11 Tax Planning Strategies For High-Net-Worth Individuals

A high-net-worth individual, broadly defined as someone with $1 million or more in investable assets (excluding their primary residence), has more complicated tax liabilities. For example, they may get their income from business distributions, investment dividends, real estate rents, and executive compensation – each with its own reporting rules. A single liquidity event, like selling a business, can simultaneously trigger the 20% long-term capital gains rate, the 3.8% Net Investment Income Tax, and the Alternative Minimum Tax.

Tax planning can help reduce what’s owed before the liability is set. The 11 strategies outlined in this article address capital gains situations, estate transfer costs, investment account inefficiency, and other situations with planning tools that USA Tax Gurus regularly recommends to protect generational wealth.

Strategy #1: Strategic Income Shifting

Strategic income shifting moves assets or business earnings to relatives in lower brackets, reducing the household’s overall tax burden through legitimate arrangements rather than artificial ones. A business owner in the 37% bracket can employ an adult child at a reasonable salary, deduct that compensation as a business expense, and redirect those earnings to someone taxed at 10% or 12%.

Family limited partnerships (FLPs) are one of the most widely used vehicles for this purpose. A parent contributes appreciated or income-generating assets to an FLP, retains the general partner interest, and gifts limited partner interests to children or other family members. Those partners receive allocations taxed at their own marginal rates, and the FLP can also support valuation discounts that reduce the taxable value of transferred assets for estate planning purposes.

Two compliance rules govern this area closely, and ignoring either one is risky:

• The kiddie tax, under IRC Section 1(g), taxes the unearned income of children under 19 and full-time students under 24 at the parents’ marginal rate, eliminating any bracket benefit on investment earnings shifted to minors. 
• The IRS also applies the business purpose doctrine to compensation paid to family members, requiring that salaries reflect fair market value for services actually rendered: anything less is a documented audit trigger.

Strategy #2: Tax-Efficient Investment Structuring

Asset location has a direct impact on after-tax returns. Tax-inefficient assets like actively managed funds, taxable bonds, and real estate investment trusts generate ordinary income and short-term gains taxed at rates up to 37%. Placing those assets inside tax-advantaged accounts like IRAs or 401(k)s, while keeping index funds and municipal bonds in taxable accounts, prevents unnecessary annual tax drag on returns that would otherwise compound.

Actively managed funds generate taxable distributions through portfolio turnover because the fund manager’s buying and selling activity creates gains that pass through to shareholders. Index funds and tax-managed funds minimize that trading activity, reducing annual capital gains distributions and pushing the tax event to a date the investor controls. For HNWIs subject to the 3.8% NIIT on net investment income exceeding $200,000 for single filers or $250,000 for married filing jointly, each dollar of gain deferred is a dollar that remains invested.

Strategy #3: Advanced Capital Gains Planning

The difference between a 37% short-term rate and a 20% long-term rate on the same asset comes down to one factor: holding period. Assets held longer than 12 months qualify for long-term treatment, and for HNWIs already subject to the 3.8% NIIT, the combined federal rate on short-term appreciation can reach 40.8% compared to 23.8% on long-term appreciation. Timing a sale to cross the 12-month threshold is one of the simplest and most reliable ways to reduce a transaction’s tax cost before it closes.

Tax-loss harvesting extends that logic year-round. Selling depreciated positions offsets realized gains dollar-for-dollar, and losses exceeding gains in a given year can offset up to $3,000 of ordinary income annually, with the remainder carried forward indefinitely. The wash-sale rule under IRC Section 1091 disallows the loss if the same or a substantially identical security is repurchased within 30 days before or after the sale, but replacing the sold position with a correlated, non-identical fund keeps the loss valid.

Installment sales and Qualified Opportunity Zone investments each address large, concentrated gain events. An installment sale spreads proceeds across multiple tax years, preventing a single transaction from pushing the seller into a higher bracket or triggering additional surtaxes. Opportunity Zone investments under IRC Section 1400Z-2 allow taxpayers to defer recognized gains by reinvesting proceeds into a Qualified Opportunity Fund within 180 days, and appreciation on the Opportunity Zone investment itself is excluded from federal tax if the position is held at least 10 years.

Strategy #4: Estate and Gift Tax Planning

The One Big Beautiful Bill Act, signed on July 4, 2025, permanently raised the federal lifetime gift, estate, and generation-skipping transfer tax exemption to $15 million per individual and $30 million for married couples, effective January 1, 2026. Unlike the temporary TCJA increase, this threshold has no sunset provision and adjusts annually for inflation beginning in 2027. The 40% federal estate tax rate still applies to amounts above those thresholds, making estate composition a genuine planning variable even at these elevated figures.

