Smart Tax Strategies for High-Net-Worth Individuals

As your wealth increases, so does your tax liability. However, you don’t have to bear the full burden alone. There are effective and ethical methods to reduce your taxes while preserving your assets. Here are some strategic approaches:

Leverage family employment
If you operate an unincorporated business, employing your children can provide significant tax benefits. Your kids gain valuable experience, and you can deduct their wages, shifting taxable income to a lower tax bracket.

Since wages are earned income, kiddie tax rules do not apply. Earnings below 18 are exempt from Social Security taxes and could contribute more toward IRS benefits.

Be creative with charitable giving
Establishing a foundation or charitable remainder trust allows you to avoid capital gains taxes on appreciated assets and secure lifelong income. You can claim a current tax deduction for future charitable donations, benefiting your estate planning and heirs.

Using a donor-advised fund offers a strategic advantage by granting you a tax deduction based on the current value of appreciated assets without immediate disclosure of beneficiaries or charities.

Monitor your cost basis regularly
Your investment’s basis determines your gains or losses on sale. Keeping track of adjustments like stock splits or distributions prevents overpaying taxes. Consult your brokerage or fund manager if questions arise, and ensure basis reporting to the IRS.

Encourage young adults to save for retirement
Contributing up to $2000 to an IRA or employee plan can qualify for a tax credit. Wealthy parents can assist by funding their children’s retirement accounts, promoting early financial discipline and tax savings for the next generation.

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