As the April 15th tax deadline approaches, high-net-worth individuals (HNWs) still have valuable opportunities to refine their tax strategy. The weeks leading up to filing day are critical for making last-minute moves that can optimize your tax position—not just for this year, but for your long-term financial goals as well.
Below, we’ve outlined several straightforward, actionable tax strategies to consider before the deadline. Whether you’re focused on minimizing estate taxes, leveraging charitable giving benefits, or maximizing retirement savings, there’s still time to take meaningful steps.
1. Review Passive Investment Losses and Carryforwards
For those with multiple investment streams, it’s crucial to assess any passive activity losses (PALs) and unused capital loss carryforwards before filing.
What to Do:
- Identify Passive Losses: Real estate investments, limited partnerships, or other passive ventures may generate losses that can offset passive income.
- Utilize Capital Loss Carryforwards: If you have prior years’ capital losses, these can be used to offset current-year capital gains, reducing your overall tax liability.
- Plan for Material Participation: Consider re-evaluating your level of participation in certain investments. Meeting the IRS’s material participation standards could allow you to reclassify losses, opening the door to more deductions.
2. Roth IRA Conversions and Timing Considerations
Roth IRA conversions are an essential component of high net worth tax planning, especially if you anticipate higher future tax rates or estate tax exposure.
Timing Tips:
- Taxable Income Review: Analyze your projected taxable income for the year to determine how much of a traditional IRA you can convert without bumping yourself into a higher tax bracket.
- Strategic Partial Conversions: Consider spreading conversions over multiple years to minimize tax impact.
- Market Conditions: Converting during market downturns can result in a lower taxable amount and greater long-term tax-free growth potential.
Keep in mind, April 15th is the last day to make prior-year IRA contributions, but conversions are based on the current year—now is the perfect time to lay out a multi-year conversion plan.
3. Timing Charitable Trusts and Donor-Advised Funds
Philanthropy and tax savings often go hand in hand, particularly when structured properly. Taking the right steps before April 15th can maximize your charitable giving tax benefits.
Options Worth Exploring:
- Contribute to Donor-Advised Funds (DAFs): You can take an immediate tax deduction while retaining flexibility to distribute funds to charities over time.
- Set Up a Charitable Remainder Trust (CRT) or Charitable Lead Trust (CLT): These trusts allow you to provide income streams to beneficiaries while ultimately benefiting a charity, offering significant estate and income tax advantages.
- Donate Appreciated Assets: Instead of giving cash, consider donating appreciated stocks or real estate. This strategy allows you to avoid capital gains tax while still receiving a deduction for the asset’s fair market value.
It’s Not Too Late to Have a Big Impact
The window is closing, but there’s still time left to fine-tune your tax strategy before April 15th. Each of the actions outlined above—whether related to estate tax strategies, Roth conversion deadlines, or charitable giving tax benefits—can have a profound impact on your financial future. Or you can explore options for IRS payment plans.
At Aura Advisors, our tax experts specialize in crafting innovative, defensible strategies tailored to the unique needs of high-net-worth individuals. We balance bold thinking with sound risk management, ensuring compliance while maximizing opportunity.
Ready to optimize your tax plan before the deadline? Contact us today to schedule a personalized consultation.
Aura Advisors is a boutique tax consulting and compliance firm working with start-ups, emerging growth companies, and affluent individuals. Making it safer for good people and good companies to continue to do good things.