Articles

DJ Khaled Offers a Key Lesson in Tax Planning by Jeffrey M. Mutnik, CPA/PFS

View Jeffrey's Profile
Posted on December 06, 2017 by Jeffrey Mutnik

Like many entrepreneurs, famed music producer and performer DJ Khaled put his child on the payroll and named his son executive producer of his platinum-selling album.  However, at just one year old, Asahd Khaled’s resume is already vastly superior to many who have achieved much in their lifetimes.

Is this merely fun for the family or is it some kind of a hoax or promotion? No, it is actually a key to brilliant tax planning.

As an executive producer, young Asahd has earned income in his own name and social security number, and he is subject to taxes on those earnings based on his applicable tax rate. Therefore, income that the father might otherwise have had to report, most likely at the highest tax rate, is now reportable by the son for which lower graduated tax rates will apply.

In addition, with earned income, Asahd may also have the right to contribute to his own eventual retirement.  If he is an employee of his father’s company, he can make tax-advantaged contributions to a traditional 401(k) or a Roth 401(k) plan and/or a traditional IRA or Roth IRA.  If he is self-employed, Asahd has even more bountiful retirement plan options at his disposal, based on the facts and circumstances of the company he owns.

Because income earned by Asahd will not be included in his father’s estate, DJ Khaled has choreographed a reduction of his taxable estate while also shifting his wealth to the next generation without using any annual for lifetime gifts. Not only is the elder Khaled building tax savings into his family’s future wealth, he is also setting up his son for playground bragging rights about the size of his retirement savings.

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director with the Taxation and Financial Services practice of Berkowitz Pollack Brant Advisors and Accountants, where he provides tax and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms.  He can be reached in the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.