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Helping Clients Navigate Income Tax Bracket Changes
Here are some best practices to help wealthy clients adjust to changes . By Steve Wittenberg
AS YOU PLAN FOR THE YEAR AHEAD , YOU MAY BE thinking about how the Internal Revenue Service ’ s adjustments to income tax brackets and standard deductions — which include a 5.4 % bump in bracket thresholds — could affect your 2024 tax planning season . But even this year , as always , the best tax planning 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 talk more with them about the big picture , explaining fundamentals while also keeping their core goals in mind . They might want to de- fer income for tax reduction or bunch itemized deductions into the current year to take a standard deduction the following year . Such moves can help them save money over the longer term .
The inflation-adjusted lifetime exemption — the amount of money or assets the IRS lets you give away over the course of your lifetime without having to pay the federal gift tax — will allow many clients to give more than ever before . The lifetime exemption is $ 13.61 million per individual in 2024 , up from $ 12.92 million in 2023 . You ’ ll also want to start conversations with clients about their options for philanthropy and grants as components of tax planning . Whether they ’ re giving to a charity , using an IRA to make direct contributions , or supporting a child with a 529 plan gift , they will be able to enjoy some tax benefits .
Ask your clients to connect with their CPAs to discuss tax-loss harvesting or the liquidation of assets according to their personal needs or market performance . They ’ ll also want to talk about positioning their portfolios to maximize the benefit of the lower tax rate on long-term capital gains investments and qualified dividends . They may further 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 talking 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 the political promises .
One thing people should be watching out for is the Internal Revenue Service ’ s beefed up enforcement . The agency is funding thousands of new agents and technology and deploying artificial intelligence and analytics solutions to improve oversight ; it ’ s focusing specifically on matters that affect wealthy clients , including foreign tax reporting ; digital assets ; and pass-through entities such as limited liability companies , limited partnerships ,
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48 | FINANCIAL ADVISOR MAGAZINE | MARCH 2024 WWW . FA-MAG . COM