Tax Shelters for High Income Earners to Implement – PillarWM
A high or ultra-high net worth individual may give some people the impression that their wealth is able to sustain high costs and taxes. However, as a wealthy individual, you know that this is simply not true. In addition to being liable to a higher tax bracket, you might be acutely aware that much of your money is tied up in non-liquid assets, which you cannot use to pay off your taxes. This means that you’ll be using up the returns you gain from your investments instead. To reduce the impact that taxes have on your wealth, many financial advisors suggest tax shelters for high income earners. For those of you looking to invest $5+ million, you can request your own copy of our book, 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning – For Families With Liquid Investable Portfolios Between $5 Million and $500 Million, to learn more about tax planning.
If you are looking to invest between $5 million to $500 million, you want to make sure that the rewards you earn through your investments are not drained by taxes. A wealth management firm can expertly help you manage your wealth while keeping an eye on your tax management. Pillar Wealth Management offers customized solutions to wealthy clients by offering an array of wealth management services that include everything from tax management to estate planning. You can avail of our expert, fiduciary wealth management services by contacting our team for a no-strings-attached free consultation.
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In this article, we’ll talk about how taxes impact the rich more than average investors, along with some of the most important and commonly used tax shelters for high income earners; for example, your advisor could suggest that you buy municipal bonds,sell inherited real estate, or use Roth IRA Conversions.
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| Why Do High Income Earners Need Tax Planning? Tax Shelters for High Income Earners to Help Save Expenses Last Words |
Why Do High Income Earners Need Tax Planning?
Taxation and tax avoidance is a complex topic, and you must ensure that you understand it to the best of your ability. Throughout your life, you will be required to pay a variety of taxes, including real estate taxes, capital gains tax, property or income tax, sales taxes, value-added tax, so on and so forth. These taxes will eat up a large portion of a person’s earnings. In reality, the tax rate is disproportionately higher for high and ultra-high net worth families and individuals who must pay increased taxes like the progressive tax.
If your income increases, you will face a greater tax burden as you join a higher tax bracket. As a result, understanding your taxable income will assist you in determining how much tax you owe. You can subtract IRS-permitted line deductions from your adjusted gross income to arrive at your taxable income. The value obtained will assist you in determining your federal tax bracket.
You should be aware of the various forms of taxes that may apply to you as a rich individual Income taxes, whether federal or state, are progressive, and capital gains taxes apply on any high-value commodity or asset sold, along with other items. Any income-generating operation that you engage in will be hindered if you lose your earnings due to a hefty tax bill. Our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies for Families Worth $25 Million To $500 Million, can provide useful insight for you on how to safeguard yourself and your family from financial mishaps.
Tax advisors may use strategies to reduce the taxes, just as investors use strategies to increase their portfolio performance and maximize their investments. If you’re interested in learning more about the portfolio optimization techniques that we use at Pillar Wealth Management, check out our Performance Guide. You can continue reading this article if you’re interested in learning about tax shelters for high income earners.
Tax Shelters for High Income Earners to Help Save Expenses
When you are investing a fortune worth more than 5 million dollars, you have ambitious goals in mind. Heavy taxes can affect your goals and become an unnecessary drain on your finances. For efficient wealth management strategies, you can take advantage of our expert advice by requesting a copy of our book,7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning – For Families With Liquid Investable Portfolios Between $5 Million and $500 Million.
We’ll discuss a few tax shelters for high income earners that can potentially help you save millions of dollars if implemented correctly by an expert.
1. Take Advantage of Roth IRA Conversions
Payments made to tax-free savings accounts accumulate tax-free, and potential withdrawals are tax-free as well. This means you can put your money in that account and avoid paying taxes on any capital gains you earn. With this tax shelter strategy, timing is key. From the age of 72, the money in an IRA must be taxed and withdrawn. Many investors find it advantageous to move their 401k and IRA accounts to Roth accounts so their money can flourish tax-free.
You’ll have to pay taxes during the year you convert; however, you won’t need to pay any further taxes. Since there are so many variables to weigh, knowing when to make this move can be challenging. For more advice on this matter, you can get in touch with our expert wealth managers for a free consultation.
2. Use Tax-Efficient Investments
If you’re an affluent investor who is frequently involved in trading, you know that any purchase or trade you make is subject to taxes and that any rewards you earn in a brokerage account must be reported and taxed. That is why actively managed portfolios or accounts often lead to exorbitant taxes and weak investment returns.
