There are some problems that come with being successful, and tax planning is one of the most important ones for people with a lot of money (HNWIs). Everyone wants to pay their fair share of taxes, but paying as little as possible lets you keep more of your hard-earned money and save it for a better future.
This article talks about advanced tax techniques that are made to help high-net-worth individuals (HNWIs) understand the complicated tax code, for example, getting help from a CPA in Campbell, CA.
Table of Contents
Minimize current taxable income.
Getting your current taxed income down is the first thing you need to do to save on taxes. Several strategies can be used to make this happen:
- Retirement accounts: Put as much money as you can into tax-advantaged retirement plans like IRAs and 401(k)s. Most donations are tax-deductible, which means they lower the amount of money you owe the government. Roth choices also let your money grow tax-free until you take it out in retirement.
- Strategies for deferred income: You might want to look into choices like deferred pay, where some of your salary is paid later and your present taxed income is lessened.
- Business expense deductions: If you own a business, keep very careful records of all your legal business costs and claim them all. This could lower your taxed income by a lot.
Make strategic use of trusts.
Trusts are a strong way to keep track of your assets and pay the least amount of taxes possible. Here are some ways that trusts can help very wealthy people:
- Irrevocable living trusts: When you give your assets to an irreversible living trust, you give up ownership but still get some benefits. This may keep those assets from being taxed when you die, and it may also lower your taxable income.
- Dynasty trusts: Using a dynasty trust, you can pass on your wealth from one generation to the next while keeping estate taxes as low as possible for the people who receive the money in the future.
Use charitable giving as a tax-saving tool.
Donating to certain nonprofits can help your financial situation. How to do it:
- Itemized expenses: Donations to charity can lower your taxed income by a large amount if you list them as expenses on your tax return.
- Giving away valuable items: If you donate stocks, real estate, or other assets that have gone up in value, you can avoid paying capital gains taxes and still get a tax break for the full value of the gift.
Optimize capital gains tax.
Profits from selling assets are taxed as capital gains. Here are some ways to lessen them:
- Holding period: Usually, assets that are held for more than a year get a lower capital gains tax rate than assets that are held for less than a year.
- Tax-loss harvesting: To lower your total tax bill, sell shares at a loss to balance out capital gains from other sales. This is called “tax-loss harvesting.”
- Putting money into tax-advantaged accounts: Put money into accounts like IRAs and 401(k)s, where capital gains grow tax-free until the money is withdrawn.
Gifting strategies and estate planning.
Giving gifts is a great way to give money to people you care about while also lowering your income tax bill. You can give a certain amount each year without having to pay gift tax. To get the most out of the benefits and stay within the lifetime gift tax limits, it is important to plan carefully with a trained expert.
Planning your estate makes sure that your assets are given to the people you want after you die. It can include things like using trusts, life insurance, and the right recipient choices to help your children pay the least amount of estate taxes possible.
High-net-worth individuals (HNWIs) can use complex tax tactics, which means they need to talk to an experienced tax professional to make sure they are following the rules and reaching their wealth and financial goals.
