Smart tax strategy doesn’t wait until year-end.
INDIVIDUAL FEATURE
Alternative Investments and Tax Complexity – Why planning now can save headaches later
We’re seeing a rising number of clients exploring alternative investments like private equity, crypto, real estate funds, collectibles, and even business ventures. These can be powerful portfolio diversifiers, but they come with unique tax consequences that often catch taxpayers off guard.
Some key things to keep in mind:
• K-1s from private equity, businesses, or real estate organizations may arrive late (well after April 15), require complex reporting, and sometimes generate income without liquidity.
• Unrelated Business Taxable Income (UBTI) can show up in retirement accounts (IRAs especially) when investing in certain private funds, triggering IRS filings and potential penalties.
• Cryptocurrency transactions remain a red flag area. Even minor trades must be reported. Wash sale rules don’t apply (yet), but basis tracking can be tricky.
• Collectibles, from fine art to vintage cars, carry a top federal tax rate of 28% on gains, not the usual capital gains rates.
If you’re exploring alternatives, now is the time to review your holdings and future investments with your advisor. Planning ahead can reduce surprises and help you keep your strategy as efficient as it is ambitious.
BUSINESS FEATURE
Travel, Entertainment, and the IRS – What’s deductible now, and what isn’t
Many businesses are back on the road. Summer is the ideal time for conferences, trade shows, generating new business, and reconnecting with clients in person. The rules around deducting travel, meals, and entertainment have tightened significantly in recent years, and missteps are increasingly scrutinized during audits.
Here’s a quick refresher:
• Travel (still mostly deductible): Flights, hotels, taxis, and mileage for business purposes remain fully deductible if substantiated with receipts and purpose.
• Meals (50% deductible): Client or employee meals during travel or business meetings are generally 50% deductible only with proper documentation. A line item like “lunch w/ client” will not cut it in an audit.
• Entertainment (not deductible): Tickets, events, golf outings, even if clients are invited, are no longer deductible, per post-TCJA rules. This includes costs for boxes or season passes. However, employee events, such as company-wide annual picnics or team building events, remain deductible expenditures.
• Gifting (limited): Still capped at $25 per recipient per year for deductible gifts.
We recommend updating your expense policy and training any team members who submit reimbursements. A few small shifts in how expenses are labeled, substantiated, and categorized can make a big difference in audit preparedness—and ensure you don’t leave valid deductions on the table.
Planning Tip of the Month
If you’re changing investment platforms, keep an eye on basis tracking.
We’ve seen several situations this year where transferred shares lost cost basis information between custodians, especially with older DRIP stock or crypto wallets. This can have serious capital gains implications. Document everything before you move assets.
If you have questions about anything mentioned here, or if you’d like to schedule a midyear check-in, we’re always just a phone call or email away. Until then, take care!
The Aiken Warner Team
Coming Next Month
We’ll be digging into:
• College Planning for Affluent Families (Individual)
• Succession Planning and Exit Strategies (Business)
