Don’t Make These Tax Season Mistakes if You Have High Net Worth


High-net-worth individuals should work with tax advisors during tax season.

Nobody wants to make a mistake on their taxes that could lead to a lower refund or cause them to owe money, but the potential risk can be heightened for those with high net worth. Unfortunately not everyone knows how to get the maximum financial benefit from their tax returns. If you are a high-net-worth individual or family, take a look at our list of some of the most common mistakes to avoid. High-net-worth individuals should work with tax advisors during tax season.

Becoming Obsessed with Tax Avoidance

Paying taxes isn’t at the top of anyone’s list of things they want to do, but sometimes you have to do it. People with high net worth can become so fixated on the idea of avoiding taxes that they make mistakes that cost them more in the long run. Before you take any steps aimed at tax avoidance, talk to a tax advisor who specializes in working with high-net-worth individuals.

Choosing Questionable Tax Shelters

Another critical mistake to avoid is getting involved in tax shelters that you know little about. While some of these might be useful, your chances of participating in questionable transactions that could lead to IRS penalties and fines (or even jail time in severe cases) is much higher. A good tax planner can help you find the best tax shelters to avoid paying too much, without putting your wealth at risk.

Investing Overseas Without Knowing the Tax Consequences

International investments are often part of a high-net-worth portfolio, and can offer some tax advantages if done correctly. But you need to understand the specific rules that govern overseas investments before you put your money or assets there. Well-meaning attorneys who don’t have experience in overseas investments can offer bad advice or fail to mention requirements such as tax filing and reporting obligations that can leave you with fines and penalties that negate any tax benefits, so make sure you talk to a knowledgeable tax advisor if this is part of your plan.

Missing IRA Minimum Distributions

If you are lucky enough to be so wealthy that you don’t need to use the money you’ve saved in an IRA yet, that could actually cost you. IRAs, 401(k) plans, simple IRAs and SEP IRAs have a required minimum distribution starting at age 70½ (Roth IRAs are excluded). If you don’t take it, you will be stuck with a 50% tax bill on the required amount you did not withdraw. For most wealthy individuals and families, the biggest mistake they make is not hiring tax advisors with experience in high-net-worth financial planning. Talk to Cantley Dietrich today to get the best advice on protecting your wealth and avoiding taxes this season.

Understanding the Tax Ramifications of Business Owner Compensation


What types of compensation are deductible for businesses can be confusing. Here are some guidelines.

Businesses that claim tax deductions for wages and salaries — as well as commissions, bonuses, and other compensation to employees — are well within IRS tax laws. However, it’s important to note that if you have a business where you pay the owners and you plan to deduct that on your taxes, it could open you up to more scrutiny from the IRS.

What types of compensation are deductible for businesses can be confusing. Here are some guidelines.

IRS Requirements for Compensation

In order to deduct compensation on taxes, you must ensure that it is:

  • A reasonable amount
  • Ordinary and necessary for the business
  • Payment for actual services provided to the company
  • Incurred or paid in the year you claim the deduction (the one you choose depends on whether you use a cash or accrual accounting method)
  • Deducted at its fair market value, if it’s a form of compensation other than cash, i.e., fringe benefits

Testing Your Own Compensation

Generally, the IRS increases scrutiny of tax deductions for compensation if the person receiving the high compensation has control over the business or a personal relationship with the owners. For many small businesses, those who receive the highest compensation fall into both these categories. If you’re not sure whether your compensation meets these requirements, below are some additional guidelines.

Compensation is generally considered reasonable if someone in a similar position at a similar company would be paid a similar amount. If you have individuals who are highly compensated in your business, make sure:

  • Their duties are essential in keeping the business running successfully.
  • Their hours worked each week are comparable to someone in a similar position at another company with a comparable salary.
  • The person is generally qualified for the position.
  • The pay rate is within the range of salaries for the same position in your industry and geographic area.

If the IRS is reviewing wages or salaries you deducted, they may also ask about how the person is related to the company or owners, and whether they control the company or could disguise corporate distributions as tax-deductible compensation.

Finally, it’s helpful to have a written document that specifies how much will be paid to whom, when and for what. If you pay out a large bonus at the end of the year and do not have a written document from the beginning of the year specifying the amount and reason for the bonus, the IRS may view that as a violation.

