Tax Strategies For High Net-Worth Individuals

Tax Strategies For High Net-Worth Individuals

Are you a millennial looking to improve your long-term wealth and financial stability? With headlines about inflation and volatility in the stock market everywhere, it may seem like these should be your primary financial concerns. However, although you should keep an eye on them, they’re not the only possible drain on your wealth.

That could be your income taxes if you don’t strategize them in advance. Tax planning is an essential tool for anyone interested in preserving their assets from excessive overpayment. By taking the time to prepare proactively, you can legally reduce how much the IRS says that you owe.

Please explore these topics with us:

  • What are tax planning strategies? 
  • Tax-efficient investing for high-net-worth individuals
  • Estate planning & tax strategies for passing on your wealth
  • Strategies for reducing your tax bill in retirement

What Are Tax Planning Strategies?

With inflation and volatility both on the rise, it pays to plan your taxes to ensure that you utilize all available deductions and opportunities. This is because your long-term savings can provide you with a sound financial future—but your retirement income may only be based on what you preserve between now and then. 

Put another way, living a comfortable life now doesn’t guarantee a luxurious retirement. Goods and services actually get more expensive because inflation is driving the value of currency down. Inflation is shrinking the purchasing power of the dollar. 

As a result, your money buys you less than it did a couple of years ago. Unfortunately, this means that with a million dollars in the bank today, you can probably buy more than the same amount of money will purchase in the future. 

At the same time, stock market volatility is rampant. Most of 2022 saw a bear market, and—like inflation—that problem could persist for a while before things start to pick up again. In the meantime, investment portfolios that aren’t regularly balanced and properly diversified (meaning invested across multiple asset types) may continue to see occasional losses. 

All of this means that with inflation lowering the value of your savings and a volatile stock market, keeping enough wealth to retire well requires conscious effort. We’re not saying you’ll go broke overnight, but it’s rougher, economically, than it’s been out there in a while. 

Without taking deliberately-planned and proactive measures, you could reach your golden years with considerably less monthly income to live on than you’d been expecting. This is why tax planning is one of the wisest measures you can take (not to mention one that’s best started sooner rather than later). 

Again, by taking the time to strategize your saving and investing long-term, you can legally reduce how much the IRS says that you owe. There are little things that may save you some money off your annual income taxes, but the greatest potential savings are usually generated over years (or longer).

Put another way, tax-planning strategies are normally long-term, tactical steps taken within your financial planning to reduce your income tax liability (meaning the amount that you’re assessed to owe). By thinking ahead toward the future, you can potentially save significant sums, allowing your nest egg a fighting chance in lean times.

Tax-Efficient Investing for High-Net-Worth Individuals

If you begin with utilizing available tax perks and deductions, you can effectively reduce investment costs in some cases. Strategies such as planning capital allocation shifts in line with your personal milestones and financial objectives can also prove beneficial over the long haul.

Low-expense funds and indexed investments may be a sound way to potentially increase returns on investments while sticking within budget, as well. With thoughtful planning, proactive preparation, and a reliable wealth manager, you can make your money work smarter by using a tax-efficient investment strategy.

Estate Planning & Tax Strategies for Passing on Your Wealth

A good long-term plan should not only address your needs now and into retirement but should also allow you to make informed decisions about the distribution of your savings and assets after you pass away.

At the same time, proper estate planning strives to reduce taxes and fees while ensuring the timely transfer of things in accordance with your wishes. The idea is to create a comprehensive plan to help you see that your wealth and values benefit subsequent generations according to your specifications.

Want To Know More? We Have a Free Tax Planning Worksheet To Help You Get Started

Strategies for Reducing Your Tax Bill in Retirement

Retirement is a time when many seniors rely heavily on their savings to maintain the lifestyle they live. However, it bears repeating that a hefty tax bill can make it extremely difficult to maintain financial confidence in retirement. Unfortunately, this can be why some retirees wind up downsizing their homes or even going back to work.

Thankfully, there are certain strategies that can help them lower their tax obligations and keep more of their hard-earned money. For example, one strategy is using qualified retirement accounts like an IRA or 401(k). Under the right circumstances, such as by utilizing a Roth 401(k) or IRA, money withdrawn from these accounts can be exempt from taxes.

Additionally, leveraging deductions like medical costs and charitable donations can also be beneficial. Utilizing these strategies, along with other helpful tips, could go a long way in reducing your tax bill during retirement.

Planning for Taxes in a Divorce or Estate Settlement

financial planning San Ramon

In any divorce or estate settlement, planning for your taxes should be a high priority. This is because it’s important to consider the potential tax implications associated with both of these events in advance and create a plan that works for everyone involved. 

Calculating and setting aside reserves for taxes can be tricky. That’s why, when planning your finances with regard to either a divorce or estate settlement, you should consider bringing in a professional wealth manager. 

Our team of independent financial planners provides high-net-worth financial planning. Likewise, if you’re looking for financial planning in San Ramon, we’re here for you, too. Contact us to learn more.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Diversification does not protect against market risk. There is no assurance any strategy will meet its objective.
Humanity Wealth Advisors and LPL Financial do not provide legal or tax advice or services.  Please consult your legal or tax advisor regarding your specific situation.

More about the author: Harry Sherdil

As a fiduciary financial advisor at an independent firm, Harry strives to offer the same resources, tools, and research as bigger firms while serving new and existing clients' best interests.