Tax goofs are something everyone tries to avoid, but high net worth individuals need to be even more wary of them.

The reason is simple: greater wealth brings excess tax burdens, and as such, even a small error, a misjudgment or miscalculation can prove to be debilitatingly costly.

Tax goofs are something everyone tries to avoid, but high net worth individuals need to be even more wary of them.

The reason is simple: greater wealth brings excess tax burdens, and as such. Even a small error, a misjudgment or miscalculation can prove to be debilitatingly costly.

The last tax year portrayed this perfectly with all of the confusion about the new tax law

So, as we enter into the New Year and with that inevitably start our preparations for the new tax season. Our tax experts at Canberra Company would like to discuss a few tax pitfalls that every high net worth individual should watch out for.

Tax Controversy – Lack of collaboration

Most high net worth individuals have a team of financial advisors. Wealth managers and tax consultants advising them on their financial matters. The advice provided by these professionals often has direct or indirect tax consequences. Therefore, to get the best advice, it is essential to have every member of the team on the same page.

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Unfortunately, many a times, this isn’t the case, and there is an obvious lack of communication between wealth managers, financial advisors and tax consultants. This leads to poor decisions, which impact high net worth individuals tax-wise. Many times these people first follow the advise and lead of their portfolio advisor to find out later that it was a bad tax move. Like the game of chess, proper tax planning is complicated.

Improper homework on tax shelters

Tax shelters allow taxpayers to minimize their taxable incomes and, therefore, tax liabilities.

High net worth individuals use tax shelters readily. New tax shelters are created every day and marketed exclusively to high net worth individuals as a way to mitigate, defer or avoid taxes. But while tax shelters are helpful, sometimes they can also be a problem.

Not all tax shelters are legitimate; some are designed to serve as tax traps. Additionally, some tax shelters carry more risk compared to the security they provide.

It is, therefore, important to do the due diligence before investing in a tax controversy. It also makes sense to involve a tax expert. When buying a tax shelter to ensure that the vehicle is not violating any law.   Instead of tax shelters, the modern high net worth investor is investing with private equity firms.