Get Help Evaluating Your Risks

What is tax deductible and what is not can be confusing even for seasoned business owners. If you are worried about whether you might fall under increased scrutiny, talk to the tax advisors at Cantley Dietrich to learn more. We can help you identify actions that could raise red flags with IRS auditors, so you stay in compliance with tax laws.

One-Two Punches to Conservation Easements (Part 1 of 2)


One-Two Punches to Conservation Easements

Two recent tax court decisions highlight the need for compliance-oriented planning in taxation matters. These two cases illustrate that small details make all the difference — often, all the clever planning in the world fails when you overlook an important rule. As we cautioned in previous articles about the dangers associated with entering into syndicated conservation easement transactions (CE) or microcaptive insurance transactions (captives) in our current enforcement environment, tax planning is somewhat of a race between clever ideas raised by bright people and regulators seeking to anticipate and head off the planners. These two decisions in the last month point out the importance of compliance planning. One-Two Punches to Conservation Easements

Tax Court Requires Specificity in Planning

In Carter v. Commissioner[1], the 2011 donation of 500 acres of coastal Georgia to a land trust failed because the land was not preserved in perpetuity. Without commenting on whether the land trust was a charity capable of receiving the land as part of its charitable purpose, the court focused its analysis on the retained rights of the donor partnership. Dover Hall Plantation, LLC (Dover), donated 500 acres to the North American Land Trust (NALT), but retained the right to build 11 single-family dwellings in specified building areas, the locations of which were to be determined and subject to NALT’s approval. Despite Dover’s argument that the building areas were just for family usage, neither the easement deed nor valuation report of the property restricted the building of residences to donors and their family. Contrary to assumption, the court (and the code) took no issue with the inclusion of Dover’s development rights. The problem lay with the lack of specificity. The court cited case law that retention of limited development rights in specified portions of property need not preclude the donor from claiming a deduction for the contribution.[2] However, under similar case law, if the boundaries are not specifically fixed at the outset, retained retention rights may violate the requirements under IRC § 170(h).[3] At its heart, the lack of specificity in the easement deed led to the disallowance of the contribution. The court held that indeterminate boundaries meant that there could be no defined parcel of property that is subject to a perpetual use restriction. This seems like a pretty harsh outcome for failing to specify the portions of land for development. The tax court has held similarly in cases where donors have attempted to reserve the right to “plug and play” with adjoining and contiguous parcels of land in a donation.[4] Perhaps a better solution would have been to donate 22 fewer acres with no reservation of rights and develop the non-donated property however they wanted. The only bright spot in the decision was the determination that the IRS had failed to follow its own penalty process. The revenue agent sent the penalty letters without first obtaining supervisory approval. Specificity and following the instructions cuts both ways. If you have participated in a CE or captive and are concerned that the specifics of your transaction may have holes and you want a review, contact Cantley Dietrich today. We will do a compliance review of your documentation and find out what your options may be in light of these recent court decisions.

How Highly Compensated Individuals Can Avoid Excess IRS Scrutiny


Avoiding IRS scrutiny for highly compensated individuals means understanding tax laws

If you are what the IRS considers a highly compensated employee (HCE) at your job, it’s important to understand what that means and how it can impact your finances, as well as how to avoid excess scrutiny from the IRS come tax time. Avoiding IRS scrutiny for highly compensated individuals means understanding tax laws

What is a Highly Compensated Employee?

What constitutes high compensation might seem like it’s relative, but the IRS has very specific definitions that they use to identify who falls into this category, and it doesn’t only apply to millionaires and billionaires. The criteria include owning more than 5% interest in a business in the current or preceding year, being paid at least $125,000 (in 2019) or $130,000 (in 2020) and being in the top 20% of employees ranked by compensation amount. You don’t have to meet all of the criteria to be considered an HCE; if you own more than 5% and only make $40,000 a year, you are still labeled as such by the IRS.

Avoiding Unnecessary IRS Scrutiny

If you are an HCE, it’s important to understand how that impacts your own personal financial planning so you don’t attract unwanted attention from the IRS.

Understand the Rules

First and foremost, it’s important that you know the rules for “high compensation” so you can make the right financial decisions. For example, the rule about owning more than 5% includes any of your stock options and any equity in the company that belongs to immediate relatives (spouse, children, parents, and grandchildren). So setting up a company where you only own 3% but your spouse and four children each own 1% would still make you an HCE.

