James Zahansky, AWMA®
Principal/Managing Partner, Investment Advisor & Chief Goals Strategist
Being in an executive or leadership role often comes with unique tax situations not faced by the average employee. The higher pay, bonuses, stock options and other perks mean executives need to stay savvy when it comes to tax planning.
With proper preparation, documentation and guidance from a financial advisor, executives can utilize numerous above-the-line and itemized deductions to offset high tax bills. Here are some of the most important tax considerations for those in executive and leadership positions.
Deferred Compensation Plans are Your Friend
One of the top tax strategies for executives is to defer compensation whenever possible. Elective deferred compensation plans allow you to set aside a portion of your salary or bonus to be paid out in the future. The key benefit is you delay paying taxes until withdrawal.
Properly Structured, Severance Pay is Partially Tax-Free
Receiving a severance package may seem like a tax nightmare. However, with careful planning a portion can be considered tax-exempt. Payments for unused vacation time, reimbursement of moving expenses or career counseling may not be subject to ordinary income tax.
Maximize Retirement Accounts
By maximizing pre-tax 401k contributions and utilizing other retirement plans like IRAs and SEP IRAs, executives can limit current taxable income while building funds for the future. Catch-up contributions after age 50 are especially advantageous.
Watch Out for AMT Triggers
The Alternative Minimum Tax (AMT) often trips up executives due to high incomes and frequent stock option exercises. Stay aware of AMT triggers and work with a tax pro to mitigate exposure.
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Business Expenses are Your Friend
As an executive, take advantage of every allowable business expense deduction from travel to entertainment to professional dues. Maintain meticulous records to justify these write-offs come tax time.
Review Stock Option Strategies
Executives with stock options should develop strategic exercise and sale plans to minimize tax liability. Factors like short vs. long-term capital gains, ISOs vs NQSOs and market conditions all impact how and when to leverage options.
Home Office and Auto Use Deductions
Due to remote work and frequent travel, executives can often claim significant deductions for home office use and business vehicle mileage. Ensure you have documentation to back these up.
Charitable Donations Offer Dual Benefits
Donating appreciated stocks allows executives to avoid capital gains while deducting the value. Bunching donations into particular tax years can reap further rewards.
Hire an Experienced Tax Strategist
At the executive level, the mantra rings true - hire professionals to advise you on taxes. CPAs and financial planners versed in executive tax code can identify planning opportunities unique to leadership roles. The financial advisory team at WHZ is here to help.
The specialized tax situations faced by executives and business leaders require equally specialized planning and preparation. Following these tips will help limit tax liability and maximize after-tax income. As income and wealth escalate, a trusted tax strategist becomes essential.
At WHZ, our team of advisors pool our collective knowledge and work together to build an investment strategy and overall strategic financial plan that’s tailored just for you and your goals, through our Plan Well, Invest Well, Live Well™ strategic process. And we’re there to keep it up to date every step of the way as your life and the markets change. If you'd like a financial partner to help you plan and invest well so you can stay on track to Live Well now and in the future, contact us for a complimentary consultation or call us at (860) 928-2341.
Presented by Principal/Managing Partner & Chief Goal Strategist James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.