7 Effective Tax Optimization Strategies for High-Net-Worth Individuals
What does it take to minimize your tax bill, not just this year but in the years to come?
The answer varies for each individual. Tax optimization strategies depend heavily on personal assets and financial goals, which are unique to everyone.
However, nearly all high-net-worth individuals (HNWIs) share one common objective: reducing their tax obligations to the absolute minimum allowed by law. Pursuing this often involves leveraging specific strategies and tools that can work together to optimize personal income, property, and estate taxes.
Here’s an overview of tax planning strategies tailored for HNWIs:
1. Maximize Contributions to Tax-Advantaged Retirement Accounts
Retirement accounts play a foundational role in any effective tax strategy. Fully utilizing tax-advantaged accounts, like 401(k)s and IRAs, can reduce taxable income today while growing savings for the future.
For 2025, the contribution limits are:
- 401(k) contribution is $23,500 for individuals under 50, with an additional $7,500 catch-up contribution for those 50 and older.1
- IRA contribution is $7,000, the same as in 2024.1
HNWIs may also consider:
- Backdoor Roth IRA contributions for tax-free growth, especially if income limits prevent direct contributions.2
- Employer-sponsored plans such as profit-sharing contributions to maximize 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 $100,000 annually from an IRA to a qualified charity, potentially lowering taxable income.3
- Donor-Advised Funds: Maximize your giving impact by contributing assets to a donor-advised fund (DAF) which offers an immediate tax deduction.4
- Charitable Remainder Trusts: These trusts can support charitable giving, provide predictable income, defer income taxes on asset sales, and offer a partial charitable deduction.5
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’re managed, these funds can incur fewer taxable events compared to other funds.6
- Bonds: They can be tax-exempt, offer tax credits, or be direct-pay bonds, making them attractive options for tax-efficient investments.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: With the corporate tax rate at 21%, converting to a C corporation could provide tax-saving opportunities, eliminating certain burdens that could subject HNWIs to higher tax rates.10
5. Advanced Tax Planning Strategies
For those looking to take tax mitigation a step further, advanced strategies include:
- Health Savings Accounts (HSAs): For HNWIs with 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
- Roth IRA Conversions: Paying taxes now on a Roth IRA conversion can help avoid higher taxes later.15
7. Plan Ahead for Estate Taxes
Estate taxes can significantly erode wealth transfers, especially in the absence of an estate plan. In fact, those who fail to engage in estate tax planning could open up their heirs and estates to tax rates as high as 40%.16
Consider instead:
- Annual Gift Tax Exclusions: In 2025, individuals can give up to $19,000 per recipient annually without incurring gift tax. That’s up $1,000 from last year, and it’s a viable option for the tax-free transfer of wealth, possibly reducing future estate tax obligations.17
- Irrevocable Trusts: These estate planning devices can remove assets from a taxable estate, reducing the overall value of the estate and, possibly, future estate tax liabilities. Irrevocable trusts can also provide a tax-free way to transfer assets to beneficiaries.18
- Family Limited Partnerships (FLPs): These structures can “pool” assets among multiple owners, removing those assets from each individual’s taxable estate.19
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.
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, 2023 [URL: https://www.irs.gov/newsroom/qualified-charitable-distributions-allow-eligible-ira-owners-up-to-100000-in-tax-free-gifts-to-charity]
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]
12 - IRS, 2024 [URL: https://www.irs.gov/credits-deductions/businesses/opportunity-zones]
13 - IRS, 2024 [URL: https://www.irs.gov/credits-deductions/businesses/invest-in-a-qualified-opportunity-fund]
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
14 - IRS, 2024 [URL: https://www.irs.gov/publications/p969]
15 - IRS, 2024 [URL: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras#rollovers]
16 - Tax Foundation, 2024 [URL: https://taxfoundation.org/data/all/state/estate-inheritance-taxes/]
17 - IRS, 2024 [URL: https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025]
19 - IRS, N/A [URL: https://www.irs.gov/pub/irs-soi/11pwcompench2cfam.pdf]
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
Novus Wealth Group and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.
Investing involves risks including possible loss of principal.