Be Careful with Retirement Contributions

One of the places that many people get in trouble under the HCE rules is with retirement contributions. Businesses must go through some tests to make sure that 401(k) retirement plans are not discriminatory, so a highly compensated employee can only contribute up to 2% more than the average employee. If you have employees who contribute very little on average, you may not be able to legally max out annual retirement contributions. There are some ways around this, so talk to your tax advisor about retirement savings if you are an HCE.

Consider Deferred Compensation

Your company may offer deferred compensation plans, paying out a percentage of your salary (and taxes) at a later date, often after you retire or quit. This can keep you under the threshold for HCEs, but it does have some risks associated with it.

Work with a Tax Advisor

The best way to avoid running into issues if you are an HCE is to work with a tax advisor who understands the rules and can help you navigate all the potential pitfalls to maximize your income, minimize taxes and penalties, and avoid unwanted scrutiny by the IRS. If you are a highly compensated employee, talk to Cantley Dietrich today to learn more about your options and avoid the scrutiny of the IRS.

What You Should Know About Estate Tax Changes


If you haven’t reviewed your estate plan recently, now is the time to talk to a tax advisor.

Estate plans have long been an essential vehicle for keeping federal estate taxes low, but recent changes to tax laws surrounding estate plans make now a great time to review your plan with a tax advisor. If you haven’t reviewed your estate plan recently, now is the time to talk to a tax advisor.

The 2018 Estate Tax Law Changes

The most significant changes to estate taxes were voted into law in 2017 and enacted in 2018. Although that was two full tax years ago, many people create an estate plan and think they’re done with it forever, so you may not have reviewed yours since the laws changed. The Tax Cuts and Jobs Act of 2017 increased the exemption for federal estate taxes to $11.18 million for an individual, a number that will increase with inflation. In 2020 it’s $11.58 million. Above that amount, the federal tax rate is 40 percent (state tax rates may vary, and exemption thresholds may be lower). That means most estates today fall under the exemption to avoid taxes, but you may have set up your estate in such a way that it will surprise your heirs. For example, as recently as 20 years ago, many people with smaller estates employed complicated strategies to leave items to their spouse or children that now could pass through to their children tax-free because the exemption was only $675,000 in 2001. Tax laws—and their effects—change regularly.  For example, during a three-year run between 2010 and 2012 the tax rate bounced from 45%, down to 0%, then up to 35%.  So, if you haven’t reviewed your plan recently, you may still have overly complex provisions in your estate that made sense at the time but don’t anymore. Another change since 2017 is the impact of capital gains. Inheriting property or stocks that have increased in value and then selling them could have capital gains tax implications. But with the change in laws, it may now be better to give the property to your beneficiaries through your estate rather than gifting it through a trust or another vehicle.

When to Review Your Estate Plan

Aside from major tax law changes, some other life events should also trigger an estate plan review with your tax advisor. These could include:
  • Change in your marital status (marriage or divorce)
  • Illness or death of a spouse
  • Change in number of dependents (birth of a child, adoption, new stepchildren, etc.)
  • Other changes in dependents, such as parents you now care for
  • Changes in your wealth or the total value of your estate
  • Retirement
In addition to these events, you should regularly review estate plans whenever significant changes are made to the tax laws, which your tax advisor tracks and can let you know about. The current Tax Cuts and Jobs Act of 2017 is set to expire in 2025, so we may see changes again soon. If you haven’t reviewed your estate plan in more than five years, contact Cantley Dietrich today to find out what changes you should make to take advantage of new estate tax laws.

Tax Court Upholds Ruling on Deductions for Conservative Easements


Court finds that the IRS complied with rules under section 6751 in assessing penalty.

