Tax Planning Strategies for Wealthy Investors: PillarWM
Taxes are a pretty tricky business, and you need to make sure you understand it to the best of your abilities. There are various kinds of taxes that you will have to pay all through your life, such as capital gains tax, property tax, inheritance or estate tax, consumption tax, and a lot more. Such taxes can deplete a considerable portion of any individual’s wealth. For those of you with $5+ million in liquid investable assets looking to save on taxes, you may wish to request a free copy of our detailed book, 7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
Moreover, the tax obligation is significantly higher for high net worth and ultra-high worth families and individuals who have to keep up with additional taxes like progressive taxes. If you wish to lower your tax obligation, you need to start using some effective tax planning strategies.
Our fiduciary, fee-only financial advisors at Pillar Wealth Management offer comprehensive financial advice to individuals and families with $5 million to $500 million in liquid assets. Our team is highly expert at executing particular tax planning strategies that are applicable to the financial situation of wealthy individuals. Book a free meeting with one of our team members and get started with tax planning today!
In this blog, we will take an in-depth look at tax planning, the various types of tax planning, the basic strategies for tax planning and a lot more.
Table of Contents
What Is Tax Planning?
Tax planning is the process of analyzing a financial situation or plan to ensure that each element works coherently to help you pay the lowest amount of taxes possible. A strategy that minimizes your tax obligation is referred to as tax efficient.
Tax planning is a crucial aspect of every wealthy individual’s overall financial plan. Lowering your tax burden and maximizing your contribution to retirement funds play a major role in your financial success.
Effective tax planning involves several considerations. Such considerations encompass the size and timing of purchases, the timing of income, and planning for other expenses. In addition, the combinations of investments and the types of retirement plans also need to work in harmony with the tax filing status and deduction to generate the best possible results.
What Are the Types of Tax Planning?
Several high net worth and ultra-high net worth individuals hold the view that tax planning is a process that only helps to lower the amount of taxes they need to pay. While this is undeniably correct, there is an additional side to tax planning that most people aren’t fully aware of.
Tax planning strategies are all about investing your liquid wealth in suitable financial products at the right time so that you can attain your long and short term financial goals. If you wish to learn more about how you can successfully meet your financial targets, read our detailed guide, Improving Portfolio Performance – The Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.
Basically, tax planning can be divided into four different categories, including:
1. Federal Income Tax Planning
Family or individual tax planning focuses on getting information regarding your income, how you file your tax returns, and which tax incentives will provide the maximum benefit.
Depending on your eligibility and income, you may be able to avail various tax-saving tools, such as:
• W4 Allowances that are based on the amount you want to withhold from every paycheck
• Deductions such as college savings (529), Health Saving Account (HSA) Contributions, charitable donations can be used to lower your taxable income.
• Credits such as the AOTC, Earned Income Tax Credit, Child Tax Credit, and Lifetime Learning Credit can also help to effectively lower your federal tax obligation.
It is highly recommended that you meet with a financial professional who is adept at curating tax planning strategies to find out how you can enhance your tax situation. Click here to book a free meeting with the professionals and Pillar Wealth Management and see what tax recommendations they offer you.
2. Retirement Tax Planning
Managing taxes, during and even before, retirement plays a vital role in restricting your tax obligation once you reach retirement. In addition, it also helps to ensure you have full autonomy over your income and tax situation during retirement.
Effective retirement tax planning encompasses having full knowledge of how you can secure your withdrawals from your IRA or 401(k) and increase your income. This can involve taking advantage of standard or itemized deductions and maximizing contributions to your IRA, estimating benefits of Social Security, delaying 401(k) plan distributions, determining your taxable pension or annuity income, and using the Tax Credit for the Elderly.
The wealth managers at Pillar Wealth Management can help you recognize the problems of retirement tax planning and develop a strategy that’s in line with your individual financial goals.
3. Business Tax Planning
If you are a business owner, or if you are self-employed, you face a completely different set of problems when it comes to fulfilling your federal tax liability. This is exactly why business tax planning is a vital element of your broader business strategy.
Thankfully, there are various tax deductions you can leverage to improve your business tax strategy and reduce your income tax burden. These include:
• Client and employee entertainment
• Loan interest
• Home office
• Office equipment
• Rent payments
• Professional services costs (legal, consulting, or accounting fees)
• Travel costs
• Utilities such as phone, internet, and electricity
• Vehicle costs including gas, repairs, and mileage
• Salaries and wages
• And much more
4. Estate Tax Planning
The Internal Revenue Services levies an estate tax on estates that are over a particular calculated value. This value is quite big (in 2019, it was close to $11 million) and is essentially a huge source of concern for affluent individuals and families who own these estates.
