How to Reduce Taxes for High Income Earners – PillarWM
Tax advice and tax planning strategies are crucial for high-net-worth and ultra-high-net-worth individuals on the lookout for tax-saving strategies. With a high income/salary, however, you’ll need strategies from an advisor who has handled high-value portfolios before, and therefore, knows how to reduce taxes for high income earners.As a high-earner looking to invest more than 5 million dollars, you can benefit by requesting a copy of our 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.
Pillar Wealth Management’s wealth managers are fee-only, fiduciary consultants with years of expertise in tax planning for wealthy families looking to invest liquid assets ranging from $5 million to $500 million. We will assist you in reducing the factors that deplete your money and help you in increasing your wealth.Make an appointment with one of our team members for a free consultation, and get started on your tax preparation right away!
Table of Contents
Tax Planning and Why You Need It
If your earnings cross a certain threshold, you are subject to high taxes, which can reach 50% of your overall earnings. This can also put a serious dent in your finances, particularly if the majority of your assets are non-liquid. As a result, several financial planners focus on how to reduce taxes for high income earners by creating and implementing tax-loss harvesting strategies.
You will have to pay a variety of taxes in your life, including capital gains tax, property tax, inheritance or estate tax, VAT, sales tax, and many others. Such taxes will deplete a significant portion of a person’s income. Furthermore, the tax burden for high-net-worth and ultra-high-net-worth families and individuals is considerably higher.
Tax planning is the method of examining a financial situation or strategy to ensure that all of the components work together to help you pay the least amount of taxes possible. Any wealthy individual’s overall financial strategy must include tax planning. Lowering your tax burden and increasing your retirement contributions are critical to your financial performance.
Tax planning strategies entail investing your liquid assets in the appropriate investment products at the right time in order to meet your long and short-term financial objectives. You can read our comprehensive guide, Improving Portfolio Performance – The Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity, to learn more about how you can achieve your financial goals.
The application of these techniques is based on your unique circumstances, which is why you should work with someone who can assess your needs as a high net worth or ultra-high net worth individual. You should meet with our team for a free consultation to learn how you can benefit from tax preparation techniques and improve your financial situation.
Minimizing Your Tax Liability
The trick to minimizing your tax liability is to lower the percentage of your gross income that is taxable.If you want to know, “How much can I reduce my taxable income?” the answer lies in the type and the number of strategies you or your financial advisor successfully implement.
As of 2021, the federal exemption cap is $11.7 million dollars, and it will continue to rise due to inflation. After this amount has been deducted, the estate is taxed, with rates starting at 18 percent and rising to 40 percent on any assets priced above that amount. So, ideally, if you keep your taxable income below the exemption limit, you can save yourself a hefty tax bill on your estate.
Moreover, the existing federal income tax brackets range from 10% to 37%, but if you claim deductions and exemptions wisely, you will pay less in taxes.Less taxable income means a lower tax bill. We’ll talk about how you can reduce your tax obligation in the following sections. However, if you would like a more in-depth insight into this topic, you can request a free copy of 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning, which was prepared for families with liquid assets ranging from $5 million to $500 million.
How to Reduce Taxes for High Income Earners
Knowing how to reduce taxes for high income earners requires a certain level of expertise since you have a complex financial situation. You might have concerns such as, “How do I pay fewer taxes on high income?” or “How much can I reduce my taxable income?”
There are three ways that taxes can be reduced. Each tax-loss harvesting or tax-saving strategy falls under one of these three methods.
Lowering Your Income Bracket
If you’re wondering, “How can I lower my income bracket?” the simplest way to reduce your adjusted gross income (AGI) is to maximize your retirement savings. Why is this important?
Firstly, your adjusted gross income (AGI) is undeniably the most important part of taxation, making it the ideal place to start your tax mitigation strategies. It is what’s left after you make the requisite changes, such as transfers to your IRA and 401(k) accounts. Secondly, this helps you ensure that your retirement plan, i.e., your financial future, is secure.
Using Tax Credits
Tax credits are comparable to grants in that they allow you to reduce your tax liability. Tax credits are not taxable revenue, so they can be excluded from the final tax bill. As a result, it will significantly reduce the amount of tax you owe. Many situations allow you to avail tax credits, such as adoption or enrolling in college.
Increase Your Deductions
Tax deductions can end up accumulating to save you a lot of money. You will be entitled to subtract a significant amount of money depending on your charitable contributions, line of business, and a variety of costs. Personal real estate taxes, gifts or charitable contributions, mortgage interest, state taxes, investment costs, job-related expenditures, and more are all examples of deductions.