The U.S. tax court recently upheld penalties assessed against a Georgia partnership for a tax deduction related to a conservation easement. Anyone who received tax benefits as a result of a conservative easement donation must be aware of this recent court decision. At issue in the court case was a law which specifies that in order for an IRS employee to assess a fee or fine, they must first obtain written approval from their immediate supervisor (or another higher-level official designated by the Secretary of the Treasury). Court finds that the IRS complied with rules under section 6751 in assessing penalty. The ruling, which was the result of a divided opinion, determined that the firm was notified appropriately, despite an initial communication that lacked the required supervisory approval. The case against Belair Woods, LLC, was for a $4.778 million donation it made to the Georgia Land Trust and claimed as a tax-deductible charitable donation. The IRS informed investors in a 2016 notice that they would be looking carefully at these donations after discovering cases of deductions being taken for conservation easement donations that were more than the value of the actual property. At issue in this case, however, was whether the IRS followed its rules requiring an IRS employee who identifies potential tax deduction irregularities to seek a supervisor’s approval before assessing a penalty or fine. Belair Woods was first notified in 2012 that the IRS was examining the conservation easement deduction. But the IRS argued that this initial contact was only a summary report and invitation to Blair Woods to open a discussion on the matter, not an official notification of a penalty and therefore not requiring supervisory approval. Judge Albert G. Lauber, along with seven others who joined him in the majority opinion, agreed that a subsequent IRS communication to Blair Woods in 2015 was actually the first official notification of a penalty, and it met the requirements for supervisor approval. The ruling was split almost evenly though, with several judges disagreeing that the IRS met the requirements because they failed to obtain necessary supervisor approval on the 2012 communication. Section 6751 was originally enacted during the IRS Restructuring and Reform Act of 1998. But it did not receive much attention in the courts until a 2017 ruling that clarified the requirements for written approval to assess a penalty. This ruling found that the supervisor’s approval must come at the time the IRS sends notification of deficiency or at the time they assert the penalty. In addition, the case specified that the burden is on the IRS to prove compliance with the written approval requirement. In a December 2019 statement following the court’s ruling, the IRS confirmed that it will continue to pursue those who use a conservation easement to claim a tax benefit in situations in which that land valuation is far above the actual value of the easement donation. If you have questions about conservation easement donations you made in the past for which you claimed a tax deduction or about how to provide the IRS necessary compliance documents prior to the April 15 deadline, call Cantley Dietrich today.



Understanding the IRS’s settlement to IRC 831(b) Captive Insurance Companies

Beckett G. Cantley

Geoffrey C. Dietrich

Cantley Dietrich, PC

This article is another in our ongoing series on Internal Revenue Service (“IRS”) treatment of rogue Internal Revenue Code (IRC) section 831(b) captive insurance promoters and schemes. In this article, we discuss the IRS settlement initiative released on September 16, 2019.  The IRS decided on a carrot and stick approach to resolving taxpayer issues, with a sweeter deal for the least offenders, followed by a harsh hit for those who decide not to accept the IRS offer. Understanding the IRS’s settlement to IRC 831(b) Captive Insurance Companies

The Unheeded Warnings Ring True

Consistently named an IRS “Dirty Dozen” tax rogue, certain 831(b) captive insurance company (“CIC”) transactions are repeated targets of IRS ire.  The IRS commitment to curbing abusive CIC arrangements has manifested itself through audits, investigations, and litigation. In the IRS’ view, unscrupulous promoters schemed to misuse captive insurance as a vehicle for meritless tax deductions, and typically involve money loans from the Captive, estate planning schemes, and circular flows of funds through fake reinsurance programs. Beyond those sins, these bad actors often seek to address nonsensical risks in their now-judicially decreed “non-insurance” reinsurance schemes. As we have consistently warned, Promoters sent taxpayers on a merry chase while pocketing thousands (or millions) of dollars in fees.  We are aware of over 500 cases currently docketed against 831(b) CIC transactions. It is impossible for any budgeted bureaucracy to sustain a long-standing litigation attack for such a high case load. IRS resources are not best utilized in going to trial 500-plus times on what will largely be the same issues. The IRS follows a near lockstep approach to abusive transaction litigation.  After determining forensically the extent of a problem, the IRS will determine the players and then begin to audit. Through the audit process, the IRS builds its case and cherry picks the best fact scenarios for litigation. All that remains is for the IRS to garner enough early wins to put an industry on its heels.

