Ask the expert: Investing with an eye on taxes

Featuring Duncan Gates, Avantax’s Strategist–TSI Advisor Experience

Q  In today’s volatile market, how much emphasis should financial professionals place on tax implications when helping their clients make decisions?

A  Planning for the tax consequences of transactions is more important than ever. With market fluctuations, emotions take over. People are seeing stock market valuations fall, selling their positions, and moving their money to cash. They’re not sticking to a long-term plan. Many of them don’t realize that deviating from their plan comes with tax consequences. We haven’t seen significant market volatility in the last 10 years. Positions they’ve held for years have built significant gains. Changes made based on fear rather than on long-term strategy come with tax consequences that few will be prepared for. What’s important now is to help guide our clients to look at the bigger picture. This combination of tax and investment guidance makes a financial professional invaluable to their client.

Q  Is it the norm for advisors to take taxes into consideration before making a decision?

A  Truthfully, no. While this is important, especially now, it’s challenging for financial professionals to have the resources to understand the tax impact for themselves. When we were developing our tools for Tax-Smart Investing, we traveled the country meeting financial professionals to understand their processes. For example, how often were they tax-loss harvesting? This should happen regularly. We found that even our large financial professional firms were only doing this work for top clients. It’s an undertaking of time and effort, and many of them didn’t have the resources available.

That’s why we built the tools that we did — to make these calculations efficient and provide scalability to our financial professionals’ practices. If your client is working with an advisor that doesn’t calculate how taxes impact their investment strategy, you’re put in a frustrating position. As a tax professional, you’re left explaining to your client why they are facing an unexpected tax bill at the end of the year.

Q  How can CPAs and advisors help their clients look at the bigger picture and understand the tax impact of decisions they make today?

A  Every year is unusual, and this year won’t be any less unusual. Your clients have already been financially impacted or soon will be. They’re now having to make big decisions. As professionals, we need to work with our clients to explain the different options available. Should they bank losses to offset gains? Do they understand the concept of tax-loss harvesting and looking at the big picture rather than only looking at one particular asset? Think about what you can do right now to help your clients. These are the options we should be walking them through — this is when they need our help the most.

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Duncan Gates is Avantax’s Strategist–TSI Advisor Experience and has been a member of Avantax (formerly HD Vest) since 2006. In this role, he is currently responsible for providing education on tax-related topics and concepts, advisor training, and distribution of the Tax-Smart Investing platform.

Avantax Wealth Management

Avantax was started over 30 years ago by a CPA and has grown to become the largest tax-focused wealth manager. By integrating tax information into financial decisions, our advisors are able to provide a unique and strategic perspective for their clients.