When engaging in certain business transactions, you must follow federal and your State’s regulations to remain compliant with the law—in fact, depending on the property being transacted, you may need to comply with laws most people have never heard of. When you or your business engages in those transactions, working with a firm that offers paymaster, escrow and commission dispersal services can help the transactions go smoothly and ensure that all the appropriate legal boxes are checked in the process. The paymaster is a neutral third party that receives funds from a buyer, holds them in escrow until all the people in the transaction agree that everything is ready and then disburses the funds according to the contract’s terms. Then the paymaster reconciles the escrow account and fills out all the appropriate IRS paperwork. Transactions in which it’s a good idea to engage with a paymaster service include:
- Personal Protective Equipment (gloves, masks, ventilators, and protective gear)
- Real estate
- Jet fuel
- Gold, diamonds and precious stones
- Note transactions or guarantees
Know Your Customer (KYC) & Anti-Money Laundering (AML)One of the most important aspects of large domestic and international financial transactions is KYC, or know your customer. These are legal requirements that compel companies conducting transactions to know who is on the other end, confirm that person’s identity and conduct due diligence in identifying any potential risks related to doing business with that person or entity. The requirement falls under anti-money laundering (AML) laws, and failing to adhere to the rules can lead to sanctions, fines and other damages that could come from working knowingly or unknowingly with money launderers or terrorists. It can also protect your business from losses that are the result of an illegal transaction.
Why Use Paymaster Services?One of the biggest benefits of using a paymaster service instead of traditional letters of credit through a financial institution is the ability to conduct transactions without the hassles normally associated with going through banks, including credit checks or the need to have an established relationship with the financial institution. Paymasters aren’t party to the transaction; they are only involved to make sure everything goes as planned and that all compliance issues are addressed. Paymasters take care of checking the identify of all parties in the transaction. They may look at:
- Driver’s license or passport
- IRS forms for U.S. or non-U.S. citizens
- Transaction documents
- Recorded report of any pending exchanges that the paymaster is involved with
Contact Cantley Dietrich for Paymaster ServicesTo find out more about paymaster, escrow and commission dispersal services through Cantley Dietrich, contact us today.
Most people are aware that cheating on your taxes is against the law, but when it comes to tax compliance, not everyone is on the same wavelength about what constitutes “cheating” or the potential risks it poses. There is a difference between civil penalties and criminal penalties when it comes to IRS enforcement actions. Criminal penalties are rare—in the sense that most people avoid the behaviors leading to criminal tax activity. When one commits tax evasion or tax fraud, the IRS will likely seek criminal penalties. While criminal penalties seem rare, that may be partly because only a small number of cases are prosecuted by the IRS each year. However, before you think there’s nothing to worry about, you should know that in 2019 the IRS had a 91.2% conviction rate for the cases it did bring. The agency boasted about their success to send a message that they will continue to pursue aggressive enforcement strategies.
We certainly hope you are not intentionally cheating on your taxes! Even for the on-the-level, middle-of-the-road taxpayer, there are things that you may be doing (or not doing) that could put you at a higher risk of being audited and facing penalties.
Common Tax Compliance Issues
The most common way for people to dabble in tax “gray areas” is by under reporting income. While this may serve to lower your tax bill, at best it results in civil penalties and, at worst, could result in charges of tax evasion. At highest risk for under reporting are self-employed individuals or those working in a business that primarily uses cash transactions. Another risky behavior is writing off exaggerated or fabricated business expenses, which is also against the law.
For high-net-[GD1] worth individuals, tax compliance can be complicated significantly by the complexity of your tax affairs and the tax-planning mechanisms you are using to manage your wealth. While most high net worth individuals have one or more advisors—and most of them are likely great—you may be out of compliance by function of the multiple layers or strategies you have put in place. You may not even be aware that you are out of compliance, particularly if you are using the advice of multiple advisors who may not be cohesively viewing or planning with you.
The Risks of Tax Non-Compliance
If you are subjected to an audit and the revenue officer finds errors or omissions, three things could happen:
- Fines — These are commonly referred to as a civil penalty. Civil penalties are the simplest thing that arevenue officer can do topenalize you for non-compliance. These fees vary based on what the revenue officeruncovers. On the low end, 20% penalties could be added to your tax bill if the revenue officer suspects that it is the result of negligence; on the higher end, it could be 75% or more if they suspect it was fraud.