Early Courtroom Successes: the Szygy and Reserve Mechanical Cases

There are enough articles (written by us and others) on the Avrahami case that we do not need to re-address Avrahami.  Following their success there, the IRS sought a ruling in Reserve Mechanical Corp. v. Commissioner, T.C. Memo* 2018-86 (June 18, 2018).  There, the Tax Court held that captives must resemble real-world insurance. Reserve Mechanical followed the same promoter failures as Avrahami, especially because each policy listed PoolRe Insurance Corp. for risk-pooling stop loss insurance, administered by Capstone Associated Services, Ltd.—a well-known Captive promoter. In another blow to Captives, the Tax Court ruled Reserve was not an insurance company for lack of true risk distribution and circular cash flows. Like other cases, premiums were larger than necessary, instead of being actuarially determined. The Reserve Mechanical case laid the groundwork to establish law that risk pools had gone nuclear and the industry standard practice should be avoided as toxic. The Tax Court beat the horse dead in Syzygy Ins. Co. v. Commissioner, T.C. Memo 2019–34.   The Tax Court ruled that since Syzygy was not an insurance company and had no right to elect under IRC § 831(b). Therefore, premiums remitted to Syzygy were neither deductible as such or as other “ordinary and necessary expenses” under IRC § 162.  Judge Rowe beat down the “no claims filed because we were too busy” with the note that the insured entity “had claims processes for commercial policies that they did not implement for the captive program policies.” Further strikes came as the Court found the CIC asset allocations did not align with those of a regular insurance company but instead were invested in life insurance for the CIC’s ownership. Szygy rounded out with the IRS’ consistent arguments of: circular flows; not meeting the definition of insurance, and reinsurance that did not properly distribute risk.  In three consecutive cases, the IRS had wielded the ugly stick of reality and the façade of substance, purpose, and insurance failed. As we would expect, with a couple of wins under its belt—and recognizing similar fact patterns in the remaining hundreds of docketed cases—the IRS apparently felt confident enough to roll out a global settlement initiative.

Details of the Global Settlement

Why is the IRS Making the Offer? There are as many as 500 docketed 831(b) cases that the IRS must battle absent some form of settlement – an impossible number to fight.  As such, IRS offered a settlement to a significant number of taxpayers that is likely to extend in some form to nearly all 831(b) CIC abusing taxpayers. The IRS does not want to repeat the former experience when deals on offshore tax shelters were dangled and the response overwhelmed them. Who’s Invited to Accept the Offer? Beginning September 2019, some 200 audited CIC users were mailed IRS offers for deals, with response due in 30 days. The offer requires payment of 90% of CIC-derived tax deductions plus interest. They also lose deductions for captive setup and management fees. If accepted, the audited are eligible to waive the 10% penalty for first-time offenders who acted sincerely upon advice they thought was correct. It’s a safe but not wholly painless resolution. The number of cases being reviewed includes 2,000 under audit and another 10,000 in peril of IRS action. And after three wins in court, the IRS believes it now has leverage and a road map to offer a legally defensible settlement. Paring off some cases for expedited adjudication makes perfect sense given the large scope of the problem. The ultimate purpose of this initial offer is for the IRS to test the waters and tweak details to perfect their approach before launching it, en masse. Declining the Offer So what happens to those brave souls who receive an IRS offer letter who don’t accept? The outcome could be ruinous. Those choosing to fight could be taxed on the premiums multiple times, by disallowed deductions and again as income in the captive. Also, penalties of perhaps 40% on the unpaid tax. Jay Adkisson, lawyer and former chair of the American Bar Association’s committee on captive insurance companies says, “In the worst-case scenario, you could get hit with a 240% tax. I frankly don’t think anyone who gets this offer is going to reject it, and if they do, they need to find better professionals to advise them.” Finally, those who are offered this private resolution and decline will not be eligible for any potential future settlement initiative. Summing up their position, IRS Commissioner Chuck Rettig states, “The IRS is taking this step in the interests of sound tax administration. We encourage taxpayers under examination and their advisers to take a realistic look at their matter and carefully review the settlement offer, which we believe is the best option for them given recent court cases. We will continue to vigorously pursue these and other similar abusive transactions going forward.” Peering into the Foreseeable Future As we stated above—and have many times previously—the IRS traces a very specific path from transaction they do not like to classification of a Reportable or Listed Transaction. We are consistently astounded by the professionals who seem surprised by this revelation. The IRS does not act in secret.  Their actions are regular. As such, it is reasonable to peer into the future and describe the landscape. The IRS has three landmark 831(b) CIC wins. The facts are largely the same in those cases. Unless the marketing materials were significantly different, the facts in the remaining 500 docketed cases are likely very similar.  We have, in fact, seen many IRS audit reports, upcoming class litigation, and existing case law which bears out that assumption. The IRS has no reason to assume that they will have anything but success with the facts as laid out. Settlement is their way of lightening their load while offering the barest of concessions to the taxpayer. What is the future then? This is the point in our narrative where the guppies turn on the sharks that have fed on them.  The roll out of a settlement offer by the IRS leads to documentable losses by the individual business owners who were misled by unscrupulous promoters and some trusted advisors into a Captive.  The best case the taxpayer can expect from the IRS is to lose the tax benefit on 90% of their premiums paid.  That is the best case—and that is before penalties, interest, and more penalties. For those taxpayers, they should immediately contact the attorneys who will require reparation at the hands of the unscrupulous promoters and their cohorts. As a reminder to tax litigators, CPAs, and other concerned professionals.  Immediate care should be taken to toll the statute of limitations with advice to clients to engage competent counsel to litigate for reparations.

