Tax planning might be complex, but it’s also essential—especially for high-net-worth families, where missing tax breaks or failing to optimize income could cost significant dollars, maybe millions, over a lifetime. And even in the short term, with the highest marginal federal tax rate sitting at 37% for 2024¹ (plus additional state and local taxes), a lack of tax planning could mean you keep less than half of every dollar you earn. Here are four tax planning tips that may help you optimize your finances.

Allocate and Diversify Your Taxable Assets

High-net-worth families tend to have a broader range of assets than other families. These assets may include stock, real estate, alternative investments, businesses, and assets held in trust. By putting each asset in a helpful category for tax purposes, you’ll be able to manage your tax liabilities.

For example, many investors hold tax-efficient investments like municipal bonds, ETFs, and tax-managed stock funds in taxable accounts. Because these underlying investments are already tax-efficient, paying taxes on any earnings at year-end won’t take much of a bite out of your investment. Meanwhile, tax-inefficient investments (or those that tend to lose more of their returns to taxes) are possibly held in tax-advantaged accounts, like 401(k)s and IRAs, where you might be more strategic about when to take withdrawals.

Consider Other Tax-Efficient Investment Strategies

Along with effectively allocating your taxable assets, it’s important to take advantage of tax-efficient investment strategies, such as tax-loss harvesting, to offset gains with losses and manage capital gains tax. Consider investments that generate qualified dividends and long-term capital gains since these are typically subject to lower tax rates than short-term capital gains or regular income.

Plan Your Estate

Estate planning is important at all income levels, as it helps guide your assets to those you want to have them. But for high-net-worth families, creating a comprehensive estate plan becomes even more crucial, as estate taxes may come into play.

If you pass away in 2024 or 2025 and leave more than $12.92 million (the current exemption) to your loved ones, they may be required to pay taxes on any amount above this exemption. And remember, you are allowed to give your loved ones up to $17,000 per year (or $34,000 if you’re married)² without it counting against this lifetime exemption, so feel free to begin transferring assets while still alive.

Shift Your Income

High-net-worth families may use income-shifting strategies to distribute income among family members in lower tax brackets. This might involve setting up family partnerships or trusts—but be careful about the “kiddie tax” rules that apply to unearned income for children under 18.

It’s important to remember that these are general guidelines, and tax planning should be tailored to your specific financial situation and goals. Because tax laws change almost every year, you must stay informed of these changes and adapt your tax strategy accordingly.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The tax-loss harvesting and other tax strategies discussed should not be interpreted as tax advice and there is no representation that such strategies will result in any particular tax consequence. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

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Footnotes

¹ Get Ready: Sneak Peek Of 2024 Tax Rates
https://www.forbes.com/sites/matthewerskine/2023/09/14/get-ready-sneak-peek-of-2024-tax-rates/?sh=3ccb57e54912

² The Estate Tax and Lifetime Gifting
 https://www.schwab.com/learn/story/estate-tax-and-lifetime-gifting