By Barbara Friedberg
WWR Article Summary (tl;dr) It’s tax season people! While you may not have money to invest offshore, it’s never to early to learn what to do with that money WHEN you make it big. The economic empowerment of women is very important to us here at WWR which is why it is crucial for women to understand basic international banking laws before investing overseas. Know the forms…avoid the penalties!
People who develop the skill to earn, invest and create large sums of money still make tax mistakes. From failing to understand tax-loss-harvesting rules to a lack of knowledge about international investing laws, these errors cost rich people both time and money.
Here are two key tax mistakes rich people need to avoid if they want to hold on to their wealth.
INVESTING OVERSEAS WITHOUT UNDERSTANDING THE TAX CONSEQUENCES
People with high income and substantial net worth often invest internationally. After all, such investments can come with some tax-minimizing benefits.
But putting money to work outside the U.S. can have risks. Stewart Patton, a U.S. tax attorney and offshore investing expert with Belize City, Belize-based U.S. Tax Services, shared one such cautionary tale.
Patton’s client, a wealthy U.S. doctor, fell in love with a tourist spot in Central America. The doctor decided to buy several condos and build an office building there. In consultation with both a local attorney and a U.S.-based accountant, the physician was told there would be no U.S. tax implications until the investment dollars came back stateside.
Unfortunately, the doctor’s accountant was inexperienced in this area of tax law and did not inform his client about several filing and reporting obligations related to ownership of non-U.S. corporations and non-U.S. bank accounts.
The physician eventually discovered that potential penalties for failing to file these important tax forms might run into six figures. Patton was brought in to assist the distraught doctor.
Fortunately, the doctor’s attorney got his client into an amnesty program and avoided the penalties. But the story highlights the importance of getting experienced guidance when investing internationally as well as developing an understanding of basic international banking laws.
Fail to do so, and you might rack up penalties in the tens of thousands of dollars.
NOT USING CHARITABLE GIVING OPPORTUNITIES TO LOWER TAXES
It is not big news that gifts to charities reduce taxes for the wealthy. Take a look at billionaires Bill Gates, Warren Buffett and Mark Zuckerberg, these three are known to donate huge amounts to charity, and they most likely reap the tax benefits.
Failing to utilize charitable giving tax strategies can deprive high-net-worth taxpayers of large tax benefits, said Scott Thompson, an expert in tax reduction strategies for the wealthy.
For example, by giving away cash, the asset is removed from a rich donor’s estate, providing the giver with an immediate tax deduction and minimizing estate taxes later. Another example of such a tax-reduction strategy is a business owner who donates an office building or other rental property to a charitable foundation.
Barbara Friedberg writes for GOBankingRates.com, a leading portal for personal finance news and features, offering visitors the latest information on everything from interest rates to strategies on saving money, managing a budget and getting out of debt.