Overwhelmed with Small Business Tax Compliance? A Tax Specialist Can Help


Tax advisers can help you minimize your tax liability as a small-business owner.

Any small-business owner knows that tax time can be stressful. Further, you may not fully understand the tax laws. This can leave you worrying about the legal implications if you aren’t in compliance, and make it difficult to focus on running your business. The good news is, for most small businesses, a tax attorney can advise you on compliance issues and best practices so you can think more about keeping your clients and customers happy and less about Uncle Sam. Tax advisers can help you minimize your tax liability as a small-business owner.

Employment Taxes

One of the biggest challenges for many small employers is keeping up with all the changes related to employment taxes — the money you take out of each employee’s paycheck for taxes, Social Security and more. Even if you have no major new tax laws to contend with, the government often tweaks and updates current laws, and you could quickly find that you’re out of compliance. In extreme cases, you may even be on the hook for hefty fines if you make a mistake.

Tax Deductions

Another area where a tax adviser can help is with deductions. Maximizing your deductions and other tax benefits can help you avoid paying more in taxes than you should each year, which means more profit in your pocket. Recent changes to small-business taxes from the 2018 Tax Cuts and Jobs Act reduced corporate tax rates for many businesses, including larger corporations and smaller entities, and is something that every business owner needs to be aware of. If reading through the text of that new law doesn’t sound like your idea of fun, that’s where your tax adviser comes in. Tax advisors can make sure you’re not missing out on deductions and other benefits.

Annual Tax Changes

A small-business tax adviser can also help you with the sometimes-annual changes to tax laws that impact your business. For example, the 2017 changes to the tax law removed deductions for business entertaining expenses. If that was a big part of your tax strategy, an adviser can make recommendations on other ways to minimize your tax liability without this deduction. Or, if you offer benefits to your employees such as health insurance, retirement contributions, and paid leave, these can reduce your liability. Working with a tax adviser rather than just paying someone to prepare your taxes every year helps ensure you’re using the best strategies to run your small business, from payroll to personal estimated taxes, and you won’t be stuck with a huge bill come tax time. Call the advisers at Cantley Dietrich today to find out how we can help.

End-of-Year Tax Strategies for People with High Net Worth


Tax planning is essential to avoid paying too much in taxes if you have a high net worth.

It’s that time of year again — no, not for holiday shopping — time for your end-of-year income tax planning. It might not be the first thing you want to do during the season, but for those with high net worth, it’s a critical time to take steps that will protect you from paying excessive taxes or missing critical deadlines to protect your wealth from Uncle Sam on tax day. Tax planning is essential to avoid paying too much in taxes if you have a high net worth.

Updates to Investment Income Taxes

The 2017 Tax Cuts and Jobs Act made some changes to the laws surrounding capital gains tax, so if you have a significant investment portfolio, these changes could impact you. The rates for long-term capital gains (investments held for a year or more) taxes have not changed, but there are some changes to taxable income levels. Thus, it’s a good idea to check with your investment and tax advisor if you have capital gains income from the year or if you’re considering selling short-term investments before the end of the year.

Charitable Donations

If you prefer to donate some of your wealth to help offset your tax liability (and do some good in the world), you may be aware that the amount you can donate increased with the tax cuts bill passed in 2017 that went into effect in 2018. Those increases are still in effect in 2019, which means that donations to eligible charities remain a great strategy for reducing your taxable income. There are a number of excellent means through which you can contribute charitably and receive deductions based on your personal circumstances, so your tax advisor can recommend options for individual giving, transferring wealth into charitable lead annuity trusts, or donating from your IRA (an option only available to high-net-worth individuals over the age of 70½). Some of these options will revert back to pre-change levels in the next six years, so if you are planning to donate and take advantage of tax benefits, don’t wait too long and risk missing the opportunity.

