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Guest: Brett Ellen
Episode in a Tweet: As an entrepreneur or CEO you’ve earned it, now use smart tax-saving strategies to put more dollars in your pocket instead of funding Uncle Sam.
Quick Background: Just as you work hard to build your company, you should apply that same diligence to managing your financial affairs. Fortunately, you don’t have to become a financial expert yourself. Instead, find a trusted financial professional who can act as the “quarterback” and coordinate the appropriate financial, tax, insurance, and legal pros you need to minimize your taxes and maximize your after-tax results. Long-time financial advisor Brett Ellen has worked with high-net worth entrepreneurs and CEOs for years and in today’s show, he discusses several key tax-saving strategies you might want to consider.
Transcript: Download the full transcript here.
Disclosure: Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Neither United Planners nor its financial professionals render legal or tax advice. Please consult with your accountant or tax advisor for specific guidance. The views expressed are those of the author as of the date noted, are subject to change based on market and other various conditions, are not a solicitation to purchase or sell any security and may not reflect the views of United Planners Financial Services.
1. Like the San Antonio Spurs, surround yourself with a financial management team who work flawlessly together.
“Since I’m a Laker fan, it’s hard to give too much love to the Spurs, but the way they play together is a model for how your advisory team should coordinate,” said Brett. “Most entrepreneurs and CEOs don’t have their accountants, their financial advisors, their insurance people, and attorneys working together as closely as they should. As a result, we believe the first and most important step is to coordinate the advisers into a smart team and hopefully have a great coach that can lead that.”
2. Many wealthy people mis-identify what their biggest financial risk is.
“Studies have shown when you ask people what their greatest risk is, what they’re concerned with, a lot of times it will be their mortgage payments, and budgets, and putting kids through school and stuff like that, but I think, by a landslide, if you ask the question appropriately, it would be taxes,” said Brett. Another top financial advisor, Steve Lockshin, considers “tax advice the purest form of alpha. Pure alpha equals an increase in net results with zero increase in portfolio risk.” Both advisors realize that looking for tax-saving strategies and fully utilizing the options available to you could put material dollars in your pocket.
3. There are two ways to attack tax planning–the company level and the individual level.
Brett likes to exhaust all the opportunities at the company level first (for those who have an ownership interest) then move on to the individual level. If you’re a business owner, “The first thing you look at would be qualified plans and non-qualified plans,” said Brett. He mentioned R&D credits and creating a captive insurance company as a couple tax-saving ideas on the company side. On the individual side, he said, “Charitable planning, oil and gas programs, low income housing credits, and defined benefit plans are things to consider.”
4. Investing in a conservation easement is an often overlooked strategy that could generate significant tax breaks for you.
The Nature Conservancy defines a conservation easement as “a voluntary, legally binding agreement that limits certain types of uses or prevents development from taking place on a piece of property now and in the future, while protecting the property’s ecological or open-space values.” In return for donating a conservation easement, land owners get significant tax breaks. Brett gave an example of a program with a prominent landowner where investors participated in a 6,000 acre deal and were able to receive tax breaks. You have to do your homework, though, as Brett said, “There’s a lot of research and background work that goes into this.”
5. Converting a traditional IRA to a Roth IRA may be a sound tax-saving strategy for you.
“Roth conversions are one of the greatest things you can do with planning today,” said Brett. And according to Fidelity Investments, “It’s generally a good idea for most investors to consider including a Roth IRA in their overall retirement planning. Roth IRAs have the potential to grow tax-free, which may help you save more over time. Plus, withdrawals aren’t mandatory during the lifetime of the original owner, and Roth IRA assets may pass to your heirs tax-free.”
1. Surround yourself with a top financial team. Just as you hire top people to work at your company, look for a key financial person who can quarterback your financial life and ensure all your key players are coordinating with each other.
2. Not looking for the biggest ways to save on taxes is a huge miss for many wealthy people. Many entrepreneurs and CEOs spend too much time trying to get better stock market returns when in reality, emphasizing tax savings could put more money in your pocket–and maybe even help society at the same time.
3. Everyone’s situation is unique and it’s critical to understand the pros and cons of any tax-saving strategy. There are numerous legal ways to minimize your taxes but not every strategy is effective in all circumstances. Hire pros who can explain the options, discuss the risks, then make an informed decision that is best for your situation.
Transcript: Download the full transcript here.