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The Tax Prophet Newsletter   Issue # 21 March, 2005

REDUCE TAXES!
CHECK OUT THE TAX PROPHET'S Action Guides


In This Issue:
Introduction
Questions About the Survey
Potential Explanations
Conclusion


Wealthy Taxpayers Ignore
Mainstream Tax-Planning


Introduction

Evidently, according to a company called Spectrem Perspective, a majority of wealthy taxpayers (defined as those with at least $500,000 to invest) are clueless about some of the most basic tax-planning strategies, including Section 529 educational savings plans, annuities, charitable contributions, retirement plans (including SEPs and IRAs), tax-exempt bonds, tax-free annual gifts and cash-value insurance.

Questions About the Survey

Approximately 30% use any type of professional advisors, with full-service brokers topping the list. However, the Spectrum survey could be suspect. For instance, it does not differentiate between a taxpayer who actively communicates with a professional and those who might seek advice once every several years. It is based on telephone interviews with 500 households, as well as other undefined resources. The survey's margin of error is reportedly 6%. Also, the company appears to be in the tax-planning business.


Potential Explanations

There could be several explanations for these numbers. First, considerable wealth is held in trusts and managed by professional trust companies. Second, many of the strategies require earned income, rather than investment income, so they would be most applicable to those with high-paying jobs, rather than taxpayers living off of investment income.

Third, with the lowering of tax rates, especially the 15% tax on capital gains and dividends, tax planning may not be as critical for those paying taxes at 15%. Fourth, there are plenty of do-it-yourself- investors, and with vast amounts of information available on the web and sophisticated software to crunch the data, many investors may not see the need for professional advice. Even so, there is, evidently, an untapped market for professional tax advice among the wealthy.


Conclusion

There are numerous incentives and tax loopholes in our current system. It is surprising that a majority of wealthy taxpayers are unaware of basic tax-planning strategies that will save them thousands of tax dollars. After all, for many taxpayers, the issue is not how much money you make, but how much you keep.

The Lesson: Consider your tax-savings options - retirement plans, gifts, educational funding for children, charitable contributions, tax-exempt interest and tax-favored investments such as cash-value life insurance and annuities. For additional information please download my Action Guide (at no charge) Minimize Your Taxes.



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All contents copyright © 1995-2004 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet® is a registered trademark of Robert L. Sommers.