High-net-worth individuals face complex tax challenges. Learn about advanced tax planning strategies for investments, estates, retirement, and charitable giving.

Advanced Tax Planning for High-Net-Worth Individuals 

For high-net-worth individuals, tax planning is more than just filing returns—it’s a proactive strategy to preserve and grow wealth.

From investment management to estate planning, the right tax strategies can potentially help minimize liabilities while aligning with financial goals. Below, we explore areas where high-net-worth individuals can manage taxes and their wealth with advanced tax planning strategies.

Investment Tax Management: Ways to Reduce Liabilities While Growing Wealth

High-income earners often face steep capital gains taxes, but with careful planning, it may be possible to reduce the tax burden.

• Tax-Loss Harvesting – Selling underperforming investments at a loss can offset capital gains elsewhere in the portfolio, reducing taxable income. This can be valuable for investors with significant realized gains from stock sales or business interests. Unused losses can be carried forward, so even if the full loss is not used in the year that the loss occurs, the loss can offset future gains.
• Asset Location Optimization – Some investments, like bonds and REITs, generate high taxable income. Placing these in tax-advantaged accounts (IRAs, 401(k)s) while keeping tax-efficient assets (like ETFs or municipal bonds) in taxable accounts can potentially improve after-tax returns.
• Municipal Bonds – Interest from municipal bonds is generally exempt from federal taxes and, in many cases, state and local taxes. This makes them an attractive option for investors in the highest tax brackets.
• Qualified Opportunity Zone (QOZ) Investments – Investors with large capital gains can defer taxes by reinvesting in Qualified Opportunity Zones. If held for at least 10 years, gains from the new investment can even be tax-free.
• Structured Sales for Appreciated Positions – When selling a highly appreciated asset, spreading the sale over multiple years through a structured installment sale can help manage tax brackets and possibly reduce immediate tax liabilities.

Charitable Planning: Giving with a Tax Benefit

Strategic philanthropy allows for meaningful giving while providing tax advantages. Consider these options:

• Donor-Advised Funds (DAFs) – Contributing to a DAF allows donors to receive an immediate tax deduction while distributing grants to charities over time. This is often deployed by individuals experiencing a high-income year who want to spread out their charitable giving.
• Charitable Remainder Trusts (CRTs) – Donating appreciated assets to a CRT allows individuals to receive income for a set period while reducing capital gains taxes. The remainder of the trust then passes to a chosen charity. The donor will also receive a charitable deduction for a portion of the value of the asset transferred to the trust.
• Qualified Charitable Distributions (QCDs) from IRAs – For individuals over age 70½, QCDs allow direct transfers from IRAs to charities, satisfying Required Minimum Distributions (RMDs) without increasing taxable income.
• Gifting Appreciated Securities – Instead of donating cash, individuals can donate appreciated stocks, avoiding capital gains taxes while still receiving a full deduction for the fair market value of the securities.
• Family Foundations – For those looking to make a lasting charitable impact, establishing a family foundation allows for greater control over donations while offering tax benefits, including deductions and estate tax reduction.

For those looking to balance tax savings with philanthropy, blending multiple strategies can help reduce taxable income while supporting causes that matter. This may include implementing a charitable strategy in the same year that a large taxable event occurs to create an offsetting charitable deduction.

Estate Planning: Preserving Wealth for Future Generations

Without proper planning, estate taxes can significantly reduce the wealth passed to heirs. These strategies help mitigate tax exposure:

These strategies allow individuals to transfer wealth tax-efficiently while maintaining control over how assets are distributed.

Retirement Account Strategies: Tax-Efficient Savings and Withdrawals

For high-net-worth individuals, traditional retirement strategies may not be enough. Consider these advanced approaches.

• Backdoor Roth IRA Contributions – Those exceeding traditional Roth IRA income limits can still contribute using a backdoor Roth strategy by making a non-deductible IRA contribution and converting it to a Roth.
• Mega Backdoor Roth Conversions – Some 401(k) plans allow after-tax contributions that can be rolled into a Roth IRA, creating a significant tax-free growth opportunity.
• Strategic Roth Conversions – Converting traditional IRA assets to a Roth IRA in lower-income years can reduce future tax liabilities, especially if tax rates are expected to rise.
• Managing Required Minimum Distributions (RMDs) – For retirees, minimizing RMDs through strategic withdrawals and charitable giving can prevent excessive tax bills in later years.

By carefully coordinating withdrawals and conversions, retirees can manage tax brackets and reduce unnecessary tax burdens.

Real Estate: Tax-Efficient Investment Strategies

Real estate investments offer powerful tax advantages when structured correctly.

For investors, combining depreciation strategies with exchange opportunities can enhance after-tax returns.

Risk Management: Protecting Wealth from Legal and Financial Threats

A strong tax strategy also includes protecting assets from potential lawsuits, creditors, and other financial risks.

• Umbrella Insurance Policies – These policies provide additional liability coverage beyond standard insurance, protecting against lawsuits or major claims.
• Asset Protection Trusts – Certain trusts can shield assets from creditors and legal judgments.
• Family Limited Partnerships (FLPs) and Family Limited Liability Companies (LLCs)for Liability Protection – FLPs and LLCs can help protect assets from lawsuits while allowing family members to retain control over investments.
• Captive Insurance Structures – In some cases, setting up a captive insurance company can provide business owners with tax advantages while working towards managing risk more effectively.

Advanced tax planning requires a comprehensive approach, blending investment management, estate strategies, charitable giving, and risk protection. By working with a team that understands the complexities of tax strategies for high-net-worth individuals, you can take a more informed approach to managing tax liabilities and planning for long-term financial goals.

DISCLOSURES

• EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
• Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
• Hiring a qualified advisor and/or financial planner does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
• Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.  
• EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
• All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
• An estate plan is a helpful tool that can assist individuals in managing and arranging affairs in the event of death or incapacity. However, the scope and extent of the plan varies depending on the unique circumstances and desires of the individual client. It is for this reason, that the analysis encompassed herein is not intended to be comprehensive in nature nor should it be interpreted as legal advice. Please consult a legal professional to determine the extent, scope, and the drafting and creation of the appropriate estate documents. EP Wealth Advisors is not in the business of providing legal advice or preparing legal documents. Our review is limited to and in association with Financial Planning only.
• Laws vary by state. The information presented herein is intended to be general in nature and may not apply to your state of domicile. Please consult local legal counsel to determine the best practices for your state.
• Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.