- Criminal Investigation— The revenue officer may also refer your case to the Criminal Investigation Division (CID) if they suspect you willfully committed tax fraud.
- Prosecution — IRS investigators can charge you with tax evasion or fraud, filing a false return or failure to file a return.
How to Avoid Tax Compliance Issues
The easiest way to avoid tax compliance issues is to have your taxes prepared by a licensed CPA and regularly reviewed by a knowledgeable tax attorney. These individuals can review your current financial situation and identify potential red flags. Then you can address those concerns early—long before an audit begins —so you can avoid the hassle and potential financial penalties.
Cantley Dietrich has a team of tax attorneys with a practice grounded in tax compliance for high-net-worth individuals. We work holistically with other advisors and strive for a cohesive, understandable, and compliant plan for your estate. Call us today to discuss how we can help you avoid the risks of IRS audits.
We live in a DIY culture, but there are still some things that you should not try to do on your own. For someone with high net worth, wealth management is one of those things. Rather than trying to figure out investments, tax minimization strategies and estate planning on your own, work with a knowledgeable advisor who understands U.S. and international tax laws and works with you in your specific facts and circumstances to develop plans that reduceyour tax liability and increase profitability for you in the long term.
Why You Shouldn’t Do it Yourself
It might be tempting to think that you can manage your own wealth portfolio, but for most people there are significant drawbacks to doing this without the help of an experienced advisor. These include:
- A tendency to make financial or investment decisions based on emotions
- Not having all the information about current market trends
- Not having time to stay updated on the latest market research and information
- Lack of knowledge and understanding about new tax laws and regulations
All of these issues can lead to bad money management decisions, and for someone with high net worth, the stakes are often higher. Taking your cousin’s advice on investing or relying on an estate plan template you found online is risky for someone who has a significant portfolio or has amassed considerable wealth. In the end, even a seemingly small mistake could cost you a lot in increased taxes or investment losses.
A Better Option: Experienced Wealth Management Advisors
Working with a wealth management advisor who specializes in high-net-worth individuals can provide significant benefits, including:
- Unbiased advice on investment strategies, which is especially helpful in a market downturn when you may react negatively and want to take steps that could hurt you more in the long term
- Knowledge of all the changes to tax laws and regulations that can impact your taxes, estate plan and investment portfolio
- A broader overview of your entire financial life—including assets, investments, property, and business income—and other personal information that can affect your wealth plan, such as a marriage, divorce or children
Finally, a personal wealth manager can provide you with individualized advice about your own position. Even if you are able to find good information online, that information may not be applicable or appropriate for your unique situation. With an increasingly complex financial life, high-net-worth individuals need an increasingly personalized strategy for their own wealth management.
If you are DIY-ing your wealth management right now, talk to Cantley Dietrich today to get advice from advisors who make it their business to work with high-net-worth individuals. As tax attorneys, Cantley Dietrich can provide you with tools and expertise to adjust your tax and estate plans as laws and regulations change.
You worked hard to build your assets. Unfortunately, those with bigger assets often become targets for litigation. Even if you’re lucky enough to escape that, life can change quickly, and your assets could be at risk if they’re not properly protected.
For someone with high net worth, proper protection starts with a holistic plan created in connection with your legal, wealth management, and accounting advisors. These advisors work together to create a dedicated asset protection plan that incorporates the best tools and strategies to provide the protection your facts and circumstances require. Read below about four mistakes many people make when it comes to asset protection strategies and plans.
Mistake 1: Waiting to Create a Plan
You have a lot of tools at your disposal to protect your assets, but once there is a claim on those assets, it’snearly impossible to protect them legally. Trying to transfer them out of your name, hide them or otherwise omit them puts you at risk of violating laws against fraudulent transfer.
An old Army adage, “prior proper planning prevents poor performance,”is also true for estate planning and asset protection. Proactively taking steps to protect your assets reduces your risk of the slap-dash, last minute shenanigans people try once they’re on the defensive.
