It's not a secret — high net worth people are poised to pay the most in taxes. And because you pay the most, you also have the ability to utilize high net worth tax strategies to help reduce your overall tax liability. At MB Group, we're a team of accounting and tax professionals who offer experience helping high net worth individuals reduce their tax liability. Let's take a closer look at six different high net worth tax strategies you may be able to use to save.
Undoubtedly, one of the most popular and common vehicles for tax deductions are contributions to qualified retirement plans, like 401(k) plans. In 2023, the maximum contribution limit for 401(k) plans was $22,500 per individual with an extra $7,500 catch-up for people over the age of 50. The contributions you make to your retirement plan will decrease your taxable income and continue to grow tax free in your retirement portfolio.
If you have children, contributing to their 529 plan is an excellent way to minimize your future tax burden. The contributions will grow tax free and can now be used for public, private, and religious kindergarten education through 12th grade. Previously, you could only use a 529 plan contributions for college expenses.
Here's how it works: parents and grandparents can individually contribute a maximum of $17k in 2023. If you are married, you and your spouse can contribute up to $34,000 per married couple. The 529 plan even allows a $85,000 lump sum, one-time payment. The contributions you make to the plan are tax deductible in most states, but may not be deductible on your federal taxes.
For several years, high net worth individuals have donated money to non-profit organizations to truly make a difference while lowering their tax liability. On a schedule A tax form, the amount of charitable cash contributions that can be deducted as an itemized deduction is usually limited to 60% of a taxpayer's adjusted gross income. However, qualified contributions are not limited to this percentage as individuals may deduct qualified contributions of up to 100% of their adjusted gross income.
In addition to money, you can donate stock options, real estate, cars, clothes, airline miles as well as other various items of value to non-profit organizations to gain a tax deduction. For example, you can donate an old wedding dress to a non profit that specializes in collecting and reselling these types of items.
What's great about donating items is that you're not required to touch your financial accounts, but can still realize the tax benefit. One great strategy is to find articles of value — those you wouldn't take the time to sell — and donate these items for a tax deduction.
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For 2023, you can give up to $17,000 per beneficiary every year without being required to pay the gift tax. In fact, you can give individual $17,000 gifts to as many people as you like. If you are married, your spouse is able to gift $17,000 to the same people — meaning you can gift up to $34,000 as a couple.
In the event you gift more than the exclusion to one person, you will be required to disclose those gifts through the appropriate tax filings. And you may be required to pay taxes on these gifts — if you've hit the lifetime gift tax exemption, which is $12.92 million.
For example, if you gift $317,000 to a family member, you will be $300,000 over the annual gift exclusion. Because of this, you'll need to report this gift to the IRS. Even so, you probably will not have to pay taxes on this gift immediately.
Instead, the IRS will deduct the $300,000 from your lifetime gift tax exemption. Considering you haven't made any other gifts that exceed the annual exemption, you'll still have a remaining $12.62 million ($12.92 million minus $300,000).
When it comes to creating a tax strategy for high net worth individuals, there are no one-size-fits-all solutions. What works well for one person may not render the same results for another. Because of this, the experts at MG Group will work closely with you to create a personalized tax strategy to reduce your tax liability and help you achieve your goals. \
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