For Tax Compliance and Planning, Collaboration is Key

Melissa Olszak, CFP®, CFA® BY: Melissa Olszak, CFP®, CFA® 03.25.19

8 Tips to Ensure High Net Worth Investors Get the Most Out of This Tax Season

It’s that time of year again when high net worth clients and their advisors are getting inundated with 1099s, K-1s, estimates and other tax documents. Although this inundation of data is not new, there are many changes with the 2018 filing versus the 2017 filing, making this year one of the more challenging years for CPAs to meet deadlines–and also not miss tax filing requirements or opportunities for their clients.  

Many CPAs have software that organize and track a list of 1099s and K-1s, and prepare a checklist for the following year. That being said, this software is only as good as projecting the information from the previous year, so it is important to watch for a few items that are new or not recurring to ensure there are no opportunities being lost during the filing process.

Here are 8 tips to help CPAs and high net worth clients reduce the chance of missed items or opportunities.

  1. New Bank Accounts or Investments. When working with a wealth management advisor, the advisor will likely have a good inventory of any new or closed accounts and any new direct or limited partnership investments.
  2. Purchase or Sale of a Home or Refinance of a Mortgage. It’s best practice to collect a closing binder of the sale or purchase and share it with your CPA, as this documentation should contain the majority of information needed such as legal owner, deductible expenses versus capital expenses, and financing documents if there is a mortgage. Aside from the closing binder, the other information your CPA will need is any additional basis records if the home was sold to determine any gain (or loss if the property was an investment property).
  3. Purchase of a Fuel-Efficient Vehicle. There are certain tax benefits when it comes to purchasing new, fuel-efficient vehicles, but there are also required rules and records that must be provided to your CPA in order for you to benefit. Your wealth advisor also may be aware of such a purchase and can help track down the required information.
  4. Low Basis, Concentrated Positions. Some clients and families have large positions in stock that either came from the family being one of the original founders or investors, or that may have simply been passed down through generations. In either case, when positions are held for a long time, the custodians who hold them may not have accurate basis information. Given this scenario, it’s important to pay attention to any sales of securities to ensure your CPA has accurate basis to be able to determine any gain or loss, and that there’s time to go back and build a basis history. These scenarios may be something your wealth advisor can also help sort through.
  5. Tax-Deferred Accounts. Although the IRS has certain reporting that gets generated on tax deferred accounts, it’s important to provide information on any tax-deferred account transactions such as rollovers, required minimum distributions or charitable donations, to be sure they are not missed and are properly reported. 
  6. Loans. There often is not any automatic reporting for family and friend loans, so it’s important to not lose track of these types of loans and share copies of the promissory notes and any interest and principal payments with your CPA. Your CPA may also be able to spot if a reasonable interest rate is being used, such as the Applicable Federal Rate (AFR) for related party loans, to reduce any gift exposure.
  7. Charitable Donations. With many other deductions (state income tax and real estate taxes) being reduced, charitable donations may be more valuable to clients. Therefore, ensuring proper records are obtained is critical to not missing out. These records include receipts for any cash gifts over $250, and appraisals for in-kind property donations. Your wealth manager can work with you to establish the best strategy for giving (such as through a donor advised fund to take advantage of fewer receipts to track while also being able to donate low basis securities and controlling the timing of the deduction and ultimate charitable contribution).
  8. Gifts. Whether your CPA or estate attorney files your tax return, it’s critical to look back over the year and provide information on any gifts made, which could include outright cash gifts or more complex giving such as the funding of a Grantor Retained Annuity Trust (GRAT), a QTIP Trust or forgiveness of a loan. By providing this information, your CPA or attorney can advise on the filing requirement and impact on remaining lifetime and generation-skipping exemptions.

The list above can be overwhelming, but if you, your CPA and your wealth advisor work together to compile the list of data and any new investments or transactions that occurred, it can become much more manageable and reduce missed filing requirements and opportunities. 

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