5 High-Net-Worth Tax Strategies for the Holiday Season

The holiday season offers a unique opportunity for high-net-worth individuals to take advantage of tax-saving strategies. Because every financial situation is different, there is no one-size-fits-all tax strategy for millionaires to follow. Still, by planning ahead and implementing a few key moves before December 31, you can potentially reduce your taxable income, increase your charitable giving impact, and set yourself up for a stronger financial start in the new year.

Whether you’re thinking of gifting assets, exploring tax-loss harvesting, or considering other wealth management strategies, the end of the year is a critical time for tax planning. If you’re looking for guidance on implementing these high-net-worth tax strategies, the high-net-worth tax advisors at Avidian Wealth Solutions are ready to help you make the most of your holiday tax planning.

1. Maximize charitable contributions

As the year comes to a close, you might be asking “how can I make my tax season easier?” One way to do so is by optimizing your charitable giving strategies. Charitable giving not only benefits your favorite causes but can also be a powerful tax-saving tool, particularly for high-net-worth individuals. When considering year-end charitable contributions, there are a few ways to optimize the tax benefits:

• Donor-advised funds (DAFs): A DAF allows you to make a large charitable contribution in one year, thus maximizing your deduction while distributing the funds to charities over time. This can be especially beneficial for high-income years, where a larger deduction is helpful.
• Gifting appreciated assets: Instead of donating cash, consider donating appreciated securities like stocks or mutual funds. By doing so, you avoid capital gains taxes on the asset’s growth, and the full market value of the asset becomes tax-deductible if you’ve held it for over a year.
• Qualified charitable distributions (QCDs): For those aged 70½ or older with an IRA, QCDs allow for tax-free contributions directly from your IRA to a charity, satisfying Required Minimum Distributions (RMDs) while also reducing taxable income.

2. Tax-loss harvesting for investment portfolios

Tax-loss harvesting lets you offset investment gains by selling underperforming assets, reducing your tax burden. Capital losses offset gains dollar-for-dollar — for instance, $50,000 in gains minus $30,000 in losses leaves $20,000 in taxable gains. If losses exceed gains, you can carry forward the excess, offsetting up to $3,000 in ordinary income yearly. 

Watch for the “wash sale” rule, which disallows repurchasing the same investment within 30 days to maintain tax benefits. Violating this rule will disqualify your tax-loss benefits, so careful planning is essential.

3. Make use of gift exclusions

Gifting during the holidays can serve as both a generous gesture and a strategic financial move. The IRS allows for tax-free gifting up to a certain annual exclusion limit per recipient, making it an effective way to transfer wealth while minimizing estate tax implications.

• Annual gift tax exclusion: The annual exclusion for 2023 is $17,000 per person. This means you can give $17,000 to as many individuals as you like without incurring any gift tax or impacting your lifetime gift and estate tax exemption.
• Direct payments for education and medical expenses: In addition to the annual exclusion, you can also make unlimited payments directly to educational or medical institutions on behalf of someone else without triggering a gift tax. This can be an effective strategy if you have children or grandchildren in need of support for tuition or medical expenses.
• Family trust contributions: Contributions to family trusts can help manage larger gifts. These trusts allow you to set up a formal structure for distributing wealth to family members, providing both financial benefits and flexibility.

4. Evaluate Roth conversion opportunities

The end of the year is also an opportune time to consider a Roth conversion, particularly if you find yourself in a lower-than-usual tax bracket. Converting traditional IRA funds into a Roth IRA results in an upfront tax liability, but future withdrawals from the Roth are tax-free, providing long-term tax savings.

The advantages of a Roth conversion include the following:

1. Takes advantage of lower tax brackets: If your taxable income is lower this year, converting to a Roth at a lower tax rate could minimize the tax burden of the conversion.
2. Reduce RMD requirements: A Roth IRA does not require Required Minimum Distributions, which means you can let the account grow tax-free for as long as you wish. This can be beneficial for high-net-worth individuals who do not need to rely on the account for income.
3. Offers other estate planning benefits: Roth IRAs also offer estate planning advantages, as they can be passed on to heirs who can make tax-free withdrawals. This can be especially beneficial if you wish to leave a legacy without burdening beneficiaries with additional income tax.

Roth conversions are complex, and the decision depends on factors like your current tax rate, future income projections, and estate goals. If you’re considering a conversion, a high-net-worth tax advisor from Avidian Wealth Solutions can help evaluate the potential impact on your long-term financial picture.

5. Adjust withholding and estimated tax payments

Another effective way to reduce year-end tax liability is by reviewing your withholding and estimated tax payments. This strategy helps you avoid underpayment penalties, especially if you have experienced a significant income increase over the year.

The IRS requires that taxpayers pay at least 90% of their tax liability throughout the year, either through withholding or estimated payments. If you’re at risk of underpaying, making an estimated payment by January 15 can help avoid penalties.

Additionally, you may be set to receive a year-end bonus, which can significantly impact your tax liability. Adjusting withholding on this income can prevent surprises at tax time. That said, if you know your income fluctuates from year to year, establishing a system for estimated taxes can help you plan better for tax liabilities overall.

‘Tis the season for getting smart about tax planning. Talk to an Avidian advisor today.

The holiday season isn’t just about celebrations and gift-giving; it’s also a prime time for financial planning. High-net-worth tax strategies, like those listed above, can create opportunities to reduce your tax burden, enhance charitable contributions, and plan for a financially sound future. The key is in balancing these advanced tax planning strategies in a way that aligns with your broader wealth management goals.

Working with an advisor at Avidian Wealth Solutions provides access to insight and strategies that can clarify and streamline this very complicated process. This holiday season, as you gather with loved ones and reflect on the year, schedule a consultation with Avidian for a tailored approach to your end-of-year tax strategy, and welcome the new year with confidence.

More Helpful Articles by Avidian: 

• Should You Update Your Estate Plan Before 2026?
• Retirement Planning for a Non-Traditional Career
• What to Know about the New 401(k) Catch-up Contribution Rules
• SALT Tax Deduction Changes and High-Income Earners
• What Is the Opportunity Zone 180-Day Rule?

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