Tax Optimization Strategies for High-Net-Worth Individuals

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Tax Optimization Strategies for High-Net-Worth Individuals

WBH Advisory, Inc. | Mar 31, 2025

Categories

Tax Planning

Investments

Retirement

Real Estate

What does it take to minimize your tax bill, not just this year but in the years to come?

The answer depends on the circumstances of each individual. However, many high-net-worth individuals (HNWIs) share one common objective: reducing their tax obligations to the minimum allowed by law. Achieving this often involves leveraging specific strategies and tools.

Here’s an overview of tax planning strategies tailored for HNWIs:

1. Consider Contributions to Tax-Advantaged Retirement Accounts

Retirement accounts play a foundational role in an effective tax planning strategy. Utilizing tax-advantaged accounts, like 401(k)s and Traditional IRAs, can reduce taxable income today while allowing investments to grow for the future. Roth IRAs and Roth 401(k)s can offer tax-free growth.

For 2025, some contribution limits are:

The 401(k), 403(b), & 457 contribution limit is $23,500 for individuals under 50, with an additional $7,500 catch-up contribution for those 50 and older.¹ Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.²⁰
The Traditional IRA & Roth IRA contribution limit is $7,000for all Traditional and Roth IRAs combined, with an additional $1,000 catch-up contribution for those 50 and older.¹

HNWIs may also consider, depending on their unique circumstances:

Roth IRA Conversions: Paying taxes now on a conversion from a Traditional IRA to a Roth IRA may help avoid higher taxes later.¹⁵ This strategy requires a thorough analysis of the high-net-worth individual's current and projected tax situation.
Health Savings Accounts (HSAs): For HNWIs with qualifying high-deductible health plans, HSAs can provide multiple tax benefits, including tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses.¹⁴
Backdoor Roth IRA contributions for tax-free growth, especially if income limits prevent direct contributions.² However, the tax consequences of this strategy can be complex. For those who have a balance in any Traditional IRA, backdoor Roth IRA contributions may not be appropriate.
Creating employer-sponsored retirement plans for their businesses to maximize their retirement savings potential.

2. Use Charitable Giving to Offset Taxes

Charitable contributions may provide meaningful tax benefits while supporting causes that matter to you.

Strategies include:

Qualified Charitable Distributions (QCDs): HNWIs who are 70½ or older can donate up to $108,000 from an IRA in 2025 to a qualified charity, potentially lowering taxable income.³
Donor-Advised Funds: Consider maximizing your giving impact by donating appreciated assets to a donor-advised fund (DAF) which offers a tax deduction for the tax year of the donation.⁴

3. Prioritize Tax-Efficient Investment Strategies

Tax-efficient investments can help HNWIs minimize liabilities while maintaining portfolio growth. Consider options like:

Index Mutual Funds & ETFs: Depending on how they are managed, these funds can incur fewer taxable events compared to other funds.⁶
Bonds: Many municipal bonds can be tax-exempt, making them tax-efficient investments for some HNWIs.⁷
Tax-Loss Harvesting: By strategically selling assets at a loss, it is possible to offset capital gains and lower tax obligations.⁸

4. Optimize Business Structures

For high-net-worth business owners, the structure of your enterprise can have a significant impact on your tax obligations.

Examples include:

Pass-Through Entities: Sole proprietorships, limited liability corporations (LLCs), S-corporations, and other structures can let income "pass-through" the entity to personal income, preventing corporate taxes and double taxation (meaning taxes imposed once on the business and another time on personal income).⁹
C Corporation Advantages: Converting to a C corporation could provide tax-savings opportunities in some circumstances by eliminating certain burdens that could subject HNWIs to higher tax rates.¹⁰

5. Explore Tax Savings Opportunities for Real Estate Investments

Real estate investments can offer deductions for expenses such as property taxes, mortgage interest, and depreciation.

Other key strategies include:

1031 Exchanges: These can postpone capital gains taxes on properties if the proceeds are reinvested into similar real estate that meets the standards for a “like-kind exchange.”¹¹
Opportunity Zones: Investing in Qualified Opportunity Zones isn’t just a way to support economic development. It can also provide tax benefits to investors.¹²

What’s Next? Tailor Your Tax Strategy Today

These strategies are just the beginning. Effective tax optimization requires a tailored approach based on your unique situation.

By working with a financial professional, you can align tax strategies with long-term financial goals. An advisor’s expertise can be invaluable for navigating complex tax laws, implementing advanced techniques, and securing your financial legacy.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by WBH Advisory, Inc. [“WBH”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from WBH. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. WBH is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the WBH’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.wbhadvisory.com. Please Note: WBH does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WBH’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a WBH client, please contact WBH, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by WBH), will be profitable or equal any historical performance level(s).

Certain portions of WBH’s website (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, WBH (and those of other investment and non-investment professionals) positions and/or recommendations as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from WBH, or from any other investment professional. WBH does not provide legal or tax advice, and the information provided is general in nature and should not be considered legal or tax advice. Consult an attorney, tax professional, or other advisor regarding your specific legal or tax situation.

Sources

1 - IRS, 2024 [URL: https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000]

2 - Investment News, 2024 [URL: https://www.investmentnews.com/rias/everything-you-need-to-know-about-backdoor-roth-iras/248324]

3 - IRS, 2024 [URL: https://www.irs.gov/newsroom/give-more-tax-free-eligible-ira-owners-can-donate-up-to-105000-to-charity-in-2024]

4 - San Diego Foundation, 2024 [URL: https://www.sdfoundation.org/news-events/sdf-news/what-to-know-about-donor-advised-funds-in-2024-rules-tax-deductions-comparisons-and-more/]

5 - IRS, 2024 [URL: https://www.irs.gov/charities-non-profits/charitable-remainder-trusts]

6 - FINRA, 2025 [URL: https://www.finra.org/investors/insights/etf-vs-mutual-fund]

7 - IRS, 2024 [URL: https://www.irs.gov/tax-exempt-bonds]

8 - Investopedia, 2024 [URL: https://www.investopedia.com/terms/t/taxgainlossharvesting.asp]

9 - Tax Policy Center, 2024 [URL: https://taxpolicycenter.org/briefing-book/what-are-pass-through-businesses]

10 - Thomas Reuters, 2024 [URL: https://tax.thomsonreuters.com/blog/how-are-c-corporations-taxed-tips-on-how-to-avoid-double-taxation-and-reduce-taxes/]

11 - IRS, 2024 [URL: https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips]