If you’re a high net worth individual, having a robust tax strategy is about more than just compliance; it’s about proactive wealth management. As your assets grow, so does the complexity of the tax laws that impact you. Simply filing your taxes every April and calling it a day could mean that you (and your loved ones) end up paying the government a lot more than you need to.
Fortunately, we’re here to help you unravel the intricacies of high net worth tax strategies. While your tax strategy should be completely customized to you, we’ve outlined 8 essentials—3 must-ask questions and 5 starter tips—that can give you a solid head start on the road to savvier tax returns.
3 Questions to Ask Before You Build Your Tax Strategy
Question #1: High net worth vs. high income: which are you?
The first question you need to answer is this: am I a high net worth individual, a high income individual, or both? The answer to this question will determine which type of taxes you’re looking to save on: estate taxes, income taxes, or both. Let’s look at examples of each to help you put yourself in the right strategic bucket.
High Net Worth
A person who is high net worth, but not high income may be someone who is retired, has been a disciplined saver, and their only real “income” is their social security, so their income taxes are relatively low. For high net worth individuals like this, their tax-saving strategies are usually focused on estate planning. In other words, how can I make sure more of what I’ve saved goes to my beneficiaries—and not into the government’s coffers?
High Income
A person is who high income but not high net worth is often someone who is in the mid-point of their career. They are in high-paying jobs, but they don’t have much left after covering the costs of raising a family, saving for retirement, and paying Uncle Sam. (A 2003 Fortune Magazine article even coined a term for these folks: HENRYs or High Earning Not Rich Yet). For savers in this bucket, the focus is likely to be on how to minimize their annual income tax bill.
High Net Worth and High Income
The last group is those who are high net worth and high income. A simplified example is a retiree who has developed a substantial IRA over time and has hit the IRS’s required minimum distribution age. Now the challenge is figuring out how to manage two taxable buckets: their savings (an estate tax issue) and the high annual payout from their IRA (an income tax issue).
Question #2: Where does your net worth live?
High net worth individuals often have diverse income streams, including investments, business earnings, and real estate. Each of these sources is taxed differently, requiring a comprehensive approach to minimize liabilities. A strategic tax plan considers your unique financial situation and leverages available tax laws and incentives to your advantage.
Imagine, for example, you have an investment property you’re considering selling. One tactic to consider would be what’s known as a “like-kind exchange.” Under a like-kind exchange, if you sell that property and then purchase a new, similar property within a specific time frame, you can defer the capital gains tax you would have paid on the sale of the first property.
No matter where your net worth lives, a good financial advisor can help you with tax planning based on your specific situation.
Question #3: What is the ultimate goal for your net worth?
The reality is that, for most of us, our net worth is something that will outlive us. And thus, the biggest question for mapping out your high net worth tax strategy is this: what is my ultimate goal for my wealth when I’m gone?
For many people, the goal is to leave their wealth to their family and loved ones. Some consider gifting their assets to charity to be an important part of their legacy. Both goals require very different tax strategies—and a fair bit of thoughtful planning ahead—to ensure your legacy has its intended impact.
5 Starter Tips for Building Your High Net Worth Tax Strategy
Ok, now that you’ve done your homework and answered the essential questions, it’s time to figure out your plan. As you’ve probably guessed, a good tax strategy should be as unique as the high net worth individual it’s designed to protect. But here are 5 basics that should give anyone who is looking to preserve their wealth a good head start.
#1: Optimize Your Charitable Contributions
Charitable giving isn’t just a noble act; it’s a strategic tax move. From donating appreciated securities to donating some or all of your business, you can avoid paying taxes on the sale of those assets now—and reduce the taxable assets your beneficiaries will be burdened with later.
For many high net worth individuals, the go-to strategy is to establish a donor-advised fund, a charitable investment account that allows you to make contributions to your favorite charities over time while reaping significant tax benefits. Your donor-advised fund can live on even after you pass away, provided you name a successor advisor. Your successor does not have to pay taxes on the inherited fund, but they can continue contributing to it and distributing from it at their discretion.
