Tax strategies used by people with a high net worth


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With wealth comes unique financial planning challenges. Learn how a financial advisor specializing in tax strategies for wealthy individuals and couples can help.


If you’ve accumulated considerable wealth throughout your lifetime, it’s common to have questions about how you can enjoy a comfortable retirement while leaving a legacy for your family and any charitable organizations you choose to support.


And among high-net-worth individuals and couples, taxes often rank among the greatest risks threatening your ability to preserve wealth and achieve your estate planning goals.


Preserving Your Wealth with Effective Tax Strategies

In the Q&A below, you’ll gain insights from financial advisors who work with high-net-worth individuals and couples to help them implement smart tax planning strategies. With their expert guidance coordinated with professionals like accountants and estate planning attorneys, you can feel confident you’re taking the steps necessary today to preserve your wealth for the next generation and beyond.


You’ll likely find dozens of nearby financial advisors well-suited to help you reach your money goals with a personalized plan. But it may be more difficult to find a financial advisor specializing in tax planning strategies for high-net-worth individuals and couples.


Fortunately, many financial advisors offer virtual services so you can meet online no matter where you (or they) live. This means you can choose to hire a specialist financial advisor who lives hundreds of miles away if you decide their specialized knowledge and experience is a better fit to help with your unique financial planning needs.


In this article, we’ll introduce you to specialist financial advisors who you may want to contact to learn more about their services and how they can work with you to develop a personalized plan.

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Q&A: Financial Advisors Specializing In Tax Planning Strategies For Wealthy Individuals And Couples

Six Questions with Justin Porter, CPA, PFS, CFP, J.D.

We asked Atlanta-based financial advisor and tax planning expert Justin Porter to answer six questions to help us understand the benefits of tax planning strategies for high-net-worth individuals and couples interested in preserving their wealth.


Q: What is an example of a common yet complex financial and tax-related challenge unique to high-net-worth individuals and couples? What types of financial and tax strategies can you use to overcome this challenge?


Justin: The newest challenge for families who wish to pass on wealth to the next generation is having a large balance in a tax-deferred retirement account (IRA, 401(k), 403(b), etc.).   The SECURE Act was passed in 2019, which changed the rules on inherited retirement accounts.


Now, your children will only have a maximum of 10 years to take distributions from the inherited accounts. The shortened RMD period can force them into higher tax brackets.


The simplest solution to the problem is to act now and design a distribution or Roth conversion strategy during your lifetime to arbitrage the tax rates. When that doesn’t solve the problem entirely, there are more advanced trust strategies to create an artificial “stretch” on the RMDs.


Q: For high-net-worth individuals who are unsure whether or not they need the help of a financial advisor for tax planning strategies vs. just working with their accountant, what guidance can you provide to help them make a more informed and educated decision?


Justin: I’ve been on both sides of the fence as a practicing Certified Public Accountant (CPA) early in my career and now as a financial advisor. As a CPA, I noticed that I was generally focused on planning for this year and next year. I rarely had the tools or information to plan over a longer time horizon. As a financial advisor, I get to see the big picture, but now I don’t have the tools to dig as far into the weeds on annual planning strategies.


High net worth families generally need both a CPA and a financial advisor. The good news is that most financial advisors don’t charge for a consultation. Spend some time interviewing a few and asking for specific recommendations. They should be able to provide you with a handful of recommendations after spending an hour with you. You can then make an informed decision on whether they can add value to your situation.



Q: How do the advanced tax planning services you offer high net-worth individuals distinguish your firm from other advisory or accounting firms?


Justin: Issue spotting and quarterbacking. When I was working in an accounting firm and later a law firm, there were many times when the client would share a critical piece of information after it was too late to solve the problem.

As a financial advisor, I get to see my clients a lot more frequently throughout the year. That allows me to prevent problems before it’s too late. I use my background in tax (CPA), law (JD), and finance (CFP®) to spot issues and bring them to the attention of the client and their subject matter expert to craft a solution.


Q: Following Congressional passage of the SECURE Act in 2019, how have tax planning strategies for high net worth individuals been affected?


Justin: The SECURE Act ended the stretch IRA and, in most circumstances, accelerated RMDs on inherited retirement accounts. The best approach to solve the accelerated RMDs problem is to plan intergenerationally. High net worth families have done this for decades for gift tax and estate planning. Now they need to do the same for income taxes.

Consider the income tax rate of the parents from now through the end of their lifetime and the future income tax rate of the kids to create a tax rate arbitrage. Roth conversions are a great tool when the parent’s tax rate is lower than the tax rate of the kids. Just make sure you factor in taxes on social security income, Medicare surcharges, and capital gains taxes.


Q: For high net worth individuals and couples approaching retirement age, are there particular tax planning strategies you often recommend at this stage of life?


Justin: Pre-retirees typically are at the highest earning period of their lifetime. That makes tax deferral strategies the top priority, especially if they can retire a little early. Usually, you want to push as much into deferred comp, retirement plans, and IRAs as possible.

When your income and tax rate drop after retirement, you can take distributions or, in some cases, convert the funds to tax-free Roth accounts at a lower marginal rate.


Q: Is there a particularly memorable experience or a moment you recall with a high net worth client when you first decided advanced tax planning services for the wealthy was an area you wanted to specialize in?


Justin: I was working in a CPA firm at the time, preparing a set of returns that included a few family businesses, an individual return, a few trusts, and a private foundation. When the partner explained how everything fit together, I was hooked. I knew I wanted to be the one designing those strategies in the future.That’s also when I decided to go to law school to better understand estate planning and asset protection strategies that, in most cases, are just as important as tax planning.



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8 strategies millionaires use to avoid paying taxes


Some tax deductions and credits that millionaires can take advantage of are also available to the rest of us.


Finding ways to save on taxes is one of the best money moves you can make. One of the best ways to cut your tax bill is to take lessons from millionaires, many of whom have spent a fortune working with tax professionals to identify every deduction and credit they can use to reduce what they owe the IRS.


Here are eight of those federal tax savings opportunities millionaires take advantage of and some tips on whether you could use them as well.


Related: 10 steps to become a millionaire




Donating to charity is one way wealthy people save money on their tax bills. But there are certain rules to follow.


In general, deductions to a charity are deductible only if you itemize. Itemizing means you declare deductions for specific expenditures rather than claiming the standard deduction. The standard deduction for 2021 is:

  • $25,100 for married couples filing jointly
  • $12,550 for single tax filers
  • $18,800 for heads of household

Unless your charitable contributions and other deductions exceed that amount, it makes sense to claim the standard deduction instead. If you itemize and want to claim the charitable deduction, generally, you are limited to deducting no more than 60% of your adjusted gross income. However, there are some exceptions to that for qualified contributions. These include cash contributions to public charities or certain private foundations.


For tax year 2021, however, taxpayers can deduct up to $300 in donations (for single tax filers) or $600 (for married joint filers) on their federal taxes even if they don’t itemize. This special benefit was enacted due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. These deductions apply to cash contributions to charities only.


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Property taxes are deductible, but, again, you will need to itemize to claim this deduction. You can deduct up to a total of $10,000 (for married joint filers) or $5,000 (for single tax filers) on your federal taxes. This $10,000 limit applies to state and local taxes, including property taxes and state income or sales taxes. Still, it could be a good way to reduce your tax burden.


If your property taxes and other deductions don’t exceed the standard deduction, it probably doesn’t make sense to itemize.


Depreciation refers to the loss in value of business property that occurs over time. For example, business equipment such as machinery loses its value over time as the equipment ages. If you have a rental property, depreciation can also occur when you make improvements that stay useful for several years, such as replacing a roof.


Wealthy people who own businesses or rental properties can deduct depreciation. Unfortunately, this is a form of tax savings you can take advantage of only if you own a rental property or a business with qualifying equipment.


There are numerous methods of calculating what this deduction is worth, but the simplest is the “straight line” method, which allows you to calculate your deduction using the following equation:


(Cost of the asset – the salvage value (what it’s worth at the end of its estimated useful life)) / estimated useful life


This gives you the annual depreciation expense you can deduct when you file your federal taxes. However, there are annual maximums on the amount you can deduct. For the 2021 tax year, the maximum is $1.5 million.


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You could deduct necessary business expenses commonly accepted in your trade or business. For example, if you run a store, you could deduct the cost of goods sold on your federal taxes. Or if you’re a freelancer, you might be able to deduct costs related to your business website. This is something that wealthy business owners might do to reduce their tax burden.


Again, you need to have business income to take advantage of this tax savings opportunity. The best tax software can help you identify deductions for your business if you run a company of your own. The best business credit cards could also make it simpler to track your business expenses at tax time, too.


Millionaires often have investment income in addition to earned income, and this might provide certain federal tax benefits. You might be able to take advantage of these tax benefits, provided you buy investment assets and profit from them.


Investment income can have a relatively low capital gains tax rate, provided you hold the investment for over a year. The capital gains tax rates are either 0%, 15% or 20%, depending on your income and tax filing status.


If you do not own your investments for over a year, though, you will be taxed at the short-term capital gains tax rate, which is equal to your ordinary income tax rate. This tax rate can be up to 37%, depending on your tax bracket.


You could also reduce your capital gains taxes if you sell investments at a loss. These losses can be used to offset gains, potentially reducing your tax burden.




The step-up basis is a fundamental way wealthy people avoid paying tax when their investments increase in value. When an asset is sold at a profit, it’s taxed. However, if the asset isn’t sold but instead passed on to an heir, then the asset’s value is adjusted to its worth at the time of the death.


Say, for example, a wealthy person bought an investment for $10,000, held onto it for a very long time, and its value went up to $100,000. If the person died, someone would inherit the investment. When they do, the stepped-up basis will adjust the value of the asset to $100,000. If the person who inherited then sold the asset the next day for $100,000, no capital gains taxes would be owed on it. So $90,000 in profits would have gone untaxed.


Anyone could take advantage of this tax benefit, provided they don’t sell assets that have increased in value but rather leave them to loved ones to inherit.


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Trusts are a key tool if you’re trying to determine how to avoid inheritance tax or estate tax. It’s possible to create an irrevocable trust and transfer assets into it. The trust becomes the owner of the assets, and the person who created the trust can name their heirs as the trust’s beneficiaries when they die.


Because the assets don’t pass through probate and aren’t inherited in the traditional sense, no estate or inheritance tax is owed. Anyone could take advantage of this, but creating a trust can be expensive, and it involves giving up some control over property. It’s also not necessary for most people because only a few states charge inheritance tax. And for the tax year 2021, estate tax at the federal level isn’t charged until the estate is valued at $11.7 million or higher.


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Millionaires might also use family limited partnerships to avoid high estate taxes. A partnership is created and ownership of assets is transferred to it. Heirs are gifted an ownership interest in the partnership, and the value of that ownership interest is discounted under estate tax rules.


This reduces the amount of assets that transfer through probate and are considered part of the taxable estate. But, again, there are costs involved with setting up a family limited partnership. It’s not normally necessary to do this unless you have a substantial estate that would be subject to tax.


Taking control of your federal tax bill is one of the best and most important things you can do when figuring out how to manage your money effectively. After all, taxes can be a huge expense. Paying more than necessary leaves you with much less in your pocket.


The good news is that some of these eight opportunities for tax savings might work for you, and next year, you might pay a little less when you file your tax return.


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