Mistake 2: Mixing Business & Personal Assets
If you own a business, it’s important that you don’t put your personal assets into the business entity, because it can open you up to legal challenges if you are ever sued. A simple analogy is to remember that your business is not your personal piggy bank. Cracking it open when you need money or sliding assets back into the business to cover payments is a really bad idea. Personal assets should be placed in the appropriate personal wealth protection vehicle (such as asset protection trusts or irrevocable trusts). As long as you properly create and fund the trust, many legal protections can keep your personal assets out of business disputes.
Mistake 3: Assuming Offshore Assets Are Safe
If you have some of your assets in offshore accounts, it’s still important to talk to an asset protection planning attorney about the best ways to protect them. Just because they are not in the U.S. doesn’t mean they can’t be targeted if you are ever named in a lawsuit or a personal dispute such as a divorce. Additionally, remember that offshore accounts and assets often have higher levels of reporting requirement and scrutiny such that failure to observe the proper formalities can compromise your costly protections.
Mistake 4: Trying to Hide Assets
When it comes to litigation, assume all your assets will be discovered, because they probably will. If you didn’t do the work beforehand to protect and preserve your assets, it’s not worth going to jail now trying to hide them. Assume that anyone who “used to be” your friend will disclose what you did to hide that asset and it will come back to hurt you in future litigation, where you could find yourself charged with other crimes such as perjury or fraud. Orange is not the new black, keep yourself out of jail and out of trouble by planning in advance.
The best thing you can do to protect your assets is contact Cantley Dietrich today. Our experienced attorneys can review your assets and help you find the right tools to legally protect you—and them—from many of the risks the future may hold.
When it comes to your taxes and wealth planning, it’s important that you have a team of people you trust to protect the wealth you have earned over time. The challenge for many people is finding the right firm with the right expertise. For many high-net-worth individuals and families, the best answer may not be a “high-powered” firm with thousands of attorneys, it’s actually a boutique estate planning or income tax planning firm that can provide you with one-on-one attention.
Boutique firms are at their best when you hear, “we don’t try to be all things to all people.” If you want a one-stop shop where you can litigate, conduct mergers, make claims on mineral rights, and do your estate planning, the large firm is for you. If you prize individualized, direct attention on a specific matter, then a boutique firm is the right place.
No Two Estate Plans or Tax Plans are Alike
One of the primary reasons to look at a boutique firm for all your estate planning and tax planning needs is that your estate plan or your income tax needs will be different from anyone else’s. Even though we use some common threads and tools for people with similar net worth, similar business income or similar assets, you deserve a plan tailored specifically to your situation and circumstances.
Boutique firms give you the personal service that lets you know you’re getting the best advice based on your financial picture.
The Expertise of a Large Firm
There’s no denying that a large tax planning or estate planning firm will have vast resources, but the right boutique firm has exceptional attorneys and tax professionals who provide the same high-caliber advice as a bigger firm, without the hassles that often come from dealing with a large firm, like having your attorney’s attention diverted to other clients and other matters on a regular basis.
At Cantley Dietrich, we recruit the best talent in the nation to work in our Las Vegas, Atlanta, Dallas, Houston, and Salt Lake City offices. Our attorneys understand state and local, federal,and international tax planning laws, so you get a comprehensive plan using the right tools and practical applications of the law.
When you work with a smaller firm or a boutique firm, what you get are attorneys with specialized experience and expertise in tax planning and estate planning. Our attorneys don’t cover every area of the law; we focus on helping you make smart decisions on your income taxes and protecting the wealth you have earned.
Attorneys that focus intensely in their field are often at the forefront of legal strategies and changes in that area, which benefits you if you have a particularly large estate or need complicated planning assistance.
Contact Us Today to Learn More
If you are still not sure whether a boutique tax planning and estate planning firm is for you, call Cantley Dietrich today to meet with our attorneys and see why we are the best choice.
Asset protection for a high-net-worth individual or a business is an essential part of any wealth-protection strategy. According to a review by Harvard Law School, the U.S. far outpaces other developed countries in the number of suits filed per 100,000 people, with 57% more than the next-closest country (United Kingdom).
Many of these lawsuits are considered “frivolous” and are thrown out before they reach a judgment, but millions still make it through the courts. For that reason, it’s important that you have a personal asset protection strategy to avoid losing what’s important to you in the event of a lawsuit.
