Alternative Tax Mitigation Planning
As the old saying goes, "its not what you make its what you keep".
So it stands to reason the more money we keep the more money we have to use for planning and investing whether you are planning for intergenerational aspirations, reinvesting, income planning or bucket list items.
Tax Preparation vs. Tax Planning
Keep in mind that levels of income are taxed at different tax brackets (understand tax brackets will be discussed in next page). Tax preparation involves putting the right numbers in place at tax time. This is typically the role of a tax preparation professional like a CPA or Accountant.
Tax planning however, looks ahead to see if strategies can be put into place to change how those numbers will align. If you fall into the category of an accredited investor, qualified investor or qualified purchaser, you could benefit from advanced tax planning.
Defining Different Levels of Wealth
For the purpose of investing, there are typically four categories that are used to identify the level of wealth one holds.
- Mass affluent: an individual or household with an annual income of more than $75,000. The earner (or earners) will also have between $100,000 and $1 million invested in assets.
- Accredited investor: a person who may invest in securities that are not registered with the Securities and Exchange Commission (SEC), meaning they can purchase shares not sold in public markets.
The individual will need to have an income of at least $200,000 in the last two consecutive years. (A joint income with a spouse of more than $300,000 works too.) They should also have a likelihood that the level of income will be achieved once more in the coming year. Or the person could have a net worth of more than $1 million (a joint net worth exceeding $1 million works, too). This figure excludes the value of their primary residence.
- Qualified investor: individual with a net worth of $2.1 million or more, either individually or jointly with their spouse. This amount excludes the value of their primary residence. The term also applies to individuals who have at least $1 million in assets under management with their advisor.
- Qualified purchaser: an individual who owns a portfolio valued at $5 million or more. In addition, this term applies to a person who functions on behalf of other qualified purchasers with the capability of investing at least $25 million. These individuals may invest like institutions, meaning they have access to products not available to lower levels of investors.