• Hoyt, Filippetti & Malaghan, LLC

Tax Planning Tips for High-Net-Worth Individuals



Proper planning is crucial for all taxpayers, but effective tax planning and strategy is a necessity when it comes to high-net-worth individuals. While many common tax breaks are phased out at higher adjusted gross income levels, there are still ways to minimize tax liability regardless of income.


Meeting with a tax professional on an annual basis, at minimum, is an essential step, but the following tips can point you in the right direction as you start the planning process.


Small business tax sheltering


Because many small business tax incentives are not subject to standard income limitations, small business ownership can be a good place to start when it comes to tax planning. There are tax benefits available through small business retirement plans, health care plans, and payroll additions.

  • Retirement plans provide a great tax-reduction opportunity. Funds contributed to retirement plans are typically not included in the profits of a business owner or self-employed individual, which can lead to a significant reduction of taxable income.

  • Health care plans also provide an opportunity to reduce taxes. Section 125 plans, health savings accounts (HSAs) and health reimbursement arrangements allow business owners to pay expenses above the deduction threshold on a pre-tax basis.

  • Adding a spouse or child to the business payroll can also help minimize taxes. If the child is a minor, federal unemployment and FICA may not be required and that child can contribute earned income to an individual retirement account (IRA). If both spouses are employed by the business, one can be compensated substantially higher than the limit and take advantage of the annual cap of FICA for an individual. That spouse also pays less into Social Security and can instead invest privately.


Investment income tax sheltering


There are also a few strategies that can help lower the tax burden related to investment income.

  • Consider a non-deductible traditional IRA. Since the Roth IRA is usually not permitted for high-net-worth investors due to adjusted gross income (AGI) limitations, this can be a good alternative option even though there is not an immediate deduction available. Traditional IRA earnings can accumulate on a tax-deferred basis and provide a benefit long-term.

  • Parents can gift highly appreciated shares of stock to minors through a uniform transfer gift to minors (UTMA) custodial account. If the child then sells the stock, a portion of the profits can be reported at the child’s lower tax bracket.

  • Section 529 plans allow parents or grandparents to shift money to use for the college expenses of any family member. Up to five times the annual gift exclusion limit can be transferred into an account as a lump-sum contribution. The gift is then allowed to be spread over five years. For 2022, the maximum contribution amount is $80,000.

  • Instead of donating cash to charitable organizations, investors can instead gift substantially appreciated securities in exchange for a charitable deduction. This can help avoid capital gains taxes and provide a deduction which leads to a greater benefit than gifting cash.


Each situation is different and will require different tax planning strategies. To find the best solution for you situation, contact a tax professional with knowledge of current tax law. Avoid questionable tax practices and seek advice to maximize tax benefits while staying compliant with regulations.


If you have questions, contact HFM today. Our professionals are well versed on the latest issues to provide our clients with professional, personalized services.




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