High-net-worth individuals often leave money on the table by overlooking key tax deductions and credits. To uncover these hidden opportunities, we’ve consulted seasoned business leaders, including a Managing Partner and a Director General, who share their top strategies for maximizing tax savings. From utilizing QSBS exclusions to save significantly on gains to optimizing charitable giving through donor-advised funds, this roundup presents six actionable insights that could redefine your tax strategy.
- Maximize QSBS Exclusion for Tax Savings
- Utilize Qualified Charitable Distributions
- Deduct Out-of-Pocket Medical Expenses
- Donate Securities for Tax Credits
- Maximize HSA Contributions
- Leverage Donor-Advised Funds for Giving
Maximize QSBS Exclusion for Tax Savings
One often-overlooked tax strategy that high-net-worth individuals should consider is the Qualified Small Business Stock (QSBS) exclusion under Section 1202 of the Internal Revenue Code. This provision allows eligible investors to exclude up to 100% of the capital gains on the sale of qualified small business stock held for more than five years. The exclusion can apply to gains of up to $10 million.
High-net-worth individuals who invest in startups or privately held small businesses can plan their investments strategically to maximize this benefit. For example, by diversifying investments across multiple qualified businesses, they can multiply the tax savings since the exclusion cap applies per company. Additionally, gifting QSBS to family members or trusts can spread the exclusion further, extending tax savings across generations.
I’ve advised clients to review their portfolios and identify QSBS opportunities during liquidity events or exits. Pairing this with effective tax planning, like layering in donor-advised funds or trusts, can amplify the impact. For those invested in innovation or early-stage ventures, the QSBS exclusion is a hidden gem that turns long-term investments into tax-efficient wealth preservation.
Igor Tutelman
Managing Partner, Iota Finance
Utilize Qualified Charitable Distributions
One often-overlooked tax deduction that high-net-worth individuals should consider is the Qualified Charitable Distribution (QCD).
If you are 70 1/2 years or older and have a traditional IRA, you can transfer up to $100,000 annually to a qualified charity. This distribution counts toward your Required Minimum Distribution (RMD) but is not included in your taxable income.
The beauty of this strategy lies in its dual benefit. First, it reduces your adjusted gross income, which can help lower taxes on Social Security benefits and reduce Medicare premiums.
Second, it allows you to support causes you’re passionate about without needing to itemize deductions, which is especially beneficial after the increase in the standard deduction.
To leverage this effectively:
- Plan your charitable giving early in the year.
- Work with your financial advisor to identify the right charities and ensure the transfers are made directly from your IRA to the organization.
- Keep detailed records, as proper documentation is essential for compliance.
This approach optimizes tax savings and aligns financial planning with personal values, making it a win-win solution for high-net-worth individuals seeking to maximize their impact and financial efficiency.
Fawad langah
Director General, Best Diplomats
Deduct Out-of-Pocket Medical Expenses
One often-overlooked tax deduction for high-income individuals is the medical expense deduction. Many people don’t realize that out-of-pocket medical expenses, including those not covered by insurance, can be deducted if they exceed a certain percentage of your adjusted gross income.
To leverage this deduction effectively, keep meticulous records of all medical expenses throughout the year. This includes everything from doctor visits and prescription medications to medical equipment and travel expenses for medical care. For example, one of my clients was able to significantly reduce their taxable income by claiming a variety of medical expenses that they had previously overlooked.
By staying organized and consulting with a tax professional, high-income individuals can ensure they’re taking full advantage of this deduction and potentially save a substantial amount on their taxes.
Austin Rulfs
Founder, SME Business Investor, Property & Finance Specialist, Zanda Wealth
Donate Securities for Tax Credits
One often-overlooked tax strategy for high-net-worth individuals is the effective use of charitable donation tax credits, particularly through gifting publicly traded securities in-kind. When securities with capital gains are donated directly to a registered charity, the donor avoids paying capital gains tax while still receiving a charitable donation tax receipt for the full fair market value of the securities.
This approach not only maximizes the tax benefits but also allows individuals to support causes they care about in a highly tax-efficient manner. It’s an excellent strategy for those who wish to reduce their taxable income while maintaining liquidity in other areas of their portfolio.
To leverage this strategy effectively, high-net-worth individuals should align their donations with their broader financial and philanthropic goals. Working with a tax professional or financial planner ensures proper documentation and compliance with IRS regulations.
Integrating this with other advanced strategies, such as debt swaps for maximizing tax shelters, can further optimize a high-net-worth individual’s overall financial plan. It’s crucial to continually review and adjust these strategies to adapt to changing tax laws and personal financial goals.
Chad Harmer
Founder, CIO, and Financial Planner, Harmer Wealth Management
Maximize HSA Contributions
One often overlooked tax deduction that high-net-worth individuals should be paying attention to is HSA contribution. HSAs are a triple tax advantage; contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free. Maximizing HSA contributions is an important source of tax savings for high-net-worth individuals and creates a valuable resource for future healthcare costs.
They will need to be enrolled in a high-deductible health plan, which must have them enrolled to open an HSA. In 2024, they can contribute as much as $4,150, and families may contribute as much as $8,300, or an additional $1,000 catch-up contribution is available for those aged 55 or older. High-net-worth individuals can make the most contributions yearly, allowing the funds to grow over time, thus creating an enormous tax-advantaged savings account that can be used for medical expenses in retirement or even non-medical expenses after age 65, further optimizing their overall tax strategy while preparing for future healthcare needs.
Sheraz Ali
Founder & CEO, HARO Links Builder
Leverage Donor-Advised Funds for Giving
One often-overlooked tax deduction high-net-worth individuals should consider is the charitable contribution deduction, particularly through donor-advised funds (DAFs).
Leveraging DAFs allows for tax-efficient giving, as donations to these funds are tax-deductible immediately, but disbursements to charities can be made over time. This strategy not only reduces taxable income but also allows individuals to align their giving with long-term philanthropic goals while maintaining control over the distribution.
Shehar Yar
CEO, Software House