The annual gift exclusion allows people to transfer $19,000 per recipient in 2026 without touching their lifetime exemption, and married couples using gift splitting can move $38,000 per recipient annually. A family with three adult children and six grandchildren can transfer $342,000 out of a taxable estate each year through exclusion gifts alone, with no gift tax return required. Gifting appreciating assets early removes both their current value and all future growth from the estate.

Grantor Retained Annuity Trusts and Spousal Lifetime Access Trusts give HNWIs two additional transfer tools:

• A GRAT shifts appreciation above the IRS Section 7520 hurdle rate to beneficiaries gift-tax free, making it most effective when the transferred assets are expected to outperform that rate. 
• A SLAT allows one spouse to gift assets irrevocably into a trust benefiting the other, removing those assets from the taxable estate while preserving indirect access. 

Pro Tip: Federal planning alone isn’t sufficient for residents of states with independent estate taxes: New York imposes its own tax with a 2026 exemption of $7.16 million per person and a cliff provision that eliminates the exemption entirely for estates exceeding it by 5% or more.

Strategy #5: Charitable Giving as a Tax Strategy

Charitable giving can reduce taxable income, eliminate capital gains, and remove value from a taxable estate simultaneously. Donating cash to a public charity is deductible up to 60% of adjusted gross income, but transferring appreciated securities held longer than 12 months lets the donor deduct the full fair market value while bypassing capital gains tax on the appreciation entirely.

Donor-Advised Funds add flexibility to that approach. A contributor transfers assets to a DAF, claims the full deduction in that tax year, and distributes grants to qualifying charities over time. Charitable Remainder Trusts take a different route: the donor transfers appreciated assets into an irrevocable trust, receives an income stream for a fixed term, claims a partial deduction at inception, and passes remaining assets to charity at termination.

Qualified Charitable Distributions work differently for donors aged 70½ or older. A direct transfer of up to $111,000 in 2026 from an IRA to a qualifying 501(c)(3) satisfies the Required Minimum Distribution without the amount counting as taxable income. QCDs can’t be directed to DAFs or private foundations, but for HNWIs with large IRA balances, each transfer reduces both current-year adjusted gross income and future RMD exposure as the account balance shrinks.

Strategy #6: Business Entity Optimization

The choice of business entity determines how income is taxed, when it’s taxed, and at what rate. S corporations let business earnings pass through to the owner’s personal return, avoiding the 21% corporate rate, but owners who work in the business must take a reasonable salary subject to payroll taxes before drawing additional income as a distribution. That salary-to-distribution ratio is one of the most valuable levers in HNWI tax planning when calibrated correctly against payroll tax exposure.

The Section 199A deduction allows pass-through owners to deduct up to 20% of qualified business income, reducing the effective federal rate on that income from 37% to 29.6%. For 2026, the deduction begins phasing out for single filers above approximately $201,750 in taxable income and for married filers above $403,000, with the deduction eliminated entirely at $276,500 and $553,500, respectively. 

C-corporations become advantageous when an owner plans to retain earnings inside the business. Those earnings are taxed at 21% at the corporate level rather than 37% at the individual level, creating a deferral benefit for reinvestment. Business owners operating across multiple states face apportionment rules that can generate tax liability in states where they don’t reside, requiring a state nexus analysis before finalizing any entity election.

Strategy #7: Retirement Planning Beyond Basic Contributions

Standard 401(k) deferrals cap at $23,500 in 2026, but HNWIs have access to vehicles that push tax-advantaged savings well beyond that ceiling. The Backdoor Roth IRA lets high earners above the direct contribution limits fund a non-deductible traditional IRA and convert it to Roth immediately. The conversion is tax-free only if no pre-tax IRA balances exist: the pro-rata rule treats all traditional IRA assets as a single pool when calculating the taxable portion, which catches many high earners off guard.

The Mega Backdoor Roth uses the 401(k)’s $71,000 total contribution ceiling instead. After accounting for the $24,500 employee deferral and any employer match, the remaining space can be filled with after-tax dollars and converted to Roth through an in-plan conversion or in-service distribution, shifting up to $40,000 or more annually into a tax-free account. The strategy requires a plan that explicitly permits both after-tax contributions and conversions, but most plans don’t.

For self-employed HNWIs, cash balance plans allow annual contributions exceeding $200,000, depending on age and compensation, deducted in full against current-year income. Pairing a cash balance plan with a 401(k) profit-sharing plan lets a high earner in peak income years shelter income at a scale no IRA strategy can approach.

Strategy #8: Real Estate Tax Optimization

The OBBBA permanently restored 100% bonus depreciation for property placed in service after January 19, 2025. A cost segregation study captures that benefit by reclassifying components with recovery periods of 20 years or less, including fixtures, land improvements, and interior elements, from 27.5 or 39-year schedules into 5-, 7-, or 15-year categories eligible for immediate expensing. On a $3 million acquisition, studies typically identify 30% of the purchase price as qualifying components, producing roughly $900,000 in first-year deductions.