To learn more, read our guide to maximizing the tax benefits of your charitable contributions.
#2: Take Advantage of the Annual Gift Tax Limit
While many charitable planning strategies are great for reducing your income tax bill now, personal gifting is a smart estate planning tax strategy for high net worth individuals who want to make sure more of their accumulated wealth stays with their loved ones and isn’t siphoned off by the government later.
Under the 2025 tax laws, an individual may gift up to $19,000 a year to any other individual without having to report it to the IRS. Therefore, if you have 1 spouse, 3 children, and 4 grandchildren, you can gift those 8 beneficiaries $19,000 a piece every calendar year with no tax implications. In fact, your spouse can do exactly the same, gifting each of your children and grandchildren another $19,000 a piece on the year. As you can see the gifting totals can quickly multiply within a family.
But there’s more good news: if you do go over the gift tax limit on any one gift, you will have to file a gift tax return that year…but you probably won’t trigger an actual gift tax. Instead, the “extra” money that you gifted will be applied towards your personal Lifetime Gift Tax Exclusion. You would have to hit a very high, IRS-designated ceiling on “extra” gifting (in 2025 it’s $13.99 million) before any gift taxes would set in.
#3: Leverage Your Tax-Deferred Accounts Carefully
Knowing when to leverage tax-deferred accounts like IRAs and 401ks is another important tactical lesson. In your high-earning years, consider maximizing your contributions to these accounts in order to lower your taxable income and allow your high contributions to grow tax-free.
However, as your strategy starts to shift to estate planning, that’s the time to talk to your financial and tax advisors on what to do with these accounts. If left untouched, you might just be passing more taxes onto your beneficiaries than you realize.
#4: Set Up the Right Kind of Trust
Some people believe that a trust can help them avoid federal estate taxes, but most trusts are not created for the purpose of saving taxes—and certainly not for avoiding them all together. Trusts primarily serve to protect and control your assets after you are gone, but not all of them help you save on the federal estate tax.
However, if you are someone who is over the federal estate tax threshold, or potentially could one day be, an Irrevocable Life Insurance Trust (ILIT) or a Qualified Personal Residence Trust (QPRT) could possibly make sense as one of the tools to utilize in your financial planning. Read our Estate Planning Tax Strategies article for details on how an ILIT or QPRT can work for you.
#5: Map Out Your Capital Gains Tax Vulnerabilities
Understanding where you could trigger avoidable capital gains taxes is crucial for high net worth individuals. Consider holding investments for longer periods to benefit from lower long-term capital gains rates. Harvesting losses strategically can also offset gains and reduce overall tax burdens. Talk to your financial advisor about building a “tax sensitive” portfolio that takes all of these factors into consideration.
When it comes to estate planning, it’s also critical to understand how the IRS’s “step-up in basis” provision works. Under this rule, the IRS honors the current market value of certain assets as the starting value of those assets when they are passed on to your beneficiaries, thereby eliminating your beneficiaries’ capital gains tax liability. So, if you have an investment account that you started with $100,000 and is worth $300,000 when you pass, the IRS assesses the account at a $300,000 starting value for your beneficiary—and thus they do not have to pay capital gains taxes on the $200,000 it earned under your purview.
IMPORTANT! Keep Your Tax Strategy Up-to-Date
Tax laws aren’t just complex; they’re constantly changing. Be sure to work closely with your CPA/tax advisor, your financial advisor, and your estate planner to stay informed on the latest tax laws and update your tax strategy as the rules—and your goals—change over time.
If you’re still unsure of where to start, request an educational call with our Certified Financial Planners. We’ll walk you through our process for building a proactive, comprehensive tax strategy that ensures you’re ready to do more good with your hard-earned wealth.
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