High-net-worth individuals often have complex financial portfolios, which can lead to unique tax-saving opportunities. However, without diligent and strategic planning, it's easy to overlook valuable deductions, essentially leaving money on the table for the IRS. A proactive approach to tax strategy ensures that you are leveraging every available deduction to preserve your wealth and minimize your liability. At Honey Bee Tax Planning, we specialize in providing the 5-star, personalized tax guidance that affluent individuals require to navigate these intricate financial landscapes and optimize their tax outcomes.
Are You Leaving Money on the Table? The Most Overlooked Tax Deductions for High-Net-Worth Individuals
Advanced Charitable Giving Strategies
While most affluent individuals are aware of the basic deduction for cash donations, many overlook more sophisticated—and more impactful—charitable giving strategies. Donating appreciated securities, such as stocks or mutual funds held for more than a year, can provide a double tax benefit: you can generally deduct the full fair market value of the asset and avoid paying capital gains taxes on the appreciation. For those with significant philanthropic goals, establishing a Donor-Advised Fund (DAF) allows for a large, immediate tax deduction while giving you time to decide which charities to support in the future.
Investment Interest Expenses
If you borrow money to make investments (a practice known as buying on margin), the interest paid on that loan may be deductible. The investment interest expense deduction allows you to deduct interest up to the amount of your net investment income for the year. This is a powerful but often missed deduction for active investors looking to offset the costs associated with their investment activities.
State and Local Tax (SALT) Deduction Workarounds
The Tax Cuts and Jobs Act of 2017 introduced a $10,000 cap on the state and local tax (SALT) deduction, which significantly impacted taxpayers in high-tax states. However, many states, including Texas, have enacted Pass-Through Entity Tax (PTET) workarounds. If you are an owner of a partnership or S-corporation, this election allows the business to pay state taxes at the entity level, which is fully deductible for the business, effectively bypassing the individual SALT cap for you.
Qualified Business Income (QBI) Deduction
For high-net-worth individuals who own interests in pass-through businesses (sole proprietorships, partnerships, S-corps), the Qualified Business Income (QBI) deduction is critical. It allows for a deduction of up to 20% of qualified business income. However, the rules are complex, with income limitations and specific criteria for what constitutes a "specified service trade or business." Proper planning is essential to ensure your business is structured to maximize this valuable deduction.
Health Savings Account (HSA) Maximization
Often viewed as just a healthcare tool, a Health Savings Account (HSA) is one of the most tax-advantaged accounts available. Contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free. For high-net-worth individuals, maximizing HSA contributions provides a triple tax benefit and serves as an excellent supplemental retirement savings vehicle, as funds can be withdrawn for any reason (subject to income tax) after age 65.
Don't let overlooked deductions diminish your wealth. A comprehensive review of your financial situation can uncover significant savings opportunities. The experts at Honey Bee Tax Planning are committed to providing the detailed analysis and proactive advice necessary to ensure you are taking full advantage of every deduction available to you. Contact us today for a consultation and experience the peace of mind that comes with expert tax planning.