If you’re like many high-income families, you face a complicated tax picture. Even if you’ve managed your own taxes for years, you might be making costly tax mistakes. Our latest video outlines five of these mistakes and offers guidance to help you avoid them.
Watch now to learn how to better understand your taxes and possibly reduce the amount you owe this year.
Transcript
5 Tax Mistakes High-Income Families Should Avoid
Are you paying more in taxes than you need to? High-income families rarely overpay because of one major mistake.
More often, it happens because valuable planning opportunities are missed throughout the year.
I’m Rory O’Hara with Ausperity Private Wealth.
Why Year-Round Tax Planning Matters for Wealth Management
Today, I’ll walk you through five common tax mistakes that could cost you a significant amount of money over time.
Tax Mistake #1: Not Thinking About Taxes Until Tax Season
Number one, not thinking about taxes until tax season. Many people begin thinking about taxes when they sit down with their CPA in March or April, but by then, some of the best planning opportunities may already be gone.
Many important tax decisions need to be made before December 31st, and some should be considered even earlier. Instead of treating tax planning as an annual event, think of it as a year-round process. Your CPA prepares your tax return based on what already happened.
Effective tax planning is about making better decisions before it happens.
Tax Mistake #2: Failing to Plan Around Equity Compensation
Number two, failing to plan around equity compensation. Equity compensation can be one of the most valuable wealth-building tools that you have.
Without a clear strategy, it can also create a significant tax headache. For example, restricted stock units are generally taxed as ordinary income when they vest. That additional income could push you into a higher tax bracket, and the taxes withheld by your employer may not be enough to cover what you might already owe.
Stock options, vesting schedules, trading windows, and future liquidity needs should all be considered as part of one coordinated strategy.
Tax Mistake #3: Having Too Much Employer Stock
Number three, having too much employer stock. Many executives are hesitant to sell employer stock because they don’t want to pay the capital gains tax.
But in trying to avoid one tax bill, they might be creating a much larger investment mistake.
When a significant portion of your income and net worth is tied to the same company,
a decline in that company stock could affect both your career and your financial future at the same time.
The goal is not necessarily to sell everything at once. It’s to develop a thoughtful, tax-aware strategy for gradually reducing concentration and building more in a balanced portfolio.
Tax Mistake #4: Overlooking Tax Savings and Charitable Giving Opportunities
Number four, overlooking savings and charitable giving opportunities.
Reducing taxes doesn’t always require a complicated strategy or an obscure loophole.
Sometimes it simply means taking full advantage of the tools already available to you.
Things such as health savings accounts or HSAs, retirement plans, Roth conversions during the right years, and tax loss harvesting are all common but underutilized.
Charitable families may also benefit from donor advised funds or donating appreciated investments instead of cash.
These strategies can help you support those causes that you care about while potentially reducing capital gain taxes and improving your overall tax outcome.
Tax Mistake #5: Waiting Too Long to Plan for a Major Taxable Event
And number five, waiting too long to plan for a major taxable event. Selling a business, exercising stock options, receiving a large bonus, or selling a highly appreciated investment can create a significant tax liability.
The mistake is waiting until the transaction is about to happen. Until it has already occurred to begin planning. Many of the best strategies need to be evaluated and implemented well in advance.
Once a deal closes or a gain is realized, your options may become much more limited. The earlier you begin planning for a major taxable event, the more opportunities you may have to control the timing, structure the transaction, and potentially reduce the taxes that you owe.
Proactive Tax Planning Helps Protect and Grow Your Wealth
The common thread behind each of these mistakes is simple. Effective tax planning should happen before your tax return is prepared,not after the year is already over.
At Ausperity Private Wealth, we help families coordinate their investments, income, equity compensation, charitable giving, and financial planning with their overall tax strategy.
Because the goal is not simply to pay less in taxes this year, it’s to make better decisions that allow you to preserve.
And grow more of your wealth over time.
Work With Ausperity Private Wealth on Your Tax Strategy
We’re here to help. Do you want to steer clear of these and other tax mistakes?
Ausperity Private Wealth can help.We work with wealthy individuals and families to create proactive and tax efficient plans. Every client at the firm has an annual tax strategy.
To schedule a meeting, call 856-252-0102 or email me at rory.ohara at ausperitypw.com.
Thank you for watching.
Frequently Asked Questions
What are the biggest tax mistakes high-income families make?
Some of the most common tax mistakes include waiting until tax season to plan, overlooking the tax impact of equity compensation, holding too much employer stock, missing opportunities like HSAs, Roth conversions, tax-loss harvesting, or charitable giving, and failing to plan for taxes on side-business income. Proactive, year-round tax planning can help high-income families identify opportunities before they disappear.
How can high-income earners reduce taxes legally?
There are many legitimate strategies that may help reduce taxes, depending on your financial situation. These can include coordinating equity compensation decisions, making tax-efficient charitable gifts, harvesting investment losses, using health savings accounts, and evaluating Roth conversion opportunities. The Ausperity Private Wealth team helps high-income individuals and families create proactive, tax-efficient financial plans that coordinate these strategies with their broader wealth management goals throughout the year, not just during tax season.
Should I work with a financial advisor for tax planning?
While financial advisors don’t prepare tax returns, they often play an important role in tax planning by helping you make financial decisions with tax consequences in mind. Working alongside your CPA, Ausperity Private Wealth helps clients develop year-round tax strategies, coordinate investment and retirement decisions, and identify opportunities to potentially reduce taxes while supporting their long-term financial objectives.