This article in The Independent based on a survey illustrates American tax illiteracy.
Despite the complexity (and opportunity) embedded in the U.S. tax code, most Americans -including high earners – approach taxes as an annual chore rather than a strategic tool.
The Independent reports on a recent National Tax Literacy Poll highlighting a widespread lack of understanding about basic tax concepts, such as how income brackets work and the difference between credits and deductions. More than just a knowledge gap – it’s a strategic disadvantage. Tax planning isn’t just about paying what the IRS requires; it’s about minimizing what you owe within the law.
The Advisor Gap: Compliance vs. Strategy
One of the biggest contributors to the problem is who taxpayers rely on for help:
- CPAs (Certified Public Accountants) are essential for accurate filing, but most are trained for compliance, not advanced tax strategy. According to the American Institute of CPAs, only about 4 % of CPAs are qualified in strategic tax planning. That means most accountants will prepare your return correctly but won’t systematically structure your finances to reduce future liability. To be clear, theirs is an important role, but strategies to save big money is not part of it.
- Financial planners often focus on minimizing investment risk, maximizing retirement savings, and asset allocation – but many lack deep knowledge of the tax code’s strategic levers. This can lead to conservative guidance that avoids risk but misses opportunities to legally reduce tax burden.
- Self-proclaimed “tax gurus” often promote simple tactics like cost segregation or hiring family members, children. While those concepts can be valuable for certain taxpayers, they are often basic tools marketed as universal solutions and they rarely produce meaningful benefit for high-earners and those with a large tax liability.
The Real Issue for High-Income Individuals
If your tax liability exceeds $300,000, basic strategies alone, such as accelerated depreciation or family employment, won’t significantly change your tax position. These are the “low-hanging fruit” that most taxpayers neither fully understand nor consistently apply.
What does make a difference are strategic, tailored actions that integrate deeply with your business and financial goals, such as:
- Entity structure optimization – choosing the right business form (S-corp, C-corp, LLC, partnership) and adjusting compensation strategies to reduce self-employment tax.
- Advanced retirement design – using tools like Cash Balance or Defined Benefit plans that allow much higher contributions and deductions than standard 401(k)s.
- Timing strategies – shifting income or expenses across tax years to take advantage of changes in income, tax rates, or business cycles.
- Risk-managed tax efficiency – structuring deals, investments, and operations to leverage losses, credits, and deferrals in ways compliance-oriented advisors rarely consider.
These strategies are complex, often involving nuanced interpretation of the tax code’s thousands of sections, and usually require specialists who focus on tax strategy as a core discipline, not just compliance. Moreover, they take time to implement and document (which makes filing a breeze!)
Why This Matters Now
High earners often think: “I already pay an accountant; I’m covered.” But that logic assumes compliance is the same as optimization – it’s not.
Compliance ensures:
- Your forms are filled correctly
- Deadlines are met
- You avoid penalties
But compliance does nothing to:
- Reduce your overall tax bill in a strategic way
- Influence the timing of income and deductions
- Align tax decisions with business and wealth goals
In contrast, tax strategy – done correctly – can:
- Reduce lifetime tax burden
- Improve cash flow
- Strengthen business resilience
- Support long-term wealth accumulation
What Entrepreneurs & High-Net-Worth Individuals Should Do
1. Separate Compliance From Strategy Treat your tax preparer and your tax strategist as distinct roles. Both are important – and they serve different purposes.
2. Seek Advisors Who Understand Both Business and Tax Law Look for professionals who specialize in strategic tax planning – ideally with experience in corporate entity planning, retirement design, real estate tax strategies, and high-income tax mitigation. This may your CPA or financial planner, but in most cases, it is not (even when they say they do – it is a strategy-light).
3. Integrate Your Tax Strategy With Your Business Plan Tax strategy should be part of your operational and financial planning calendar, not something you “think about at year-end.”
4. Educate Yourself on Strategic Concepts Become a more informed decision-maker: basic working knowledge of strategy – like depreciation timing, entity structures, and income management will serve you well.
5. Build a Multidisciplinary Advisory Team Your CFO, tax strategist, financial planner, and legal counsel should work together – not in silos – to align taxes with business and personal goals.
Bottom Line
Most high-income taxpayers don’t lack compliance – they lack strategy. They pay professionals to prepare returns accurately but not to structure their finances intelligently. We’ve seen the cost of this gap reach hundreds of thousands of dollars over time.
For entrepreneurs and high-net-worth individuals, misunderstanding this distinction isn’t just costly – it’s risky. Strategic tax planning isn’t optional – it’s essential to preserving wealth, improving cash flow, and maximizing long-term financial success.
Michael Moffa is the founder of Prosperity Tax Advisors, a tax strategy firm based in Tampa, Fla.