How to Create a ‘Tax Planning Mindset’ Instead of a Checklist 

 You talk the (tax) talk, but can you walk the walk? 

The industry loves to highlight the increasing importance of tax management and new tax-focused technology tools, many of them powered by AI. But is  tax-savvy financial planning now becoming the norm? Not really, according to a panel at the American College of Financial Services’ Horizons retirement conference in Orlando this week. In fact, the experts found that full implementation of tax services has lagged, and while some firms are excelling, others still don’t understand what they should realistically be building. While the answer will look different for each firm, advisors should be moving beyond annual tax conversations to a “lifetime tax-planning mindset.” 

“Managing taxes is like building a house,” said Dave Alison, president of wealth management at Prosperity Capital Advisors. “The first thing you do is hire an architect to draft a blueprint, but that’s only the start of the process.” 

Building Blocks 

Blueprints, like plans to manage taxes, just collect dust unless you hire someone to do the building and someone to maintain it. “A true tax-planning mindset means advisors are drafting, building and maintaining the house,” Alison added.

If tax planning is like building a house, then the fundamental building blocks are probably strategic Roth conversions, said Jeff Levine, chief planning officer at Focus Partners Wealth. Other “basic materials” would be proactive tax loss harvesting and annual gifting, and there are also more exotic materials to consider, depending on the client’s situation, from the reinvestment of the proceeds of a business sale into a qualified opportunity fund to the establishment of a charitable remainder unitrust. “It’s not just about the tools in isolation,” Levine said. “It’s about moving away from the annual tax bill to considering the lifetime tax bill, or even the multigenerational tax bill.” 

Today, most advisors don’t have the knowledge necessary to deliver on this vision, said Kevin Knull, CEO of TaxStatus. They also often lack the necessary data: 

• “Clients just don’t remember everything while you’re discussing and building their plan, and the tax returns don’t contain all the information you need,” Knull said. 
• Visibility is a major roadblock. For example, direct indexing is a popular strategy today, but getting the most out of the technique (and maintaining legal compliance) requires full knowledge of the client’s investments. “Very few advisors have 100% of a given client’s wallet-share,” Knull said.

An Evolving Approach. “If you’re an advisor going from asset management to tax planning, buckle up,” said Dave McKnight, author and president of Power of Zero. “This is not set it and forget it, even with powerful technology. Given the fiscal state of our country, we also need to plan now for higher tax rates in the future.”