End-of-Year Tax Strategies for People with High Net Worth

It’s that time of year again — no, not for holiday shopping — time for your end-of-year income tax planning. It might not be the first thing you want to do during the season, but for those with high net worth, it’s a critical time to take steps that will protect you from paying excessive taxes or missing critical deadlines to protect your wealth from Uncle Sam on tax day.

Tax planning is essential to avoid paying too much in taxes if you have a high net worth.

Updates to Investment Income Taxes

The 2017 Tax Cuts and Jobs Act made some changes to the laws surrounding capital gains tax, so if you have a significant investment portfolio, these changes could impact you.

The rates for long-term capital gains (investments held for a year or more) taxes have not changed, but there are some changes to taxable income levels. Thus, it’s a good idea to check with your investment and tax advisor if you have capital gains income from the year or if you’re considering selling short-term investments before the end of the year.

Charitable Donations

If you prefer to donate some of your wealth to help offset your tax liability (and do some good in the world), you may be aware that the amount you can donate increased with the tax cuts bill passed in 2017 that went into effect in 2018. Those increases are still in effect in 2019, which means that donations to eligible charities remain a great strategy for reducing your taxable income.

There are a number of excellent means through which you can contribute charitably and receive deductions based on your personal circumstances, so your tax advisor can recommend options for individual giving, transferring wealth into charitable lead annuity trusts, or donating from your IRA (an option only available to high-net-worth individuals over the age of 70½).

Some of these options will revert back to pre-change levels in the next six years, so if you are planning to donate and take advantage of tax benefits, don’t wait too long and risk missing the opportunity.

Estate Planning

Perhaps one of your strategies includes gifting part of your wealth to your heirs, and now is a great time to do that, since the gift, estate, and generation-skipping transfer tax exemptions doubled last year to $11.2 million per person, and will go up with inflation.

Taking advantage of the increase can generate substantial tax savings, but it’s important to discuss your plans with a knowledgeable tax advisor with experience working with high-net-worth individuals. You don’t want to end up gifting more or less of your wealth to heirs than is prudent based on your tax needs.

Other Tax Considerations

Many state taxes changed when the Tax Cuts and Jobs Act was passed, and they may have changed again in 2019, so make sure you speak to someone who can provide you with information about current rates and how they might change some of your tax-planning activities.

Depending on the circumstances, business owners who receive income from a pass-through entity may be able to take advantage of the opportunity to deduct up to 20% of business income through these entities. If you own a business and haven’t formed an LLC that can help you take advantage of these additional deductions, now is the time to do so. It doesn’t apply to all businesses, so talk to your advisor if you think it might apply to you or find out if it should.

Talk to the experts at Cantley Dietrich about your options for tax-planning strategies. They can help you avoid paying too much in taxes. Don’t miss critical deadlines; call today.