A high net worth individual, or HNWI, doesn’t have an officially or legally designated asset or income threshold. According to Forbes, a high net worth individual is a person with at least $1 million in liquid assets excluding homes, cars, business equity, and other illiquid assets. Once a person achieves HNWI status, their tax issues understandably become far more complex.
The United States is home to the largest number of high-net-worth individuals. It also happens to have one of the most arcane tax codes in the world that constantly changes. This can make it challenging to determine how to best protect your wealth both in the short term and creating legacies. Here are some high net worth tax strategies, and challenges, to consider for the current tax year and long-term financial planning.
Tax Challenges for High-Net-Worth Individuals
Taxation challenges for high-net-worth individuals can stem from the source of income, such as business ownership or executive compensation. A rank-and-file employee, even a well-paid one, often has far simpler tax matters when it comes to which elements of their overall compensation are taxable. Business owners in all income brackets inherently have more difficult tax situations than employees, but high-net-worth individuals often control businesses with higher revenues that carry higher administrative burdens than simpler small businesses.
Diverse income streams that include investments, real estate, royalties, and multiple businesses require a comprehensive tax plan that addresses both short-term and long-term needs. Estate and succession planning also factors into these tax strategies, accounting for your current needs and how you plan to bequest your assets to minimize taxes for yourself and your beneficiaries.
High net worth tax strategies also must take location into account. State and local tax codes, taxes in foreign countries, and ownership of foreign bank accounts and assets create additional reporting requirements. If you divide your time between multiple states and/or countries, spending just one extra day in a high-tax state can change which one is your tax home and result in a significantly higher tax bill.
Five High-Income Tax Planning Strategies to Consider
Gifting and Estate Planning

Gift and estate taxes are transfer taxes separate from income taxes and they primarily affect high-net-worth individuals.
Most taxpayers don’t have to worry about the estate tax, but this isn’t true for high-net-worth individuals. If you die in 2024, the Federal estate tax kicks in if your taxable estate exceeds $13,610,000, and this threshold is expected to fall to around $7 million on January 1, 2026. Taxpayers should also consider that state thresholds are significantly lower than federal. Twelve states and Washington DC impose an estate tax.
Deciding which assets to allocate to your estate (testamentary transfer) and what to gift while you are alive (intervivos transfer) are crucial in planning your estate. It may make sense to gift some assets now.
Gifting money to your loved ones can give them a headstart, but trigger the gift tax filing obligation if the total given exceeds $18,000 in 2024. Gifts made for educational and medical purposes are exempt from the gift tax provided that the institutions are paid directly. Spouses can also make unlimited gifts to each other without triggering the gift tax, and there is a marital deduction for assets transferred to your surviving spouse after your death.
Use of Tax Credits and Deductions
Tax laws are constantly changing, but there are many favorable credits and deductions at your disposal at both the business and personal levels. They include:
- Qualified Business Income (QBI) deduction for small business owners (available until December 31, 2025)
- Business expenses, including home offices and business travel
- Foreign tax credit for taxes paid on foreign-sourced income
- Medical expenses and insurance for yourself, your spouse, and your dependents, including the utilization of Health Savings Accounts
- Donations to charity, including use of Donor Advised Funds
Some of these deductions will require advance planning to fully take advantage of them. Year-end tax planning engagements are the ideal time to determine what you should do immediately to make it count for the current tax year, or defer to the next one.
Investment Strategies
Investing isn’t just a way to grow your wealth but also a crucial element of high-net-worth tax strategies. Maximizing contributions to tax-favored accounts like 401(k) plans, SEPs if you are self-employed, and health savings accounts can significantly reduce your tax bill while the wealth generated also grows tax-free.
There are a plethora of tax savings strategies for after-tax investments, such as municipal bonds. Municipal bonds diversify your risk and generate tax-free interest, which may also be exempt at the state level if you live in the issuing state. Tax loss harvesting of underperforming equity securities can also create major tax savings if you have a portfolio gain to offset.
Charitable Giving
Donations to causes you care about made to eligible organizations are deductible. If you have stock or other liquid assets that appreciated in value, you can avoid capital gains tax by donating the assets to charity and your deduction is based on the market value. You can also donate non-cash assets like collectibles and clothing, but you will need written acknowledgment for donations exceeding $250 in market value. Keep in mind that if donating non-cash assets over $5,000, a written appraisal is required.
Donor-advised funds (DAFs) are a more powerful way to support your favorite causes.

DAF assets grow tax-free providing that the funds are distributed to eligible organizations, but you get a deduction the year you make your contribution rather than the year the organization receives the money. DAFs can also be passed down to your beneficiaries.
Qualified charitable distributions of up to $105,000 can also be made from your IRA when you reach age 70½, allowing you to meet your required minimum distribution while avoiding taxes.
Trusts
Trusts are legal entities that can grow wealth for your beneficiaries. Grantor trusts, also called revocable trusts, allow you to control the trust’s assets, make changes, and transfer assets to a beneficiary while you are still alive while irrevocable trusts cannot be modified. Grantor trust income is taxed at your individual income tax rates, not the trust’s. High-net-worth individuals tend to prefer grantor trusts since trust tax rates are higher.
DHJJ is Here to Help!
If you are a high-net-worth individual in need of financial advisory and tax planning services, contact DHJJ today to speak to one of our advisors.