Taking Control of Your Taxes: Year End Planning for High Net Worth Individuals
While it’s well known that taxes are a fact of life, knowing the specifics can mean limiting how much of a drag taxes may have on your portfolio and income. As a high-net-worth individual, are you taking advantage of as many year-end tax planning strategies as possible to minimize your tax burden?
At Breakwater Capital Group, we bring over five decades of experience, with a focus on high-net-worth wealth management in Denver, CO, Paramus, NJ, Boston, MA, and across the US. We’re a fee-only fiduciary advisory firm that helps affluent individuals and families with practical tax planning strategies designed to protect and grow wealth.
In this article, we’ll share some realistic year-end tax planning tips to help you keep more of your hard-earned money.
Understand Your Tax Situation
Knowing your tax bracket is essential for effective tax planning. According to the IRS for tax year 2025, federal income tax brackets are as follows:
- 37%: For single taxpayers with incomes over $626,350 and married couples filing jointly with incomes over $751,600.
- 35%: For incomes over $250,525 (single), $501,050 (married filing jointly).
- 32%: For incomes over $197,300 (single), $394,600 (married filing jointly).
- 24%: For incomes over $103,350 (single), $206,700 (married filing jointly).
In addition to federal income tax, high-net-worth individuals should consider:
- Capital gains tax: Long-term capital gains (for assets over 12 months) are taxed at 0%, 15%, or 20%, depending on your income. Qualified dividends also benefit from these lower rates, while non-qualified dividends are taxed as ordinary income.
- Estate tax: The current estate tax exemption is $12.92 million per individual, but this is set to revert to around $5.49 million in 2026, significantly reducing the exemption unless extended by Congress. Any amounts exceeding the exemption are subject to a flat 40% federal estate tax rate.
- Alternative Minimum Tax (AMT): For 2025, the exemption amount for unmarried individuals rises to $88,100 (and phases out at $626,350). The exemption increases to $137,000 for married couples filing jointly, phasing out at $1,252,700.
Breakwater’s high-net-worth financial planning advisor in Paramus, NJ, along with our Massachusetts and Colorado wealth management teams, can help analyze your tax situation and develop personalized strategies to minimize your tax burden.
Essential Year-End Tax Planning Tips
Tax-Advantaged Accounts
Utilizing tax-advantaged accounts can help reduce your taxable income before year-end, and some strategies include:
- Maximize retirement accounts: Contribute the highest allowed to your employer-sponsored 401(k) or 403(b) plan. If you’re self-employed, consider contributing to a SEP IRA or solo 401(k), if applicable. These contributions lower your taxable income and help build for a comfortable retirement.
- Roth strategies: Consider a Roth IRA conversion in stages to avoid a large tax hit in one year. Another option is the backdoor Roth IRA, which involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA. This is especially useful for high-income earners who are ineligible for direct Roth IRA contributions.
- Health Savings Accounts: For individuals with high-deductible health plans, HSAs offer a triple tax advantage—contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free.
- Non-qualified deferred compensation plans: NQDC plans allow high earners to defer a portion of their salary to a future date, potentially when they are in a lower tax bracket. Common examples include Supplemental Executive Retirement Plans (SERPs), which provide additional retirement income for key employees, and 401(k) excess deferral plans, allowing contributions beyond traditional 401(k) limits.
Charitable Giving
Year-end charitable donations are an excellent way to lower your taxable income while supporting causes you care about. Consider strategies like:
- Donor-advised funds: Contribute to a DAF and receive an immediate tax deduction while retaining the flexibility to donate to charities over time.
- Qualified charitable distributions: If you’re 70½ or older and have Required Minimum Distributions (RMDs), you can make a QCD directly from your IRA to charity, reducing your taxable income.
- Donating appreciated assets: Contribute appreciated stocks, bonds, or real estate directly to charity. This allows you to avoid capital gains taxes while receiving a deduction for the full market value, maximizing both your giving and tax benefits.
Tax-Loss Harvesting
Tax-loss harvesting is a strategy where you sell investments at a loss to offset capital gains, reducing your taxable income. However, it’s important to avoid triggering the wash sale rule, which disallows claiming a loss if you repurchase the same or substantially identical security within 30 days, potentially negating the benefit.
If your capital losses exceed your gains in a given year, you can use up to $3,000 to offset ordinary income. Any remaining losses can be carried over to future years, allowing you to continue reducing their taxable income in subsequent tax years.
Breakwater’s financial advisor in Denver and financial planning professionals in Massachusetts can help you navigate tax-loss harvesting strategies effectively.
Asset Placement
Where you hold your investments can significantly affect your tax liability. It’s wise to place tax-efficient investments like qualified dividend-paying stocks and tax-free municipal bonds in taxable accounts. Investments with higher tax burdens, such as high-yield bonds and REITs, are better suited for tax-advantaged accounts like IRAs or 401(k)s.
Be mindful that mutual funds, ETFs, and REITs may issue year-end capital gain distributions, which can impact your taxable income, especially when held in taxable accounts.
Also, certain alternative investments, such as commodities, may involve special tax considerations that can delay your tax filing if held in a taxable account. These types of investments often generate complex tax forms, such as K-1s, which typically arrive later than standard forms like 1099s.
Breakwater’s Nationwide Client Support
Breakwater’s mission is clear: we help high-net-worth individuals throughout the country at every stage of life by designing personalized financial plans and building portfolios that support a fulfilling life.
Whether you’re going through a major life event like a divorce, planning for retirement, managing college, estate planning, or wondering how to invest in a volatile market with tax efficiency, our fee-only financial planner in Denver and wealth management specialists in Boston are here to help.
Contact us for a complimentary consultation to discuss your specific tax situation and we can assist you in developing a personalized year-end tax plan.
The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public
Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.
