Whether your wealth is built or inherited, peace of mind comes from ensuring that it lasts to take care of your family well into the future. Strategic tax planning for high-net-worth individuals helps preserve more of your earnings and reduce tax liability.
High-net-worth individuals, typically with $1 million to $5 million in liquid assets, can benefit from a financial professional’s guidance to navigate complex tax strategies.
If you're a high-net-worth individual, it's essential to be thoroughly prepared and strategically informed about tax strategies for high-income earners. Here is a list of tax strategies you can use to optimize wealth preservation and tax efficiency:
One of the first high-net-worth tax strategies you’re likely to hear from a registered investment advisor is maximizing contributions to your 401(k) savings account. These contributions are pre-tax, which means they can lower your taxable income.
The maximum contribution for an employee in 2025 is $23,500, according to the Internal Revenue Service. If you’re 50 or older, the catch-up contribution remains $7,500, which gives you a maximum contribution of $31,000.
If you’re a business owner, you can maximize your contributions to employees’ savings accounts with a combined contribution limit of $70,000 per worker. This strategy will also reduce your taxable income.
Charitable giving should always be a part of tax-planning strategies for high-net-worth individuals. Additionally, this approach not only provides tax benefits but also aligns with the values and social responsibilities of the affluent.
You can certainly reduce your taxable income by deducting cash donations. Moreover, by donating assets like appreciated securities to charitable organizations, you can bypass capital gains tax while claiming a tax deduction for the value of the security donated.
Financial advisors also frequently suggest a donor-advised fund when helping with tax planning for high-net-worth individuals who want to donate to charities.
With a donor-advised fund, you can contribute a substantial lump-sum donation, which is fully deductible in the same fiscal year. When coupled with a capital gain of similar size during the same taxable year, the donor-advised fund can help save you money. As a bonus, you control the fund, allowing you and your heirs to determine when and where donations go.
As previously mentioned, your charitable donations don’t have to be in cash. You can also gift items of value, such as vehicles, electronics, collectibles, or stocks. Compared to other high-net-worth tax strategies, this approach might not seem as valuable, but it can garner a tax deduction for an asset you might not have been using (and one you didn’t have to sell to derive value from).
Investing in real estate is an excellent way to diversify a portfolio when developing tax-saving strategies for high-income earners. Come tax time, there are other benefits.
For instance, you can deduct expenses directly related to your investment: property taxes, insurance, mortgage interest, and maintenance and repair costs. You can also write off any costs incurred for advertising, office space, and equipment for business purposes.
All these write-offs can lower your taxable income. Just make sure you keep accurate records of your expenses.
A high-net-worth tax plan should also include provisions for maxing out your health savings account (HSA). Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
According to Bankrate, the maximum annual contribution is $4,300 for an individual and $8,550 for a family. If you’re 55 or older, there’s an additional $1,000 catchup contribution.
Municipal bonds can be another valuable part of your financial plan. Local and state governments sell these bonds to fund projects like the construction of bridges and water systems. The interest you earn on municipal bonds isn’t subject to federal income taxes, and it may be exempt from state and local taxes, depending on where you live.
As a person of high net worth, you aren’t eligible to place your savings in a Roth individual retirement account to take advantage of its tax-free saving ability. However, you can place your money in a traditional IRA and then convert it to a Roth IRA to take advantage of the tax benefit.
Timing is crucial here, so you’ll need to work closely with your wealth management advisor.
When strategizing on how to plan taxes for high-net-worth individuals, a wealth management advisor will take into account factors such as whether the individual has children or grandchildren who may attend college in the future. Investing in a 529 plan doesn’t come with a tax deduction. However, there are no taxes on earnings or withdrawals when the money is used for qualified education expenses.
Among high-net-worth tax strategies, financial advisors might consider tax-loss harvesting to help clients save on taxes.
This strategy involves selling off securities that have taken a loss and using that loss to offset gains from other securities. Subsequently, you can reinvest in comparable yet distinct securities to preserve the equilibrium of your investment portfolio.
Keep in mind that this list doesn’t cover all the many tax strategies for high-net-worth individuals available. You can learn more about making the right moves to protect your wealth by consulting a qualified wealth management advisor.
Ensuring that your family possesses sufficient savings for a comfortable future is your top priority. Likewise, it holds significant importance for the wealth management advisors at Porte Brown. Our experts dedicate time to understanding your unique financial situation and provide the high-net-worth strategies essential for safeguarding your family's financial future for generations.
Porte Brown offers custom wealth management through a wide range of services, including tax planning, retirement planning, investment planning, insurance, income protection, and asset preservation.
Contact us today to ensure your high-net-worth tax planning strategy aligns with your goals.
High-income earners have several tools available to lower their taxable income, including charitable donations, pre-tax investments, and tax-loss harvesting.
A qualified tax professional can assess your financial portfolio to create a targeted, effective strategy.
Like high-net-worth individuals who work for companies, high-income business owners also have a set of options available to use when reducing taxable income. Some of these include maxing out contributions to employees' retirement accounts, writing off any costs associated with running your business, and making larger investments such as real estate or machinery.
Working with tax advisors can help you choose strategies that best align with both your business and your financial goals.
Tax strategies for state taxes vary greatly based on where you live. Some states don't have state income tax, while others range up to 13%. Individuals and businesses that operate in more than one state may also owe taxes in multiple states.
While the strategies are myriad, they can quickly become complex and require carefully-timed moves and thorough record maintenance. Because of this, most high-earners work with a trusted wealth advisor when planning strategies.
When it comes to planning, not all tax savings happen in the same filing year. Taking advantage of tax-free growth accounts like Roth IRAs, 529 plans, and mutual funds doesn't save you taxes the year you invest, but any interest earned in these accounts won't be taxed when distributed.
Reducing taxable income can affect retirement and future taxes. Financial tools like pre-tax retirement accounts are appealing because they immediately reduce your taxable income, but this can also lead to higher retirement tax brackets or required minimum distributions in the future.
Many high-net-worth individuals look to balance tax-deferment strategies with post-tax investments to get the right mix.
Get in touch today and find out how we can help you meet your objectives.