The 1031 exchange under IRC Section 1031 defers capital gains by reinvesting proceeds into a like-kind property, with 45 days to identify the target and 180 days to close. Each deferred gain carries into the new property’s basis through successive exchanges. Under current law, that accumulated gain disappears at death through a stepped-up basis, making a disciplined 1031 strategy a genuine wealth transfer tool.

Real Estate Professional Status under IRC Section 469(c)(7) requires more than 750 hours annually in real property trades and more than half of total working hours in those activities. Qualifying investors apply rental losses directly against W-2 and business income. Those who don’t qualify accumulate suspended passive losses that offset only passive income until the property sells, at which point the full balance becomes deductible.

Strategy #9: State and Local Tax Planning

The OBBBA raised the federal SALT deduction cap to $40,400 for 2026, with 1% annual increases through 2029 before reverting to $10,000 in 2030. For HNWIs, the benefit phases out at 30 cents per dollar of MAGI above $505,000, hitting the $10,000 floor at $606,333. A taxpayer earning above that threshold receives the same $10,000 SALT deduction they had under the TCJA, making the expanded cap irrelevant for most high earners unless their income falls in the phase-out band.

Pass-through entity tax elections are the most reliable workaround for business owners in high-tax states. Thirty-six states have PTET regimes allowing partnerships and S corporations to pay state income tax at the entity level, where the payment is fully deductible as a business expense without touching the individual SALT ceiling. The OBBBA preserved these elections, and for a business owner paying $150,000 in state taxes annually, a PTET election converts an otherwise capped deduction into a full federal write-off.

Strategy #10: International and Cross-Border Tax Structuring

U.S. citizens and residents owe federal income tax on worldwide income regardless of where it’s earned. The foreign tax credit under IRC Section 901 offsets that liability dollar-for-dollar for taxes paid to foreign governments, but credits must be allocated across separate income types (passive, general, and foreign branch), and excess credits in one basket can’t offset tax in another.

Reporting obligations accumulate quickly for HNWIs with international holdings. The FBAR requires annual filing on FinCEN Form 114 whenever aggregate foreign account balances exceed $10,000 on any single day, and FATCA requires Form 8938 for U.S. residents holding foreign financial assets above $50,000 at year-end for single filers ($100,000 for married filing jointly), or $75,000 at any time during the year for single filers ($150,000 for married filing jointly). 

Foreign mutual funds, non-U.S. ETFs, and certain offshore insurance products typically qualify as Passive Foreign Investment Companies under IRC Section 1297, triggering Form 8621 and the punitive excess distribution regime, which taxes gains at ordinary income rates plus an interest charge.

U.S. shareholders owning 10% or more of a Controlled Foreign Corporation report annually on Form 5471 and may owe current-year tax on Subpart F income and Global Intangible Low-Taxed Income, whether or not the CFC distributed anything. Willful FBAR violations carry civil penalties of $165,353 per violation or 50% of the unreported account balance, whichever is greater, plus potential criminal exposure. Those figures apply per account, per year,  making a multi-year, multi-account compliance gap one of the most financially destructive tax problems a high-net-worth individual can face.

Strategy #11: Proactive Year-Round Tax Planning

Tax planning only works when it happens before a liability is set. Quarterly meetings with a coordinated team of a CPA, estate attorney, and financial advisor can create enough lead time to time transactions, model income scenarios, and respond to legislative changes before year-end closes the window. Advisors who weren’t tracking the OBBBA left clients exposed to suboptimal positions across estate planning, bonus depreciation, SALT, Section 199A, and QCD limits that couldn’t be unwound after the fact.

A business owner expecting a large Q4 distribution can use that lead time to accelerate deductions, contribute to a Donor-Advised Fund in a high-income quarter, or execute a Roth conversion earlier in the year when income is lower. 

Consider a hypothetical married business owner in California with $2 million in annual pass-through income and a $3 million commercial property. A proactive team implements a PTET election, deducting $200,000 in state taxes at the entity level, conducts a cost segregation study generating $900,000 in first-year deductions, and executes a $200,000 cash balance plan contribution. Those three moves reduce federal taxable income by $1.3 million in a single year  (a tax reduction exceeding $480,000 at the 37% rate) using strategies available to any HNWI with the right team in place before Q4.

Reduce Your Taxes With An Experienced CPA

The strategies in this guide work because they address the same underlying principle: taxes are more manageable before they’re owed than after. Income shifting, entity optimization, real estate depreciation, estate transfers, and retirement vehicle selection all produce their largest benefits when they’re positioned in advance.

USA Tax Gurus works with high-net-worth individuals, business owners, investors, and family office advisors to implement the strategies covered in this guide. From entity structuring and cost segregation to estate planning coordination and cross-border compliance, our team builds year-round tax plans that protect wealth and keep capital compounding. To get started or schedule a consultation, please fill out a contact form or call 213-204-8737 today.