When it comes to tax planning, high-net-worth individuals (HNWIs) often leverage a variety of deductions and strategies to minimize their tax liabilities. However, some highly valuable deductions are frequently overlooked, leading to missed opportunities for substantial savings. Here are some of the most underutilized tax deductions that could make a significant impact on your financial planning.
- Charitable Contributions Beyond Cash Donations
While most individuals know they can deduct cash donations to charities, they often overlook other valuable contributions such as:
- Appreciated Securities: Donating stocks or other appreciated assets allows you to avoid capital gains tax while claiming a deduction for the full market value.
- Real Estate Donations: Transferring ownership of a property to a charitable organization can provide significant tax benefits.
- Private Foundations & Donor-Advised Funds (DAFs): Contributing to a private foundation or DAF allows for immediate deductions while maintaining control over how funds are distributed over time.
- Investment-Related Deductions
Many HNWIs have complex investment portfolios but may not be fully leveraging related deductions:
- Investment Interest Expenses: If you borrow money to invest, the interest paid on that loan may be deductible.
- Management & Advisory Fees: While these expenses are not deductible under the Tax Cuts and Jobs Act (TCJA) for individuals, they may be deductible within certain trusts or business structures.
- Loss Harvesting: Selling underperforming assets to offset capital gains is a smart tax-saving strategy.
- Family Office & Estate Planning Deductions
Many HNWIs operate through a family office or complex estate plans, yet they fail to maximize the available deductions:
- Business-Related Expenses for Family Offices: If structured properly as a trade or business, a family office may deduct certain operational expenses.
- Trust and Estate Administration Costs: Fees related to estate planning, including trustee fees and administrative expenses, may be deductible.
- Gifting Strategies: Annual exclusion gifts ($18,000 per recipient in 2024) and direct payments for education or medical expenses can help reduce estate taxes without incurring gift tax.
- Home & Property-Related Tax Benefits
HNWIs often own multiple properties, yet they may not be taking advantage of all potential deductions:
- Mortgage Interest Deductions: While the mortgage interest deduction is capped, strategic structuring may allow for additional savings.
- Property Tax Deductions: Depending on the location and use of the property, there may be deductions or credits available.
- Energy Efficiency Upgrades: Federal and state tax credits are available for installing solar panels, energy-efficient windows, and other eco-friendly improvements.
- Healthcare & Long-Term Care Expenses
Even for those with significant wealth, healthcare costs can add up quickly. Consider these often-overlooked deductions:
- Long-Term Care Insurance Premiums: Premiums for qualified long-term care policies may be deductible based on age and limits set by the IRS.
- Medical Expenses Beyond Insurance: Many out-of-pocket expenses, such as alternative treatments and home modifications for medical needs, may qualify.
- Health Savings Accounts (HSAs) & Flexible Spending Accounts (FSAs): Contributing to these accounts allows for tax-free growth and withdrawals for qualified medical expenses.
- Business & Self-Employment Tax Strategies
For entrepreneurs, business owners, and investors, structuring income effectively is key:
- Qualified Business Income (QBI) Deduction: Certain pass-through business owners may qualify for a deduction of up to 20% of QBI.
- Depreciation & Section 179 Deductions: Investing in equipment, commercial real estate, or vehicles can yield significant write-offs.
- Retirement Plan Contributions: Maximizing contributions to 401(k)s, SEP IRAs, or Defined Benefit Plans provides tax-deferred growth.
Final Thoughts: Maximize Your Tax Savings
Many high-net-worth individuals focus on traditional deductions while missing out on these lesser-known yet highly beneficial strategies. Working with a tax professional who specializes in high-net-worth financial planning can help ensure you are not overpaying on taxes while staying compliant with IRS regulations.
Would you like to explore personalized tax-saving strategies? Consult with a tax advisor today and make sure your wealth is working for you, not against you!
