Tax Strategies to Help You Retain Your Wealth:PillarWM
Tax planning strategies are imperative for high net worth and ultra-high net worth investors who are searching for ways to minimize their tax obligations. However, with a high income, you will require tax strategies from a financial advisor who has experience in managing high-value portfolios, and hence, is well-versed in reducing taxes for wealthy individuals. Fortunately, a little time spent formulating tax strategies offers several advantages that go beyond tax savings. The process allows individuals and small business owners to manage their finances more efficiently, reducing the total outflow of capital and putting more money in their pockets. For those of you that are looking to invest $5 million or more in liquid assets utilizing tax-saving strategies, you might want to request a free copy of our new 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.
At Pillar Wealth Management, our wealth managers are fiduciary, fee-only professionals with over three decades of experience in tax planning for affluent clients with $5 million to $500 million in liquid investable assets. We will help you reduce the factors that deplete your wealth and assist you in growing your fortunes. Schedule an appointment with one of our wealth managers and get started with tax strategies right away!
Table of Contents
What Are Tax Strategies?
A tax strategy refers to a plan of action for minimizing taxes, irrespective of your business or investment situation. It goes beyond just wishing you could pay lower taxes. Rather, it is a strategy devised to ensure you pay the lowest amount of taxes morally and ethically possible. The over-arching purpose of all tax strategies is to grow your wealth.
Tax strategies optimize the way your personal spending and business income are structured. It encompasses an analysis of how your business structure influences your income taxes and payroll, which of your expenses are tax-deductible, and how you can most efficiently donate to the charitable causes and donations important to you.
Tax strategies will detail how you can lower your taxes based on existing tax law by increasing your deductions based on your wealth management strategy, maximize your tax credits, and move your income from high tax rates to lower tax rates.
In addition, tax strategies also involve investing your liquid wealth in the most suitable investment products at the appropriate time to accomplish your short and long-term financial goals. To learn more about how you can attain your financial objectives, make sure you make the five critical shifts outlined in our guide here.
All in all, a tax strategy is a long-term vision for your business and financial future, which is why your tax strategy should be developed for years, if not decades, down the line.
Tax Loss Harvesting Strategies
Even in the best of times, not every investment will generate profitable returns. Thankfully, losing investments is not always bad – you might be able to use them to reduce your tax obligation and enhance your portfolios positioning as you move forward. This is known as a tax-loss harvesting strategy and is one of the most important tax strategies that high net worth and ultra-high net worth investors should use. For more information on how a wealth manager can help you with tax-loss cultivation, read our guide Improving Portfolio Performance.
What Is Tax-Loss Harvesting?
Tax loss harvesting is when you sell certain investments at a loss to balance out gains made by selling other investments at a profit. The final result is that you only have to pay taxes on your net profit, which is the profits you receive minus the losses you incur, hence lowering your tax obligation.
You can use the earnings from selling the floundering investments to purchase other assets that might increase with time and help you recover your losses. These future profits can then be offset by future losses, consequently resulting in a lucrative cycle of tax savings.
Keep in mind that when you sell an asset at a profit, you will have to pay capital gains tax on the profit, depending on how long you kept the asset. If you held it for less than a year, you would be subject to your regular income tax rate. However, if you keep the asset for over a year, you will be subject to the preferential long-term capital gains tax, which can be anywhere from 0 to 20 percent.
If you wish to benefit from tax-loss harvesting strategies, you have to complete sales transactions before the end of the tax year. For instance, if you wish to harvest losses from 2021, you need to complete your transactions by 31stDecember 2021.
Things to Know Before Using Tax Loss Harvesting Strategy
Like with any tax strategy, there are limitations and rules, including these:
• Tax loss harvesting isn’t applicable to retirement accounts such as IRA or 401(k) since the losses incurred in a tax-deferred account aren’t deductible.
• There are limitations on using certain kinds of losses to offset specific gains. A long-term loss will be first applied to a long-term gain, whereas a short-term loss will be applied to a short-term gain. Only the excess losses of a certain kind can then be applied to gains of either kind.
• When performing such a transaction, you need to know about the wash-sale rule. According to this rule, if you sell an investment at a loss and purchase a “substantially identical” or even the same investment within 30 days before or after the sale, the loss is generally disallowed because of current income tax reasons.
Is Tax Loss Harvesting Actually That Simple?
Unfortunately, applying tax-loss harvesting strategies isn’t that simple in reality. Attempting to harvest tax losses on your own can be pretty labor-intensive and complicated. In the past, this task was performed on excel spreadsheets. However, now the tax planning process is quite simple, as much of the laborious work is done by software and managed by your financial advisor.