Since wealthy individuals such as yourself are faced with inheritance tax, comprehensive tax planning can be a useful tool to protect the value of your estate from federal taxes. Maximizing this figure may entail deductions, discounts, and several other tax incentives. Order a free copy of our hardcover book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates: Strategies for Families worth $25 Million to $500 Millionand get more information regarding estate planning strategies.
The Key Objectives of Tax Planning Strategies
Tax planning is a cohesive course that helps you incorporate numerous activities to curate tax-efficient solutions. A financial advisor will work with you to make sure that the process is as straightforward as possible. Don’t forget to read our handy guide to find out how you can choose a financial advisor that can help you with tax planning.
When planning your tax strategies, your main goal should be to minimize your tax obligation as much as possible. Here is a comprehensive list of goals that tax planning strategies aim to accomplish.
1. Minimize Tax Liability
Tax planning strategies essentially revolve around lowering your tax liability. Each taxpayer hopes to minimize the burden of paying taxes while saving their hard-earned wealth for a better future and a comfortable retirement.
Thankfully, the state and federal government provide various tax incentives, which are highly effective in considerably reducing your liability. Nevertheless, it is important that you don’t leave tax planning to the eleventh hour. Ideally, you should invest in tax saving instruments from the start of the financial year and avail all the incentives to lower your tax bill.
2. Lower the Chances of Litigation
Another important objective of tax planning is to lower the chances of legal litigations. If you don’t have one, you need to use the services of your financial advisor. Speak to the advisors at Pillar Wealth Management and find out how you can avail the provisions of tax planning laws to minimize litigation. When you take all necessary precautions, you save yourself from judicial harassment and the challenges of litigation.
3. Make Productive Investment Choices
One of the key goals of tax planning is to channel taxable income to various investment plans. It focuses on the optimum utilization of resources for productive reasons and relieves you from tax liability.
4. Enhance Your Financial Growth
Meticulously planning your taxes can enhance economic growth. Chalking out precise and clear financial goals from your investments over specific time horizons can help you develop a good corpus, hence resulting in your financial growth.
What Are the Three Basic Strategies to Use in Planning for Taxes?
If you are all set to avail the benefits of tax planning strategies, it’s crucial that you understand the three basic tax planning strategies first. These will help you get started, and as you move ahead, you can modify these strategies to save more on taxes.
However, if you want to get a detailed account of some advanced tax planning strategies, you should request a free copy of 7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning, written specifically for families worth $5 million to $500 million in liquid assets.
1. Lower Your Income
This is an excellent place to kickstart your tax planning strategies because your adjusted gross income (AGI) is undeniably the most essential aspect with regards to taxes. Your AGI is what you have left once you make the necessary adjustments, such as contributions to your IRA and 401(k) accounts.
There are several other adjustments that you can use, or you can meet with your advisor to discuss your specific details further. Saving for retirement is one of the best ways to lower your income. In fact, it helps you better plan for your financial future. If you want to know more ways of enhancing your financial future, make sure you read our special guide here, where we elaborate on the five critical shifts needed to maximize and secure your wealth.
2. Maximize Your Deductions
Another effective tax planning strategy revolves around maximizing your amount of taxable deductions throughout the year. Depending on your charitable donations, line of work, and a number of expenses, you could make substantial deductions. For instance, deductions entail personal property taxes, gifts or charitable donations, interest paid on your mortgage, state taxes, investment expenses, job-related expenses, and much more.
Over the years, such deductions can add up. This is exactly why you should maintain an itemized list of expenses all over the year along with any receipts. You can set up a simple Excel file and add line items each time there’s a deduction.
3. Make Use of Tax Credits
Tax credits are quite similar to incentives, and they allow you to effectively reduce your tax obligation. While tax credits don’t impact your taxable income, they can be deducted from your final tax bill. Thus, it helps to substantially minimize the amount you owe in taxes.
There are several things you can use for tax credits. However, the ones that have the most impact are adopting a child or paying for college. You should never adopt a child only to avail tax credit, but if you are considering adopting, then you should be aware of the tax credits you can get. Moreover, you can attend a couple of college classes to continue your education.
For example, if you wish to learn photography, you can enrol in a college course in your city and avail tax credits. Thanks to the Lifetime Learning Credit, you have upwards of $10,000 per household to use for college credits every year, where you will get 20 per cent in tax credits.
Last Few Words
Searching for the best tax planning strategies can be overwhelming, especially when you have no idea who to trust with your wealth. At Pillar Wealth Management, we know that you have unique financial aspirations and goals that ask for more than just good performance. We believe tax planning plays a very major role in helping you attain financial security. You can schedule a free meeting with our team to see how you can avail the tax planning strategies and enhance your financial circumstances.
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