While individuals with high incomes can be found throughout PA, tax accountants practicing around Pennsylvania’s major cities—Philadelphia, Pittsburg, and Harrisburg—are likely to have some high-income clients. These regions, especially in the southeast, have per-capita incomes higher than the national average. If you serve clients in these regions, becoming an expert in the tax requirements of high-income investors will help build your practice with high-quality clientele who are likely to recommend you to their friends.
High-net earners bear a higher tax burden due to their higher tax bracket, and they need the help of a trusted tax advisor to navigate the complexities of the tax code and use the legal opportunities available in the code to shield some of their income and assets from taxes.
For your high-income clients, you should be knowledgeable about the tax impacts of:
- Filings in multiple states
- Multiple sources of income
- Foreign income
- Real estate income
- Business revenue
- Trusts
- Capital gains
- Sale or purchase of large asset investments, such as yacht, artwork, or jewelry
- Impact of required minimum distributions from IRA and 401(k) accounts
- Additional taxes, such as the alternative minimum tax (AMT), Net Investment Income Tax (NIIT), and estate taxes
Tax strategies for high-income investors
Since taxes pay for the upkeep of our nation, we should be willing to pay our fair share, but as tax accountants, we have a responsibility to help our clients navigate the tax code and its ongoing shifts and changes in order to avoid overpayment. Some of those strategies for high-income earners may include:
- Taking advantage of all credits and deductions the tax code allows
- Maxing out pre-tax retirement accounts, health savings accounts, and employee financial contribution opportunities
- Maximizing pre-tax contributions – health savings accounts, charitable giving, asset allocation
- Investing in municipal bonds, which have lower interest rates, but are exempt from federal taxes, thus making their tax-equivalent yield attractive to higher-income investors
- Taking long-term capital gains rather than short-term, which are taxed as ordinary income
- Tax-loss harvesting – strategically selling certain investments at a loss in order to offset capital gains; excess loss can offset up to $3,000 of federal tax each year and can be carried into future years
Providing more services
Your high-income clients need more than just tax services. Consider becoming a high-net-worth tax advisor. These advisors cater to the financial needs of high-net-worth individuals – those with at least $1M in liquid assets. By combining wealth management and tax planning, you can guide your clients in investments that will provide the greatest returns while limiting taxes and fees. PSTAP’s continuing education courses provide members with the opportunity to develop expertise in many subjects, such as estate planning, trusts, treatment of qualified charitable distributions, backdoor Roth IRAs, and more.
To expand your services, you can develop new expertise, hire staff who have additional expertise, or create a business service agreement with other experts to broaden your services to your clients.
Additional services that your high-income clients may need include:
- Tax planning and compliance for estates, trusts, and gifts
- Capital gain and loss planning
- Real estate ownership tax issues
- Tax deferral strategies
- Retirement planning
- Elder care services, such as personal finance management, organization of personal and legal documents, inventorying personal assets, etc.
- Trust and estate planning, including wills, power of attorney, and advanced healthcare directives
- Life insurance, health insurance, and disability planning
- Education funding and planning
- Succession planning for businesses
- Buy/sell agreements
- Tax planning for mergers, acquisitions, sales
- Employee benefit and retention plans
- Executive compensation plans
- Enterprise risk management
Build your accounting practice by becoming an expert in a few of these services and creating partnerships with other experts to offer a wide range of services. PSTAP members frequently share their expertise and work together toward common goals. Your high-income clients turn to you to be their one-stop financial service provider. By providing the services and referrals for all their financial and planning needs, you will find that your practice will grow naturally and fill with high-quality, long-term clients who value you.
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