At Pillar Wealth Management, we recently saved a client $34,000 in taxes simply by effectively managing his gains and losses.If you want to avail our services to make significant tax savings, click here to sign up for a meeting with us!
Tax Strategies forThe Savvy Real Estate Investor
Investing in real estate is one of the best strategies to grow your wealth and increase your cash flows. Apart from generating an additional income stream in the form of monthly rents, there are some great tax advantages. Order a free copy of our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates: Strategies for Families worth $25 Million to $500 Million, to get more information about investing in real estate.
The good news is that the 2019 Tax Code has some amazing provisions that allow real estate investors to retain a larger percentage of their wealth.
Here are some amazing tax strategies for the savvy real estate investor.
This is one of the most significant tax incentives available for real estate investors. Such tax write-offs, which are generally applicable for rental estates, encompass costs that involve property tax, mortgage interest, depreciation, repairs, and operating expenses.
2. 1031 Exchange
Real estate investors can also use the “1031 Exchange” tool, which allows you to defer any gains that you make by selling your property if you buy another equivalent property of a higher, or even equal, value.
3. Capital Gains
If you do not reinvest the profits you made by selling your property, you will have to pay capital gains tax. For high net worth and ultra-high net worth real estate investors, the capital gains tax on a rental estate could be as much as 20 percent of the profit you make.
Nevertheless, as long as you hold the property, you won’t be liable to any capital gains tax. Ideally, you should try to hold your real estate property for at least a year. If you hold it for less than a year, the IRS will levy the income tax rate, which can be as much as 35 percent. However, if you hold your property for over a year, only the long-term capital gains taxes will apply, which generally go up to 15 percent.
Another amazing tax incentive available to real estate investors is depreciation. Using this tax break, you can recover the cost of an income-generating estate through annual tax deductions. As per the IRS, the depreciation deduction is an allowance for wear and tear or exhaustion. Depreciation allows the investor to recognize a net loss on a real estate property because of wear and tear, even if it actively creating a positive cash flow.
There are three key elements that determine how much you can deduct every year in depreciation. These include:
• The value or worth of the real estate
• The recovery time period for the real estate
• The depreciation method that’s used to account for it. This might be the straight-line, declining balance, or any other method. However, real estate investors generally use the Modified Accelerated Cost Recovery System for real estate depreciation purposes.
For those of you with $5 million or more in liquid investable assets looking to secure your estate and wealth from 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.
Tax Strategies for Small Business Owners
If you are a small business owner, then the tax season can bring in an entirely new set of tax-related problems. Thankfully, there are some useful tax strategies for small business owners to maximize deductions and credits that can enhance their tax situation.
1. Fund A Retirement Plan
As a small business owner, you won’t have a 401(k) retirement account where your contributions will be matched by your employer. Nevertheless, there are various retirement account options that help to increase retirement savings and create amazing tax benefits. Some of these retirement planning instruments include:
• 403(b) plans
• Roth IRA or IRA
• Simplified Employee Pension Plan (SEP)
2. Put Aside Money for Your Healthcare Needs
A great strategy to lower small business taxes is by saving money for your healthcare requirements. Medical expenses are continuously rising, and even if you are fit now, saving money for the future or unexpected healthcare expenses is vital. You can do this by creating a Health Saving Account (HSA) if you have an eligible high-deductible health plan.
3. Time Your Business Expenses and Income
Timing your income entails moving it from one year to another. You first need to check the year in which your tax liability will be the highest.
Analyze your current expenses before the year’s end and prepay some of those expenses if you want to lower your taxable income for the given year. You can even decrease your income and increase your expenses by make expenditures such as stocking up on necessary supplies.
4. Claim A Tax Credit if Your Business Offers Child Care Expenses
If your business covers your employees’ childcare expenses, you can file for a tax credit. The credit is 25 percent of the expenses covered, going up to $150,000 per year. In certain situations, this is a better tax-saving strategy for you than filing for your own child tax credit on an individual return.
5. Consult with A Qualified Financial Professional
Speak to a competent financial advisor before you make any decisions that can influence your business tax return or spending money for the sole reason of tax-saving. Ensure that you pick someone who can assist you throughout the year, not just when your taxes are due. Consider working with a professional who can represent you before the IRS in case you are audited. Click here and speak to the financial advisors at our firm and find out how we can help your small business reduce taxes.
Enlist Pillar Wealth Management
At Pillar Wealth Management, our independent, fiduciary wealth managers are adept at devising useful tax strategies for high net worth and ultra-high net worth individuals. You can get more information regarding our tax planning services by heading over to our website to speak to our team.
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