I’ve been a certified public accountant for 50 years and currently work at a boutique accounting firm in Palm Beach, Florida. Many of my clients are high net worth individuals, which we define as anyone with over $5 million in liquid financial assets. These clients are often either retired or run successful companies, franchises, and manage large stock portfolios and estates.
For most wealthy individuals, tax preparation is a year-round affair and does not start a few weeks before Tax Day.
I often work with clients to plan out taxable events and transactions before they take place. For example, I have a client who wants to sell his home this year while the housing market is hot. He’s going to make a significant amount of money on the sale, so to offset those gains in 2021, we look at harvesting tax losses — or selling investments that may have depreciated in value and supplementing with another similar investment, which can reduce the capital gains tax.
When preparing taxes for those with high net worth, I make sure the expenses, losses, and gains match year over year. You don’t want to have losses for 2020 and gains for 2021, or vice versa. We try to match each year so we can harness the greatest tax advantage for the client.
Financial planning is crucial for UHNWI to save money on their taxes.
Many of my clients are initially surprised at how much communication and planning goes into the tax preparation ahead of Tax Day. Not every one of my clients needs year-round service, not everybody can afford it either, but our higher net worth people demand it. For wealthy individuals, tax preparation and planning is complicated so there is no set pricing package. Some clients add services like wealth preservation strategizing, which is not billed by the clock.
Wealthy individuals, in some cases, have similar tax situations as the average Americans, just with more assets and expenses. When a client of mine retires, their income decreases, and it’s part of my job to prepare them for all of the additional costs and teach them how to budget, as well as set up a pension plan or profit sharing plans.
Some clients who’ve retired have told me they were surprised to learn how expensive cell phone plans were and how much they were spending on car payments. They’re shocked at these numbers because while they were still working, many of these expenses were charged to business accounts or expensed by their company.
Clients often come to me with unique requests in hopes to help offset their tax bill.
I always tell my clients that paying taxes is a privilege, it’s a privilege to make a lot of money, and taxes are unavoidable. The biggest problem I face as a CPA is when a client comes in the first week of April and says they’ve either had a big capital gain or have had a large chunk of income and then wants to offset it. There’s not much I can do April 1st of 2021 for the year 2020. But if they’d called me during the summer of last year, then we could have discussed our options.
For instance, I have a client who is winding down a limited partnership. He invested in a real estate partnership years ago and it didn’t work out. He anticipated taking a tax loss on that partnership for 2020 because he’s not getting his investment back. But the partnership wasn’t dissolved completely in 2020, and he made big personal gains in the stock market. He wanted me to figure out a way where he could take the loss in anticipation of it winding down, and I told there was no way I could. It’s very unfortunate, but I can’t change the tax code.
Wealthy individuals also have the benefit of the new bonus depreciation law, where a business can make a large purchase, such as a fleet of vehicles or machinery, and deduct a percentage of that purchase from their taxes. According to the IRS, any vehicle over 6,500 pounds is a truck. So many large luxury SUVs can be considered trucks, for tax purposes. In December, I met with a few clients who’d bought a $90,000 Lexus SUV and a $110,000 Porsche SUV, and we were able to write that off in full because it falls under the bonus depreciation law.
My wealthy clients get most worried when they’re hit with a tax bill they weren’t expecting or didn’t know applied to them.
Many don’t know just how much the capital gains tax is, or how much the Medicare tax really is depending on how much you make. What also surprises a lot of people is also the difference between short-term gains versus long-term gains. Shorter capital gains is something you buy and sell within a year, whereas long-term is something you buy and sell in a time period greater than a year. The taxes are much higher on short-term gains, so I advise my clients never to sell an asset at the 11-month mark, but to wait another month to take advantage of the capital gains tax.
As an accountant, it’s my job to make the tax code understandable to everyone.
Most high net worth individuals are not educated on tax law. Those high net worth individuals who partner with a financial planner from the onslaught are in a much better spot to navigate and predict how much they pay in taxes yearly as opposed to those who don’t. It’s my job to help you avoid these losses, and prepare you to retire. So when looking for an accountant, look for those who pay attention and understand your business, not one who breezes through a 60-page brokerage statement in two minutes.
I recommend everyone regardless of their income level to consider sitting down and speaking with a tax professional, even if you don’t think you need to. Oftentimes, people with 1099s and W-2s have a lot more moving parts to their finances than those with millions of dollars.
The tax delay doesn’t affect my business much because I have been working with my clients on their taxes year-round.
Even though we are in close communications with our wealthy clients throughout the year, we still feel the crunch anytime tax season comes around. We are just better prepared. Because we haven’t been able to meet with clients much this year because of the pandemic, working with clients has been rocky, but successful overall with no big hiccups, as most tax information is already handled virtually.
I’ve always been good with numbers since high school, and my dad always told me the world will always need accountants and lawyers, and I chose to be an accountant. Being an accountant for 50 years, I’ve always found it fascinating working with people who come from nothing and then have an idea and then make something of it.
My favorite part of my job is listening to people’s stories and learning the ins and outs of their business. Some people think I do the same thing every day, but I don’t. As an accountant, I have an inside look at how some of the most successful businesses operate and have always enjoyed listening to my clients tell me their new ideas. The ability to really help families reach their goals and dreams is extremely rewarding. That’s why I love this profession.
Meira Gebel May 16, 2021 at 08:03PM