As year-end approaches, it is a good opportunity to review your clients’ portfolios to ensure their investments stay on track to meet their goals, and to take advantage of strategies that may benefit your clients in today’s tax landscape. There may be certain strategies that need to be implemented before year’s end, and there are only two months left in 2013.

1. Consider the benefits of a Roth IRA conversion.

Even though some taxpayers already experienced a tax rate increase this year, a Roth IRA conversion may still make sense. For example, income for many individuals can vary from year to year, such as sales professionals or executives who receive bonuses. Completing a Roth IRA conversion when income is lower can put these clients in a better position to manage their tax bill in retirement. It is also important to remind clients that they can change their mind and recharacterize a Roth conversion prior to next year’s tax filing deadline and even through a tax filing extension. A look at historical tax rates and the educational piece, “Converting a Traditional IRA to a Roth IRA” may be helpful.

2. Net operating losses may be transformed into tax-free income

Small business owners facing a net operating loss (NOL) this year may be able to use it to their advantage. NOLs may be carried forward to offset ordinary income on future tax returns. There is no limit on how much of an NOL can be used. Clients can also use those losses to offset additional income from a Roth IRA conversion. The rules for calculating NOLs are complicated, however, and it is important for clients to consult with a qualified tax professional. Forming strategic relationships with local CPAs who can assist with these types of transactions can enhance your advisory business and lead to other referrals. To learn the basics of NOLs, check out the IRS publication 536, “Net Operating Losses for Individuals, Estates, and Trusts.”

3. Explore strategies to offset the alternative minimum tax (AMT)

Although Congress approved legislation in early 2013 that prevents a dramatic expansion of the AMT, about four million taxpayers will still owe the tax this year, with an average bill of approximately $6,600. There are a range of strategies to help clients avoid or minimize the impact of the AMT, including deferring certain tax deductions, understanding when to exercise stock options, and avoiding exposure to private activity bonds. For more strategies, read “The alternative minimum tax: Tax-saving strategies.”

4. Gauge your client’s portfolio against tax diversification

During client reviews, consider grouping investments into three categories: taxable, tax deferred, and tax free. Explore the concept of tax diversification and how it may benefit clients in retirement to achieve a balance of investment types. Many clients could benefit from increasing their allocations to tax-free vehicles by investing in municipal bonds or by converting an account to a Roth IRA. This “Tax diversification worksheet” can be helpful.


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