Strategies to Help You Reduce Taxes
Now that you have a clearer idea of tax planning and tax reduction, we’ll go through some of the smart tax-saving tactics high-net-worth, and ultra-high-net-worth individuals and families employ. Here are some of the most effective strategies onhow to reduce taxes for high income earners:
Increase Contributions to Your Retirement Savings Account and Health Savings Account
IRA contributions or a contribution made toany of your retirement accounts are tax-deductible, and since these deductions are taken straight from your paycheck, they don’t appear on your tax return. To put it another way, you can minimize your taxable income by contributing to your 401(k) account or a savings account set up by your workplace.
HSAs (Health Savings Accounts) are tax-deferred savings accounts that can be used for medical expenses at any time. If you put money into your HSAs, it counts as a tax deduction, which in turn, lowers your net taxable income.
As a wealthy investor, a lower taxable income will also help you improve your portfolio’s performance. This is only one strategy that wealth managers use to improve your performance. If you would like to read more, our comprehensive guide, 5 Critical Shifts for Maximizing Portfolio Growth Strategies – For Families Worth $5 Million To $500 Million, is meant for you.
Convert Your IRA Account to a Roth
With this approach, timing is key. Starting at the age of 72, the money in an IRA must be withdrawn and taxed. Many investors find it appealing to move their 401k and IRA accounts to Roth accounts, so their assets grow tax-free.
You’ll have to pay taxes in the year you convert, but you won’t have to pay taxes for any potential income. Deciding when to make this change can be difficult because there are so many factors to consider. If you want to learn more about this, feel free to get in touch with our expert wealth managers.
Deduct Your Medical and Mortgage Interest Costs
This strategy is useful for you if you wonder, “How do I pay fewer taxes on high income?”
Medical costs that consume more than 7.5 percent of your adjusted gross income will be deducted starting in 2021. Similarly, if you’re thinking of buying a home, you may want to consider deducting the mortgage interest. You will subtract up to $750,000 in this way. Both of these tactics are below-the-line tax deductions, as they are measured after your adjusted gross income has been calculated.
Donate More to Charity
The Internal Revenue Service (IRS) allows you to make tax-free donations to your chosen charitable foundations, allowing you to save thousands of dollars. So, if you wanted to know “How can I lower my income bracket?” one of the answers is charity.
The standard tax deduction for married couples has been increased to $24,000 as a result of new tax legislation. Wealthy investors will comfortably exceed this threshold, allowing them to subtract up to 60 percent of their adjusted gross income and 30 percent of valued assets donated to charitable causes. This would lower your tax bill while also assisting you in achieving your philanthropic targets.
Create a Sound Wealth Transfer Plan
High-value assets are heavily taxed before being distributed to the investor’s preferred heirs or beneficiaries after they die. This makes estate planning and tax planning all the more important because you can avoid leaving money to your heirs in tax-deferred accounts.
Working with a professional financial expert such as a wealth manager can help you create a wealth transfer plan that lets your heir receive most of your wealth without incurring taxes. You can reduce the tax burden on the beneficiaries by paying taxes ahead of time by withdrawing money sooner. The decision you make will be based on your personal values, the size of your estate, and the amount of estate taxes you will have to pay.To learn more about tax planning, you can request our book, 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning, which we wrote exclusively for high net worth investors.
Avoid Actively Managed Investments
As a regular, wealthy investor, you’re well aware that any sale or exchange you make is subject to taxation and that any profits you make in a brokerage account must be registered and taxed. Frequent trading in actively managed portfolios or accounts may result in excessively high taxes and poor investment results.
Working with a tax advisor can help you as they not only assist you in clearly identifying the appropriate deductions and credits, but they also help you legally reduce your tax liability and prepare and file your tax statements. They know how to reduce taxes for high income earners and help you improve your portfolio’s performance. If you’re interested in learning more about how to improve the efficiency of your portfolio, check out our Performance Guide, which outlines the “Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.”
Tax Management with Pillar Wealth Management
Anyone who knows how to reduce taxes for high income earners is aware of the numerous factors involved. These include the size and timing of your trades and income and the preparation for other expenditures. In order to achieve the best possible outcomes, the allocation of assets and the type of retirement or insurance plan you use must also function in accordance with the tax filing status and deduction. For this, you need to hire an expert.
Our fiduciary, fee-only, private wealth managers at Pillar Wealth Management are skilled in techniques and strategies onhow to reduce taxes for high income earners. If you want to invest 5 million to 500 million dollars, our wealth managers are the right advisors for the job. You can learn more about our wealth management and tax management services by contacting our team to book a meeting.
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