Loading ...

We have discussed previously how a business sale can be a windfall for charitable giving opportunities [LINK].

Lottery winnings, law suit settlements, or an inheritance from great aunt Sarah are also instances where the money may arrive completely unpredictably. If you happen to be in the right place at the right time for such an event it’s possible to do some planning but, in most cases, there is more luck than skill involved in your participation.

Even then these events tend to invoke remedial planning after the income event has occurred. While this may not be ideal, it is often the best that can be done given the circumstances.

Somewhere in the middle ground of predictability are other income items

Like bonuses, stock option exercises, and deferred compensation payouts. The actual occurrence of the event may not be in the control of the recipient, but the knowledge of the amount and timing is usually available.

That makes planning for the event and the tax consequences more predictable and allows planning options to be more fully explored.

A success story

Recently, I received a call from an advisor who had a client who was to receive $800,000 of deferred compensation. His company wanted to automatically withhold 40% for taxes, leaving him only $480,000 of cash.

Our first task was to let his HR department know that there was no legal requirement for them to send money to the government since it was his obligation to pay his own taxes. So we quickly refiled a new form W-9 and he deposited the entire $800,000 in the bank.

It is amazing that many companies unnecessarily withhold money from their employees without their employees raising an objection.

Because the client had other significant income and other assets we were able to use two different strategies, one charitable and one not, to eliminate 75% of his final tax obligation. That means most of his dollars are working for him instead of the IRS.

His CPA had told him there was nothing he could do since he had already earned the money. His company told there was nothing he could do but send in his taxes and if he was lucky later he would get a refund.  But now since we had access to all of the cash we were able to do better planning for him.

Sometimes helping clients means you have to fight for them

You may have to take on corporate bureaucracy and ignorance but your obligation is to help the client get the best solution.

For those that work with high level executives who often have deferred compensation, stock bonuses, cash bonuses or golden handcuffs of some kind, there is a lot of creative planning that can be done, even though it may have to be done after the recognition event.

But most executives know when these events will occur and often more than once and sometimes even annually. You can do planning for them in advance so that they can receive the maximum benefit available to them.

As an advisor, recognizing these opportunities puts you in the best position possible to provide the highest level of service and planning.

Get your Opportunity Recognition Module here. Give me a call at (704) 698-4055 or email me at randy.fox@ezcharitable.com for more information.