As the IRS intensifies its efforts for tax fairness, high-net-worth individuals and large partnerships find themselves under the microscope like never before.
The IRS’s enhanced focus on auditing these groups means that every aspect of their financial lives, from income sources to investment portfolios and tax shelters, will face greater scrutiny. Here’s what you should know about this heightened level of oversight and how to prepare for it.
The Inflation Reduction Act
The Inflation Reduction Act is a legislative initiative to address inflation’s economic effects. This Act encompasses a range of measures that strategically adjust monetary and fiscal policies to foster economic stability. Introduced in 2022 by the Biden Administration, this Act is a proactive step toward addressing inflation. Let’s dive into what some of the IRS updates mean for you in 2024.
Increased Tax Security
A key aspect of the Inflation Reduction Act is reinforcing IRS enforcement capabilities, particularly targeting high-wealth individuals who evade taxes. This heightened scrutiny means these individuals are now more likely to face audits and thorough examinations of their financial affairs. Here’s a more in-depth look at what this increased scrutiny entails:
- Income Sources: The IRS will delve into the various sources of income you have, domestic and international. This includes scrutinizing earnings from investments, business ventures, real estate holdings, and other revenue streams. It’s essential to report all your income accurately and comprehensively on your returns.
- Investment Portfolios: If you have an extensive investment portfolio, expect the IRS to examine it closely. They want to confirm that your capital gains, dividends, and interest income are accurately reported. Additionally, any losses claimed should be legitimate and compliant with tax regulations. Provide detailed records of your investment transactions and consult a financial professional to help ensure proper reporting.
- Tax Shelters: Tax shelters are structures or strategies to minimize liabilities. The IRS is particularly interested in reviewing these arrangements to prevent tax evasion. High-worth individuals should be prepared for a meticulous examination of any tax shelters they are involved in.
By maintaining accurate records and seeking professional guidance when needed, you can confidently navigate tax-related issues in the future.
Technology-Driven Tax Audits
The IRS has embraced advanced technology, including artificial intelligence (AI), to identify discrepancies in tax filings. This technological shift enables the IRS to spot inconsistencies and potential errors in tax filings more effectively. AI is helping enhance the accuracy and efficiency of audits. This move is especially relevant for high-net-worth individuals with more complex financial situations.
Utilizing modern tax software can be a smart move. These programs are often equipped with sophisticated algorithms to help identify potential errors and optimize tax returns for compliance and efficiency. Moreover, considering the complexity of tax laws and the nuances of high-value financial portfolios, high-net-worth individuals might find engaging financial professionals with access to AI tools beneficial.
Changes To Retirement Planning
A recent TIAA study reveals that over half of American adults lack awareness of the typical duration of retirement years. So understanding your savings goal and the level of risk you’re willing to take to get there is a crucial step of retirement planning. In this phase, it’s vital to thoroughly review your retirement accounts, taking into account recent changes in tax laws. Compliance with these laws is a legal requirement and a key to protecting your assets.
For those with significant assets, they need to have a strategy in place. High-net-worth individuals should be particularly cautious about their transparent and compliant investment structures. This includes being aware of the latest regulations concerning distributions from retirement accounts and contributions to them. Failure to adhere to these regulations can result in substantial penalties. Advisors can help you navigate the nuances of tax compliance and investment management.
Get Professional Advice You Can Trust
Working with a financial advisor who understands tax laws is more important than ever. Experienced financial advisors can provide tailored guidance based on your financial situation. Financial advisors can also help develop tax-efficient strategies that align with your long-term goals.
At Johnson Wealth and Income Management, our team of dedicated Fiduciary advisors stands ready to support you through the complexities of retirement and tax planning, among other financial areas. Our advisors possess deep knowledge and skills in wealth management, enabling them to introduce and guide you through innovative strategies that can enhance your financial position. Whether it’s optimizing your asset allocation, planning for estate taxes, or exploring investment opportunities, our advisors are equipped to provide comprehensive support.
Our goal at Johnson Wealth and Income Management goes beyond simple financial planning. We are committed to empowering you with the knowledge and expert guidance needed to make well-informed financial decisions. This approach is designed to lead you toward a more secure, prosperous, and fulfilling retirement.
Final Thoughts
As the IRS ramps its efforts for tax fairness, high-net-worth individuals and those nearing retirement must remain vigilant and proactive. You can confidently navigate this evolving landscape by staying informed, seeking professional advice, and adapting your wealth management strategies.
At Johnson Wealth and Income Management, our team of Fiduciary Advisors is dedicated to supporting you in these endeavors. We’re here to assist with your tax planning needs, providing you with peace of mind as you navigate your financial journey.
Contact us today to schedule your complimentary retirement strategy session.
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