The Most Common Threats to Assets
Your assets could be threatened by almost anything, but the most common reasons someone brings a lawsuit include (in no particular order):
- Vehicle accidents
- Personal injury
- Partner or business disputes
- Missed financial obligations
- Professional malpractice
- Harassment at your business
- Accidents on your business property
- Vehicle accidents involving company vehicles
An asset protection strategy is like a sliding scale of protection. How much and how deeply you care to restrict a judgment creditor’s ability to take something changes how you protect the assets. A judgement creditor is that person who, if any of those things (above) happen to you, is the someone who files a lawsuit against you or your business and then pursues your personal wealth or assets—such as your home or personal bank account. Along that scale of protections are strategies to protect your wealth from lawsuits filed against you personally.
Why Insurance Isn’t Enough
Many businesses and individuals believe that having liability insurance is enough to protect you if these things occur, but that is often not the case. We often see lawsuits arise out of that one “terrible, horrible, no good very bad day[GD1] ” where the insurance payment draws from an old account and the policy refuses to pay on the same day there’s an accident. Don’t laugh, it happens. It’s imperative to have good insurance, but damages sought in many lawsuits often surpass insurance limits, and insurance companies have a reputation that they will do whatever they can to avoid paying a claim.
Get the Protection You Need
There are myriad legal ways to protect your assets from litigation or creditors, but they are regulated by state, federal and international laws. The important thing is to be proactive in setting up these protections. If you wait until after a lawsuit is filed, it’s often too late. The old Army saying, “Prior proper planning prevents poor performance,” is never truer than in recognizing the value in protecting yourself before problems arise.
At Cantley Dietrich, our advisors have a deep understanding of federal, many state, and international laws that can protect your assets. Everyone has unique facts and circumstances, risk tolerances, and worries, and every plan is designed specifically for your unique situation. Our ultimate goal is to educate you on where to expect risk, how you can reduce risk, and provide opportunities to safeguard your family and wealth in the event of the unexpected. We also know that asset levels and laws change over time, so we can work with you to conduct regular checkups on your strategies to help ensure everything remains protected.
It’s a smart approach with a focus on privacy and security for our high-net-worth clients. Talk to Cantley Dietrich today about how we can help you.
We are living through an unprecedented time. As unbelievable as it was to watch America go to war for the first time in half a century, the fallout from the COVID-19 coronavirus is mind-blowing. We added words that were never a part of our vocabulary, but are now deeply ingrained: social distancing, self-quarantine, shelter in place and so on. Despite the efforts of individuals and governments, the disease marches on. While we won’t launch into a discussion about whether wearing face masks is effective, we do want to applaud one thing going right with Congress. Despite the effects on small business from all the social distancing, self-quarantining and restrictions on gathering in groups, we are grateful that filing taxes has been put on a temporary delay. The IRS moved the national income tax filing day to July 15, three months after the normal deadline for Americans to send in their returns. “At @realDonaldTrump’s direction, we are moving Tax Day from April 15 to July 15,” Treasury Secretary Steven Mnuchin wrote in a tweet about the extension. “All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.” https://twitter.com/stevenmnuchin1/status/1241002750483324930?s=20 Most Americans are entitled to refunds when they file their federal tax returns. As of March 13, the Internal Revenue Service had issued 59.2 million refunds out of the 76.2 million individual income tax returns it had received, or 77.7% of the total number of returns filed by that date. The average refund check was $2,973, according to IRS data. Many individual states already had extended their own tax-filing deadlines to various dates to give people relief from the financial fallout of the coronavirus outbreak, which has shuttered businesses nationwide and led to large-scale layoffs. The IRS move will increase pressure on states to align their deadlines with the new one for federal income tax returns. It is unclear if the deadline extension also will include the deadline for funding Individual Retirement Accounts for the 2019 tax year. If you have further questions about your tax filing or preparing for your 2020 income expectations, please contact.
Nobody wants to make a mistake on their taxes that could lead to a lower refund or cause them to owe money, but the potential risk can be heightened for those with high net worth. Unfortunately not everyone knows how to get the maximum financial benefit from their tax returns. If you are a high-net-worth individual or family, take a look at our list of some of the most common mistakes to avoid.
