Tax Strategies for the Super-Rich Can Also Apply to the Rest of Us

An article appeared in the New York Times about how the “super-rich” use their money and influence to appropriately take advantage of U.S. tax policies to be in their favor. It was an entertaining read, giving us a look under the hood once again on how money buys access to power in our political process.

There is good news for the rest of us when these billionaires win tax breaks, however. The fact is, regardless of the backstory of tax policies that comes out of the Washington legislative meat grinder, many of these planning strategies can apply to all of us. If the super-rich win a tax break, that break can also become a legal tax strategy for the less wealthy to apply to their own situations.

Most of us cannot take advantage of complicated and expensive schemes like the Bermuda Round Trip featured in the article, but the underlying tactic of re-characterizing wealth, or the proceeds of an asset sale, can, with forethought, be applied to many taxpayers’ situations.

Too often, tax “planning” is done in reverse, with a busy business person suddenly facing a big tax bill, and wondering how he or she could have avoided it. Then the CPA and a financial planner scramble to find any retroactive legal angle for offsetting expenses against revenue, or deferring taxes through retirement programs.

That’s not really planning, though, is it? You cannot position yourself to grasp the coattails of the Super-Rich and tap into the same tax benefits they have discovered if you wait until the tax bill arrives. It requires you working closely with a qualified proactive tax planner.

(There are, of course, tactics available to apply tax law in your favor even after the bill arrives, but reactive responses usually take more work, and add a lot of stress that true tax planning is designed to alleviate.)

Proper planning demands forward thinking. Anyone who has held an asset or run a business for a long time has capital appreciation that could trigger a big tax bill when it is sold. The best way to eliminate the stress of such looming tax obligations is to take steps now with your tax advising team to assess all your assets and income sources. Measure their future value and what the tax bill might be when they produce income or are sold.

• What expenses do you anticipate over the next few years?
• What investments do you see necessary to raise the value of a property or a business?
• How do the individual assets relate to each other?
• How could they work as a portfolio, where expenses (or tax benefits) can be shared between them?
• Are you properly characterizing your business (your primary source of revenue/income) to maximize tax benefits?

The answer to these and other questions will uncover opportunities to minimize the size of present and future tax obligations using available tax codes and tax court decisions. Greater tax benefit can result.

The Super-Rich blaze a tax-advantaged trail that most of us cannot follow; but the decisions made as a result of their pursuit of tax relief often do leave useful benefits on the side of the road that the rest of us can pick up and use.