick of "tax season" is a good time to evaluate how well you understand your existing clients' total tax pictures. A look at their tax forms can reveal information that can lead to timely conversations about ways to optimize their tax situations. Based on what you find, consider asking questions like these:

  • "What was your marginal tax rate last year? What is it this year? If it changed, why?" (IRS Form 1040 or IRS Form 1040-SR; IRS Schedule 1). Since tax bracket thresholds adjust each year, clients may migrate from one bracket to another, which can subsequently alter the rates they pay on forms of investment income, such as long-term capital gains.
  • "How long have you paid alternative minimum tax (AMT)? Would you like to return to "regular" tax? How will you accomplish that?" (IRS Form 6251; IRS Form 1041; IRS Form 8801). AMT is frequently triggered when clients exercise incentive stock options (ISOs) — clients with ISOs might want to consider strategically exercising options to avoid triggering AMT in future years.
  • "Have you been impacted by the cap in deductions for state and local taxes (SALT)?" (IRS Schedule A). The gap between the $10,000 SALT cap (for most investors) and the standard deduction (in 2022, $25,900 for a married couple filing jointly) means that itemized deductions may not be large enough to reduce clients' taxable income.
  • "Has your charitable giving changed since tax reform?" (IRS Schedule A; IRS Form 8283). In order to close the gap between the SALT cap and the standard deduction, charitably inclined clients can consider tax-efficient charitable giving strategies such as "bunching" larger and less-frequent gifts or gifting highly appreciated long-term stock.
  • "What future capital gains events should we begin planning for now?" (IRS Schedule D; IRS Form 1099). Known capital gains events, such as the eventual sale of a business or security, provide opportunities for you to help your clients plan ahead (i.e., stockpiling realized tax losses for future use or planning tax-efficient ways to dispose of a concentrated position).

These might sound like questions more appropriate for a tax professional to ask — and they are. However, an After-Tax Advisor can help spot opportunities and areas for improvement for clients to discuss with their tax professionals ahead of filing tax returns.

Bottom line: After-Tax Advisors play a vital role in helping protect clients' wealth from unnecessary or excessive taxation.