Becoming Obsessed with Tax AvoidancePaying taxes isn’t at the top of anyone’s list of things they want to do, but sometimes you have to do it. People with high net worth can become so fixated on the idea of avoiding taxes that they make mistakes that cost them more in the long run. Before you take any steps aimed at tax avoidance, talk to a tax advisor who specializes in working with high-net-worth individuals.
Choosing Questionable Tax SheltersAnother critical mistake to avoid is getting involved in tax shelters that you know little about. While some of these might be useful, your chances of participating in questionable transactions that could lead to IRS penalties and fines (or even jail time in severe cases) is much higher. A good tax planner can help you find the best tax shelters to avoid paying too much, without putting your wealth at risk.
Investing Overseas Without Knowing the Tax ConsequencesInternational investments are often part of a high-net-worth portfolio, and can offer some tax advantages if done correctly. But you need to understand the specific rules that govern overseas investments before you put your money or assets there. Well-meaning attorneys who don’t have experience in overseas investments can offer bad advice or fail to mention requirements such as tax filing and reporting obligations that can leave you with fines and penalties that negate any tax benefits, so make sure you talk to a knowledgeable tax advisor if this is part of your plan.
Missing IRA Minimum DistributionsIf you are lucky enough to be so wealthy that you don’t need to use the money you’ve saved in an IRA yet, that could actually cost you. IRAs, 401(k) plans, simple IRAs and SEP IRAs have a required minimum distribution starting at age 70½ (Roth IRAs are excluded). If you don’t take it, you will be stuck with a 50% tax bill on the required amount you did not withdraw. For most wealthy individuals and families, the biggest mistake they make is not hiring tax advisors with experience in high-net-worth financial planning. Talk to Cantley Dietrich today to get the best advice on protecting your wealth and avoiding taxes this season.
Businesses that claim tax deductions for wages and salaries — as well as commissions, bonuses, and other compensation to employees — are well within IRS tax laws. However, it’s important to note that if you have a business where you pay the owners and you plan to deduct that on your taxes, it could open you up to more scrutiny from the IRS.
IRS Requirements for Compensation
In order to deduct compensation on taxes, you must ensure that it is:
- A reasonable amount
- Ordinary and necessary for the business
- Payment for actual services provided to the company
- Incurred or paid in the year you claim the deduction (the one you choose depends on whether you use a cash or accrual accounting method)
- Deducted at its fair market value, if it’s a form of compensation other than cash, i.e., fringe benefits
Testing Your Own Compensation
Generally, the IRS increases scrutiny of tax deductions for compensation if the person receiving the high compensation has control over the business or a personal relationship with the owners. For many small businesses, those who receive the highest compensation fall into both these categories. If you’re not sure whether your compensation meets these requirements, below are some additional guidelines.
Compensation is generally considered reasonable if someone in a similar position at a similar company would be paid a similar amount. If you have individuals who are highly compensated in your business, make sure:
- Their duties are essential in keeping the business running successfully.
- Their hours worked each week are comparable to someone in a similar position at another company with a comparable salary.
- The person is generally qualified for the position.
- The pay rate is within the range of salaries for the same position in your industry and geographic area.
If the IRS is reviewing wages or salaries you deducted, they may also ask about how the person is related to the company or owners, and whether they control the company or could disguise corporate distributions as tax-deductible compensation.
Finally, it’s helpful to have a written document that specifies how much will be paid to whom, when and for what. If you pay out a large bonus at the end of the year and do not have a written document from the beginning of the year specifying the amount and reason for the bonus, the IRS may view that as a violation.
Get Help Evaluating Your Risks
What is tax deductible and what is not can be confusing even for seasoned business owners. If you are worried about whether you might fall under increased scrutiny, talk to the tax advisors at Cantley Dietrich to learn more. We can help you identify actions that could raise red flags with IRS auditors, so you stay in compliance with tax laws.
Two recent tax court decisions highlight the need for compliance-oriented planning in taxation matters. These two cases illustrate that small details make all the difference — often, all the clever planning in the world fails when you overlook an important rule. As we cautioned in previous articles about the dangers associated with entering into syndicated conservation easement transactions (CE) or microcaptive insurance transactions (captives) in our current enforcement environment, tax planning is somewhat of a race between clever ideas raised by bright people and regulators seeking to anticipate and head off the planners. These two decisions in the last month point out the importance of compliance planning.