Investing in tax-efficient stocks and securities will help you produce and retain more income, such as flow-through shares or insurances. A flow-through invests in resource-based businesses, such as those engaged in the discovery and development of petroleum resources, gas, energy production, mining, and other similar industries. These firms will ‘renounce’ the costs they incur to you with the appropriate structure, which you can then subtract from the tax return up to the value of the investment you created. As a result, the gross net income is reduced.
Life insurance policies are tax-free, making them a worthwhile investment. Tax-free insurance will shield the value of your estate, allowing you to pass on most of your money to your heirs. It takes care of your tax liabilities, so your beneficiaries won’t have to sell your assets to pay off estate taxes.
If you’re interested in learning about the strategies that our wealth managers use to boost your capital growth, you can read our 5 Shifts Guide – 5 Critical Shifts for Maximizing Portfolio Growth Strategies.
3. Sell Inherited Real Estate
As a high income earner, you likely have several properties and assets to your name. If you happen to inherit an estate from one of your parents or grandparents, you can consider selling it to avoid paying the estate taxes.
Keep in mind that the more your estate value increases, the more taxes you’ll have to pay. Hence, if you sell inherited real estate, you can also save yourself from the complications that come with inheritance taxes. However, this is a rather complicated and lengthy process since even the process of selling inherited real estate can trigger more taxes.Working with an expert can help you achieve what you want efficiently and quickly. Feel free to call us for a chat about your tax planning or schedule your first consultation with one of our wealth managers.
4. Donate to Charitable Organizations
Any capital gain gained through charitable donations, whether you donate cash or shares, would not be subject to high taxes. You can subtract your tax return and lower your taxable income if you have a receipt.
Long-term valued assets, such as real estate or stocks, should be donated. You won’t have to pay taxes on the profits, and you’ll be able to claim a deduction of equivalent to 30% of your gross income. Since many wealthy investors have philanthropic goals as a part of their financial plan, this strategy is effective in more than one way.
5. Buy Municipal Bonds
Municipal bond issues are a common way to gain tax-free income and obtain tax-free compounding of profits if the money is reinvested.
They are fixed-income investments that can yield higher post-tax returns than taxable government or corporate securities. The interest charged on municipal bonds is generally excluded from federal taxes and, in some cases, state and local taxes too.
If you are eligible for a high tax bracket, the advantages of using municipal bonds in your investment portfolio are significant. For instance, if your personal income tax rate is 24%, a 6% interest rate on a municipal bond is a better investment than paying 7.9% interest on a taxable bond.
6. Contribute to Your Health Savings Account (HSA)
A health savings account (HSA) pays for medical costs and expenditures not covered by your health insurance, for example, dentist appointments and other medical appointments. You can have a high-deductible health care plan and pay for co-pays and deductibles with money from your health savings account.
You won’t be taxed on money you put into a health savings plan because it’s exempt from federal income taxes, state and local taxes. You can take advantage of these tax advantages by putting some of their pre-tax profits into their account. This would help you to better control your health-care expenses while still allowing your HAS contributions to expand tax-free.
7. Move to a Different State
The majority of wealthy investors own numerous estates, properties, and businesses in various locations. If you don’t plan accordingly, you might end up with dual residency and twice as many taxes. Even if you are not a resident of that area, some states will tax you on any money you earn from your businesses.
Many high-tax states levy the highest tax bracket on highnetworth individuals, including federal tax revenue, investment income tax, real estate tax, and more. To save money when you retire, consider relocating to a state with no income tax.
A financial expert can help you plan for your future by considering all these factors. For high net worth and ultra-high net worth investors, wealth management requires the touch of an expert. You can read about some of the strategies that we use at Pillar Wealth Management by requesting our book,7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning – For Families With Liquid Investable Portfolios Between $5 Million and $500 Million.
Last Words
While this isn’t an exhaustive list of tax shelters for high income earners, these are some of the most efficient ways to reduce the amount you owe on your taxable income. You can consult a specialist, such as a wealth manager, for a more customized tax avoidance strategy.
At Pillar Wealth Management, our wealth managers have more than six decades of experience supporting clients with tax reduction strategies that are customized to their particular financial situation. If you’re looking to invest between $5 million and $500 million in liquid assets, we can assist you with tax planning.Schedule your first meeting with our unbiased, skilled, and experienced wealth managers to learn more about how you can achieve financial serenity using tax shelters for high income earners.
To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.
We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.
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