Key Takeaways
- High-net-worth investors may potentially reduce their tax exposure through strategic planning and proactive implementation of proven strategies.
- Tax-planning strategies, such as tax-loss harvesting, charitable donations and strategic lifetime gifts, can help minimize your tax burden before year-end.
- Working with a qualified wealth manager helps ensure proper implementation of high-net-worth tax strategies tailored to your unique financial situation.
As your income increases over time, so can your tax exposure. If you’re not taking steps to minimize your tax burden, you could be missing out on significant wealth-building opportunities — especially if you’re a high-net-worth investor. Fortunately, there are steps you can take to help minimize your tax liabilities and preserve your assets.
With 2025 bringing important changes, including a $19,000 annual gift tax exclusion and a $108,000 qualified charitable deduction (QCD) limit, the final months of the year offer valuable opportunities for year-end tax planning. Your wealth manager can help you implement the following high-net-worth tax strategies to help lower your exposure and maximize wealth preservation.
Strategic Tax-Loss Harvesting to Reduce Capital Gains
High-net-worth investors may potentially face high capital gains tax exposure, which could impact their long-term investment returns. Tax-loss harvesting is a powerful tax planning strategy that can help offset this exposure by allowing you to lock in losses and use those losses to offset gains elsewhere in your investment portfolio.
By selling assets that have declined in the short term and replacing those investments with highly correlated alternatives, your risk/reward profile remains unchanged, yet the realized investment losses generate a tax deduction that can help you save on taxes. By reinvesting the tax savings, you can continue growing the value of your tax-efficient portfolio over time.
How tax-loss harvesting works for wealthy investors
The IRS allows taxpayers to use realized capital losses to offset capital gains. If your losses exceed your gains, you can deduct up to $3,000 from ordinary income. Any additional losses can be carried forward to use as a deduction in future years, creating ongoing tax savings opportunities.
Tax-loss harvesting can also help high-income earners reduce their exposure to the 3.8% net investment income tax (NIIT) that applies to investment income above certain thresholds. For married couples filing jointly, NIIT applies when their modified adjusted gross income exceeds $250,000, making strategic loss harvesting particularly valuable for wealthy families.
Avoiding the wash sale rule
When using a tax-loss harvesting strategy, it’s important to avoid the IRS’s “wash sale” rule. Intended to prevent investors from selling at a loss solely to obtain a tax deduction, this rule is triggered when you sell an investment at a loss and purchase a “substantially identical” security within 30 days before or after the sale. You may also trigger a wash sale if your spouse, or a company you control, purchases a substantially identical security during the same 30-day period. If you trigger the wash sale rule, the investment loss won’t qualify as a tax deduction.
In addition to the wash sale rule, there are other complexities associated with tax-loss harvesting, which is why it’s wise to seek the support of a qualified wealth manager who specializes in high-net-worth tax strategies.
Maximize Charitable Impact While Reducing Tax Exposure
If your financial goals include supporting charities that are near and dear to you, the following charitable giving strategies can help maximize your impact while also reducing your tax exposure.
Donating appreciated securities for tax efficiency
While cash is the most common way to donate to charities, it’s not always the most efficient for high-net-worth investors. If you have appreciated stocks, bonds or mutual funds, you may be able to maximize your charitable impact by making an in-kind donation.
Assuming you’ve held the security for at least a year, you can transfer shares to a charity of your choice and claim the security’s fair market value as a tax deduction on your itemized tax return. Because charities are tax-exempt, the organization can then sell the security without paying taxes.
The direct in-kind donation allows you to avoid triggering a taxable event, which means you’re not subject to capital gains taxes. And you’re then able to repurchase the shares without triggering the wash sale rule. Doing so provides the added benefit of owning the same shares at a higher cost basis, which can help minimize your future tax exposure when you eventually sell the security.
This charitable giving strategy is particularly valuable for wealthy investors holding highly appreciated positions that would otherwise generate substantial capital gains tax liabilities.
Establishing a donor-advised fund for strategic giving
A donor-advised fund (DAF) is a charitable giving vehicle that accepts irrevocable charitable donations, holds them in a tax-exempt status for future use and distributes the assets to charities over time according to your instructions. Plus, you’re able to receive a tax deduction on your itemized return during the year(s) in which you contribute to the DAF. You can contribute as often as you like, and you maintain full control over how and when the assets are donated to charities.
Contributing to a donor-advised fund can be a particularly effective tax strategy during years in which your income is higher than normal, because you can make a single large donation of cash, stocks or other assets to reduce your taxable income. You can then distribute those assets to charities over time.
Important for 2025: With changes to charitable deduction limits taking effect in 2026, high-net-worth investors may want to accelerate charitable giving in 2025. Currently, itemizers can deduct up to 60% of adjusted gross income for cash gifts and 30% for noncash assets, but these limits will become more restrictive starting next year.
Funding a DAF can also be an effective estate planning strategy to consider as you near retirement, because you can fund the donor-advised fund while you’re still working, then donate to charities throughout your retirement years. And because assets remain tax-exempt as long as they’re held within the account, a DAF allows you to establish a charitable giving legacy for your heirs by giving your children and grandchildren a say in how assets are gifted to various charitable causes over time.
