Tax season is over for most Americans but not for many high-net-worth taxpayers. If they’ve invested in alternatives like a business partnership, there’s a good chance they had to file for an extension because they hadn’t received the partnership’s K-1 form reporting their share of the business’s income, deductions or credits.
High-net-worth individuals can have “very complicated returns that require lots of information,” says Adrienne Penta, head of regional trusts and estates at Brown Brothers Harriman.
Gift taxes are another complication for these taxpayers. Like all taxpayers, they have to pay taxes on any gift valued at over $14,000 (for 2014) but they have the option of applying that value to the $5.43 million federal gift tax exemption, which is the same as the federal estate tax exemption. Taxpayers can gift during their lifetime or afterward as part of their estate, but either way there can be more complications because many state have their own estate tax — only Connecticut has a state gift tax — and their exemptions usually aren’t as large as the federal one.
“If you’re a Massachusetts resident, you have a $5.43 million federal estate tax exemption but only $1 million for the state,” says Penta, “and many states have an estate tax but not a gift tax, so it makes sense to make gifts during one’s lifetime.”
Her solution to all these complexities for HNW taxpayers: multiple advisors who are experts in their respective fields: an accountant to file annual income taxes; an estate planning attorney for estates and gifts; and an investment advisor.