We’re all glad April is behind us. At the same time, this is a smart time—not to set the books aside until January, but—to begin strategizing your business and personal finances, comprehensively. Now that a recession is likely, this is a smarter way to prepare for 2023’s taxes next year than simply forgetting about them.
It’s also where I come in: My name is John Iannucci and as a tax attorney in Florida, I routinely help businesses navigate the complex tax laws and regulations both here and in the U.S. Tax Code. However, these are only small parts of ILG Private Wealth’s array of family office services.
The further we go into 2023, the more concerns increase about the possibility of an economic recession later this year. Such talk was often met with derision in 2022, but today, the subject mainly leads to musings—not as to if it will happen, but—as to when the larger downturn will have arrived.
Typically defined as two consecutive quarters of negative GDP growth, a recession can have a significant impact on the financial well-being of individuals, families, and businesses. Nevertheless, there is often a misconception that the wealthy are immune to such economic downturns.
After all, for some reason, they have significant assets, investments, and resources that they can draw upon to weather the storm, right?
Not necessarily. In fact, even the financial resources of the affluent may be vulnerable as inflation, market volatility, and a likely recession eventually collide. Inflation, alone, diminishes the purchasing power of money, so a convergence of all three could create the most challenging economic environment we’ve seen in decades.
Inflation occurs when the prices of goods and services rise due to the value of money decreasing. Historically, this has often been due to too much currency in circulation. The end result, regardless of the situation’s cause(s), is that the value of our assets, savings, and investments can decline.
During past periods of inflation, people have often shifted their investments away from cash and towards assets that can preserve their wealth, such as real estate, gold, and other commodities. However, these assets may not always perform as well during a recession as expected.
For example, during the 2008 financial crisis, the price of gold initially rose as investors sought a safe haven for their money. However, as the recession worsened, gold saw an unexpected decline in value. By September of that year, gold prices had declined by nearly a third of their peak.
Another concern for the financially independent during a recession can be market volatility. Wall Street can be unpredictable during economic downturns, and investors may experience significant losses if they are not properly diversified. This is always something to take care of before the worst of the storm is over us, given a choice.
At the same time, a number of investors may panic and sell off their investments in an attempt to minimize their losses. This is the opposite of not being prepared, but it’s just as risky: Few, if any human beings make wise investment decisions when their fight-or-flight response is engaged.
The reason why, in this case, is that it can often backfire, disastrously: Especially in the era of recent supply chain issues across the country, companies with a great deal of long-term promise can still see temporary declines. Those who sell off their shares when all seems lost risk locking in their losses. At that point, they’ve prevented themselves from benefiting from any potential rebound in the future.
The key to mitigating investment losses during a recession is to have a well-diversified portfolio that includes a mix of asset classes, such as stocks, bonds, and alternative investments like real estate or private equity. As a Florida tax attorney, I routinely assist clients with understanding the complex tax laws and regulations that apply to their specific situations. This, in turn, can make it easier to keep more of your returns.
For those who aren’t familiar with the term, a “family office” is a private wealth management advisory firm designed to serve the affluent. Our primary objective, as a family office, is to manage the financial affairs of your family, including investments, estate planning, tax management, philanthropic activities, and other related services.
The benefits of this concierge service model are numerous. For instance, it provides a comprehensive approach to managing your wealth. Instead of working with multiple financial advisors, lawyers, and accountants, you can have a dedicated team of professionals who understand your unique needs and work towards achieving your long-term goals.
A family office can also provide access to unique investment opportunities. With their seasoned insight and connections, advisors can provide access to investment opportunities that are not available to the general public. Examples can include private equity, hedge funds, real estate, and so on.
It bears mentioning that ILG’s family office services are specifically designed to work seamlessly with other professionals. This is what I mean by saying that we “play nice with others:” My team and I easily integrate with your preferred attorney, accountant, and other advisors to ensure that all aspects of your financial life are working together efficiently.
In an age when the successful are deliberately being favored for audits, the IRS isn’t likely to help us avoid overpayment. That’s why ILG’s service model includes seeking every legal avenue to minimize your overall tax debt.
Common strategies include:
Again, I provide extensively experienced guidance for selecting and leveraging tax management strategies as a part of our overall comprehensive family office services. This helps us identify opportunities to potentially grow your wealth and better fortify your family’s financial castle.
Small business owners, for instance, can take advantage of opportunities to deduct business expenses, utilize retirement accounts, and defer income. High-net-worth individuals and families, on the other hand, can benefit from tax-efficient investing, establishing charitable trusts, and utilizing estate planning to minimize estate taxes.
If you’re a real estate investor, you can take advantage of depreciation deductions, 1031 exchanges, and utilizing cost segregation studies. Self-employed individuals may take advantage of deductions for home office expenses, health insurance premiums, and retirement contributions. Every client’s needs are unique to us.
Hopefully, the answer to this headline is obvious by now: The best guides are always local. I don’t just live in the sunshine state—I have lived, so to speak, for years in the shifting maze known as the U.S. Tax Code, providing business insights, helping families promote values-driven legacies, and much more.