Making a qualified charitable distribution from your IRA
If you’re retired and receiving required minimum distributions (RMDs) from your tax-deferred retirement accounts, qualified charitable distributions (QCDs) provide another opportunity to reduce your tax burden while supporting the causes that matter most to you.
Typically, when you withdraw from your 401(k) or 403(b) to satisfy your annual RMD, you must pay ordinary income taxes on the assets you receive. A qualified charitable distribution allows you to avoid this tax liability by transferring your assets directly to a qualified charitable organization. In 2025, the IRS allows individuals to contribute up to $108,000 per year from a qualified retirement account directly to a charitable organization without paying taxes on the assets.
QCDs are an increasingly popular tax strategy for high-net-worth investors in retirement, offering a way to satisfy RMD requirements, support charitable causes and reduce taxable income simultaneously.
Again, there are potential complexities associated with this strategy, which is why it’s important to seek the guidance of a qualified wealth manager rather than attempting a QCD on your own.
Strategic Lifetime Giving to Reduce Estate Tax Exposure
Another effective high-net-worth tax strategy for reducing your long-term tax exposure is making lifetime gifts to family and friends. The IRS allows taxpayers to give up to $19,000 per person per year (updated for 2025) as a direct gift without incurring gift tax. If you’re married, your spouse can give another $19,000, doubling the amount you can give to any one person to $38,000 per year. The annual exclusion is per recipient, so if you’re married, you can give $38,000 to a child, $38,000 to a friend and $38,000 to a brother, for example.
Understanding the 2025 gift tax limits
Strategic gifting is a simple way to reduce the taxable assets held in your estate without reducing your lifetime exemption amount. Plus, you have the added benefit of seeing your loved ones enjoy your financial gifts.
For high-net-worth families, understanding the interplay between the annual gift tax exclusion and the lifetime estate tax exemption (currently $13.99 million per individual in 2025) is crucial for effective wealth transfer planning.
With potential changes to estate tax rules on the horizon — including a baseline reduction to approximately $15 million in 2026 — now’s an opportune time to work with a wealth manager on comprehensive estate planning strategies that maximize the use of current exemptions.
Additional gifting strategies for wealthy families
Beyond the annual gift tax exclusion, high-net-worth investors should also consider:
- Direct payments for medical and educational expenses: Unlimited payments made directly to medical providers or educational institutions don’t count against your annual gift tax exclusion or lifetime exemption.
- 529 college savings plans: You can front-load up to five years’ worth of contributions ($95,000 per beneficiary in 2025, or $190,000 for married couples) without triggering the gift tax.
- Irrevocable trusts: These are advanced estate planning vehicles that allow you to remove assets from your taxable estate while maintaining control over distributions to beneficiaries.
Advanced Estate Planning Strategies for Ultra-High-Net-Worth Families
While the strategies above form the foundation of high-net-worth tax planning, ultra-high-net-worth investors may benefit from the additional advanced techniques discussed below.
Grantor retained annuity trusts (GRATs)
GRATs allow you to transfer appreciating assets to beneficiaries with minimal gift tax consequences by retaining an annuity payment for a specified term. GRATs can be a useful tool for wealth transfer, particularly for high-net-worth families, as they have the potential for tax-free appreciation above the IRS assumed rate.
Charitable remainder trusts (CRTs)
Charitable remainder trusts provide income to you or your beneficiaries for a specified period, with the remainder going to charity. This strategy aims to provide potential tax benefits, manage capital gains taxes and contribute to a charitable legacy, while also offering retirement income.
Dynasty trusts for multi-generational wealth
Dynasty trusts are designed to last for multiple generations, protecting assets from estate taxes at each generational transfer. These irrevocable trusts are particularly valuable for wealthy families seeking to establish a lasting financial legacy while minimizing estate tax exposure across generations.
Year-End Tax Planning Checklist for 2025
As December 31 approaches, high-net-worth investors should consider these time-sensitive tax-planning actions:
- Maximize retirement account contributions – Make sure you’ve contributed the maximum amount allowed to 401(k)s, IRAs and other tax-advantaged accounts before year-end.
- Execute tax-loss harvesting – Review your portfolio for opportunities to harvest losses while avoiding wash sale violations.
- Complete charitable giving – Finalize donor-advised fund contributions, qualified charitable distributions and appreciated securities donations before December 31.
- Utilize annual gift tax exclusions – Make lifetime gifts up to the $19,000 per person limit to reduce your taxable estate.
- Review required minimum distributions – Ensure your RMDs have been satisfied, or consider QCD options to reduce your taxable income.
- Evaluate Roth conversion opportunities – For high-income earners expecting lower income this year, Roth IRA conversions can provide tax-free growth opportunities.
The Bottom Line
While the above high-net-worth tax strategies have the potential to significantly reduce your tax exposure, it’s important to work with a qualified tax advisor and wealth manager to make sure they’re implemented properly and coordinated with your overall financial plan.
At Creative Planning, we help high-net-worth families and wealthy investors capitalize on opportunities to minimize their tax liabilities and maximize their wealth-generating potential. Our comprehensive approach to tax planning considers not just individual strategies but also how they work together to support your unique financial goals and legacy objectives.
Whether you’re focused on year-end tax planning, long-term estate planning strategies or ongoing wealth management, our team of credentialed professionals can help you navigate the complexities of high-net-worth tax planning and position your wealth for growth and preservation.
