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.
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.