Estate Planning

Perhaps one of your strategies includes gifting part of your wealth to your heirs, and now is a great time to do that, since the gift, estate, and generation-skipping transfer tax exemptions doubled last year to $11.2 million per person, and will go up with inflation. Taking advantage of the increase can generate substantial tax savings, but it’s important to discuss your plans with a knowledgeable tax advisor with experience working with high-net-worth individuals. You don’t want to end up gifting more or less of your wealth to heirs than is prudent based on your tax needs.

Other Tax Considerations

Many state taxes changed when the Tax Cuts and Jobs Act was passed, and they may have changed again in 2019, so make sure you speak to someone who can provide you with information about current rates and how they might change some of your tax-planning activities. Depending on the circumstances, business owners who receive income from a pass-through entity may be able to take advantage of the opportunity to deduct up to 20% of business income through these entities. If you own a business and haven’t formed an LLC that can help you take advantage of these additional deductions, now is the time to do so. It doesn’t apply to all businesses, so talk to your advisor if you think it might apply to you or find out if it should. Talk to the experts at Cantley Dietrich about your options for tax-planning strategies. They can help you avoid paying too much in taxes. Don’t miss critical deadlines; call today.

Many High-Net-Worth People Haven’t Taken Critical Estate-Planning Steps


Protect your wealth by consulting an advisor who knows estate planning.

More than one-third of individuals (38%) with a net worth over $1 million haven’t taken the basic steps necessary to secure their wealth in the event something happens to them, according to a 2015 CNBC Millionaire Survey. It’s important to understand the potential negative consequences if you don’t take some basic steps to protect what you’ve earned through proper estate planning. It can be confusing and frustrating, and the laws have changed significantly over the years. For that reason, it’s important to have a trusted estate-planning advisor who can protect your wealth now from excessive taxation, but also to ensure that it’s protected after your death. Protect your wealth by consulting an advisor who knows estate planning.

Get Documents in Order

More than just tax planning, estate planning means putting important instructions and decisions in writing. Without these legally binding documents, the battle over your estate and your assets could be messy and expensive for your heirs. A last will and testament is perhaps the most important document to have, and while it can be uncomfortable to think about dying, taking steps to put your wishes in writing is essential for any high-net-worth individual. This document can also indicate a guardian and set up trusts for any minor children you have, which is essential for young families. Two additional legal documents that everyone (but especially those with high net worth) should have are medical and financial powers of attorney (POA). A medical POA gives someone the power to make decisions about your care in the event you cannot. Most people designate a spouse, but you should also name someone else in the event your spouse cannot make those decisions. A financial POA designates a person you choose to manage your finances and act on your behalf in the event you cannot.

Shielding Heirs From Taxes

Estate planning also means creating financial vehicles that can protect wealth from hefty estate taxes, such as trusts. While the current tax structure is such that a large amount of wealth can pass tax-free, it was not always so and—barring Congress making the 2017 Tax Cuts changes permanent—will not be again after 2026.  In the last ten years, the estate tax limit has been $1 million per person, to unlimited, to $5.5 million per person, to its current stop at $11.4 million per person. While these can be valuable tools, it’s important to revisit your estate plan regularly with a trusted advisor, because changes in tax laws can impact the purpose behind your trust. In some cases, you may want to reverse decisions that made financial sense when you made them, but, due to changes in the laws, they would now have higher tax implications.

The Risks of Not Planning

Proper estate planning and regular review and updating takes time and might not seem like a high priority, but failing to do so can have significant consequences for your wealth after you are gone. Without proper protections in place, your heirs’ inheritance could be at risk from an angry ex-spouse, family members left out of the will, financial predators or even from the court system. Estate planning for high-net-worth individuals is more than just hiring a financial advisor or filling out a power of attorney form you found online. For airtight legal protection, it involves a team that can include financial service professionals, accountants, attorneys and others as needed for your individual situation. Talk to the team at Cantley Dietrich today if your net worth is over $1 million and you are in the 38% of people who haven’t taken important steps to protect your wealth.