Tax Day has come and gone. Many investors and even some advisors don’t really think about managing investment taxes until the weeks leading up to Tax Day, which usually falls in mid-April.
But at Russell Investments, we believe in managing investment taxes 365 days a year. We believe that the days and weeks following Tax Day are when you should start thinking about next year’s tax returns and the strategies that can help your clients minimize their tax bite.
In fact, now is a great time to ask your clients how they feel about taxes. That’s right. Ask. If your clients loathe taxes, you’re now in a better position to talk about tax-managed investing approaches and incorporate that into their plan. Many clients do not naturally understand all you can do for them.
It’s likely that many of your clients and prospects are quite unhappy or even shocked by the tax bill they received this year. That may be because the average capital gain distribution in 2021 was 12% of net asset value (NAV)—the highest level in 20 years. And 81% of U.S. equity funds paid a capital gain distribution. So imagine how receptive your clients may be to discussing how to avoid a similar hefty tax bill next year.
We believe that advisors who focus on tax-smart investing can distinguish themselves and demonstrate differentiating value.
We’ve asked several of our regional directors and tax experts to share their top tips to taking a tax-smart approach to investing year-round.
1. The benefits of running a tax analysis or proposal
Cory Christiana, Regional Director, Metro New England
I enjoy partnering with advisors to run proposals and tax analyses because they help investors to take positive actions in alignment with their long-term goals. Without a robust analysis or proposal, it can be hard for an investor to conceptualize the positive impact of your recommendations. By partnering with us to do the analysis and run the proposal, you are making the investing process easier for the client.