Tax Planning for HNWI

Tax Planning for HNWI

Those with at least $1 million in liquid assets are considered high net worth individuals. If you fall into that category, it’s no surprise that you pay the most in annual taxes to the IRS, and that is unlikely to change. However, with smart tax planning, you can also save the most.

It’s best to work with a tax attorney or financial advisor but in the meantime, here are some tax planning for HNWIs strategies that will help you pay less in taxes.

Create Your Plan

Although there are limited ways to defer paying taxes or to receive tax-free distributions of profits, there are many tax minimization strategies that can help grow your wealth.

When it comes to diversifying your investments, municipal bonds are a safe way to preserve capital while generating interest. Often called “munis”, these bonds are issued by state or local governments. Even though growth of municipal bonds is lower than equities in the long term, all of the interest is tax-free. Bonds can also stabilize your portfolio in down years for equities. And if bonds are already a part of your asset allocation, why not add municipal bonds to the mix?

Another strategy incorporates maximizing your retirement accounts and Health Savings Account. You can convert your IRA or 401K to a Roth IRA. Roth IRAs have contribution limits, but HNWIs are generally excluded from them. Once you pay your initial roll over tax you can grow your Roth investments tax free. Similarly, your contributions are not taxed in an HSA, even if you withdraw funds for qualified medical care. To maximize your retirement savings, you can pair your Roth conversions with other tax strategies, such as tax credits.

It might also be time to reexamine your real estate strategy. Signed in 2017, the Tax Cuts and Jobs Act (TCJA) lowered the mortgage deduction limit to $750,000. Single filers can deduct interest up to that amount, and married couples filing jointly can deduct up to $375,000 each. But that also means the days of large real estate tax write-offs are gone. Therefore, you should consider focusing on real estate profits and income rather than on taxes.

Donating and charitable giving is another way to add to create a positive impact on your investments. Recent tax law raised the standard deduction for donations to $24,000, which is an easy benchmark to meet if you’re a HNWI. You can also claim up to 60% of your adjusted annual gross income in tax deductions to nonprofit organizations. In addition to money, you can donate real estate, stock options, cars, and other valuables that nonprofits badly need.

Get Advice

Tax minimization strategies can have a significant impact on your long-term financial growth, but are just one component of smart retirement planning. If you are looking for a tax planning attorney for HNWIs in the state of California, call The Jeffrey M. Verdon Law Group. Although a Roth IRA may be the best option for deferring payment on income taxes, we have helped numerous clients grow their wealth in a variety of ways.

Posted in Taxes / Laws, Updates.