Year-end often brings tax planning to the forefront. Investors start thinking about capital gains and losses, charitable contributions, Roth conversions, and other strategies that could affect their tax picture before December 31st.
Those conversations matter, but for families with significant wealth, tax planning should begin well before a year-end checklist.
At Vardhan Wealth Management, we consider tax planning throughout the year. By understanding what is happening beyond the investment portfolio and working closely with the client’s CPA and other trusted advisors, we can help identify tax-planning opportunities that may not be apparent when looking at each area in isolation.
LOOKING BEYOND THE PORTFOLIO
Traditional investment tax planning often focuses on what we call micro questions: Are there losses available to offset gains? Should appreciated positions be sold? Are there opportunities to harvest losses before year-end?
While we consider those questions, we first work to understand what we call the client’s macro tax picture.
For example, a few years ago, we met with a prospective client who was considering selling a real estate asset that was expected to generate approximately $5 million in gains. When we reviewed their investment portfolio, we identified substantial losses in an after-tax account. By looking at the real estate transaction and investment portfolio together, we identified a potential opportunity to use the investment losses to offset a significant portion of the gain on the real estate sale. Then we included the client’s CPA in the conversation to review the numbers and determine how to move forward.
The opportunity became clear as we took a more comprehensive view of the client’s financial life.
SOMEONE NEEDS TO LEAD THE CONVERSATION
As wealth grows, the number of professionals involved often increases. A family might have an investment advisor, CPA, estate planning attorney, insurance specialist, business counsel, and other professionals, each providing expertise within a particular area.
The challenge is that a decision in one area can impact several others.
A business outcome could impact personal taxes. A real estate transaction might create an opportunity within the investment portfolio. An estate planning decision could influence both current and future tax obligations.
Often, our clients request that we serve as the lead advisor throughout those conversations, coordinating the specialists advising the family.
In such instances, we maintain a comprehensive view of what the client is trying to accomplish, bring other specialists into the conversation as needed, and help ensure that all are working toward the same client goals.
For us, the relationship with the CPA is particularly important. If the client agrees, we find it very beneficial to be at the table when tax decisions intersect with investments, retirement planning, estate planning, or other areas of a client’s financial life. We often have proactive conversations with clients and their CPAs at least twice a year, rather than only at year-end, when tax filing deadlines are generally top of mind. We want to understand not only the tax implications of the assets we manage, but also what’s happening elsewhere that could affect the broader plan.
SOMETIMES THE MOST IMPORTANT QUESTION IS “WHY?”
Proactive planning doesn’t always begin with a sophisticated tax strategy. Sometimes it starts by simply noticing that something has changed.
A client recently mentioned that her estimated quarterly tax payments had increased significantly. She owned several properties and had recently changed CPAs but wasn’t sure what had prompted the increase.
Rather than assume the higher payment was necessary, we asked a simple question: Why?
With the client’s permission, we connected with her CPA to better understand the calculations and provide relevant information about her retirement distributions and other financial activity. Given our longstanding relationship with the client and familiarity with the financial picture, our involvement could also help provide context and clarity to better understand what was driving the increase.
Higher estimated tax payments do not necessarily indicate an error. Changes in income, distributions, deductions, or other circumstances may justify higher payments. By working with the client’s CPA, we can help identify issues that warrant further review and ensure the client understands the reasons for the change.
TAX PLANNING SHOULD SUPPORT THE GOAL
Sometimes the starting point has very little to do with taxes at all.
One client, for example, held several million dollars in a business account but wanted to move a portion of that wealth outside the business. Their underlying concern was broader than tax savings: the client wanted greater separation between personal wealth and business interests. We first identified how much could be moved without disrupting the business and what the client wanted those funds to accomplish personally. Then we considered the tax implications.
Working with the client’s CPA, we identified a way to move a substantial amount of assets from the client’s business account into a personal trust with minimal tax impact.
Mitigating taxes wasn’t the primary objective. The tax strategy helped support the client’s broader goals.
FINDING SOLUTIONS, NOT CHECKING BOXES
Many tax-planning strategies can help families mitigate their tax burden, from Roth conversions and charitable giving to realizing capital gains and losses. These strategies are parts of a broader planning ecosystem.
We do not start with a list of strategies and try to check every box. Instead, we start with the client’s goals and circumstances, then identify the strategies and specialists best suited to support them.
For families with increasingly complex wealth, those questions should not wait until year-end. By maintaining regular communication with clients, their CPAs, and other advisors, we can help identify planning opportunities throughout the year and assess them as part of the broader financial plan.
This material is for general informational purposes only and is not intended as individualized investment, tax, accounting, or legal advice. Tax and estate-planning considerations vary based on individual circumstances and applicable law. Clients should consult their independent tax and legal professionals before implementing any strategy. The examples are intended solely to illustrate a planning and coordination process and should not be interpreted as a promise or guarantee of any particular outcome. Other clients may have different experiences and results.