David Rae is a certified financial planner with years of experience helping high-net-worth individuals manage their wealth. He is a regular contributor to Forbes, and has appeared regularly on television. In this interview, Rae explains how high net worth individuals can best manage the tax burden that comes from a successful exit and shares additional insights on financial planning best practices.
Q: What tax considerations should private-equity backed executives keep in mind when approaching an exit?
A: Don’t ignore the potential tax burden. If you own equity and are going through an exit, even with proper tax planning, the tax bill will likely look scary. But there’s a lot of room to make it less so. Keep in mind that not all dollars are created equal. Most equity payments are lump-sum, but if you have the opportunity to negotiate your compensation to be paid out over time, that can help to ease tax burdens.
Q: Do you have any thoughts on forming either an LLC or a self-directed IRA to mitigate taxes on personal wealth?
A: You’ll want to talk with your financial professionals, and you’re going to want to have an attorney drawing up the legal documents. This is a big decision, and you want to make sure everything is in writing. There’s a big difference between working at a multi-million dollar business and having those millions of dollars sitting in your bank once your payout hits. And you’re also going to want to have a tax professional to make sure before and after the business changes ownership that you have entities set up for the proceeds of your equity stake, if your structure allows for it.
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