5 Tax Planning Strategies to Help Protect and Preserve Wealth

When it comes to building and maintaining wealth, effective tax planning is a crucial component of an asset protection strategy. By taking advantage of various tax strategies, you can minimize your tax liabilities while preserving and protecting your hard-earned assets and ensuring that they can be passed on to future generations. An attorney who understands the best estate planning tools for high-net-worth families can provide guidance on the best strategies to use. These strategies may include:

1. Utilize Tax-Advantaged Accounts

Certain types of accounts can be used to minimize the amount of taxes that may apply to money that is saved and used to benefit a person or their loved ones. They may include:

• Retirement accounts: Contributing to retirement savings accounts such as 401(k)s or IRAs can offer significant tax benefits. Contributions are typically made with pre-tax dollars, reducing taxable income in the year of contribution. This will allow earnings within these accounts to grow on a tax-deferred basis until withdrawal. Alternatively, Roth IRAs or Roth 401(k)s will allow taxes to be applied when money is deposited into accounts, ensuring that it can be withdrawn tax-free in the future.
• Health savings accounts (HSAs): HSAs allow people with high-deductible health plans to save for qualified medical expenses on a pre-tax basis. Contributions are deductible from gross income, earnings grow tax-free, and withdrawals for qualified medical expenses remain untaxed.
• Education savings plans: 529 college savings plans provide families with an opportunity to save for education expenses on a tax-advantaged basis. Contributions are not federally deductible, but they may grow on a tax-deferred basis until used for qualifying educational costs.

2. Consider Charitable Giving

In addition to supporting causes you care about, charitable giving can offer potential tax benefits. Donations made to IRS-approved charitable organizations may be eligible for deductions that will allow you to reduce your taxable income while also benefiting society and promoting causes that are important to you.

3. Implement Estate Planning Strategies

Estate taxes can significantly erode accumulated wealth when transferred between generations if proper planning is not in place. Establishing a comprehensive estate plan with the guidance of an experienced attorney can help minimize tax liabilities on assets passed down to heirs. Strategies such as trusts, gifting, and family limited partnerships can be utilized to protect wealth and reduce estate tax burdens.

4. Utilize Gift Tax and Estate Tax Exclusions

Another important aspect of tax planning that can help you protect and preserve your wealth involves taking advantage of gift tax and estate tax exclusions. By doing so, you can reduce the value of your estate and limit the amount of estate taxes that may apply when assets are transferred to your heirs after your death.

• Gift tax exclusion: The IRS allows taxpayers to make annual gifts up to a certain value without incurring any gift taxes. As of 2024, the annual gift tax exclusion is $18,000 per recipient. This means that you can give up to $18,000 to as many people as you want each year without triggering any gift taxes. By strategically utilizing the annual gift tax exclusion, you can transfer your wealth to your loved ones while minimizing the value of your taxable estate.
• Estate tax exemption: The federal government imposes an estate tax on large estates after a person’s death. However, there is an estate tax exemption threshold that allows a certain amount of assets to be transferred free from estate taxes. As of 2024, the federal estate tax exemption is $13.61 million per individual or $27.22 million for married couples. By structuring your estates and utilizing trusts or other arrangements, you can make sure the value of your estate will fall below this exemption amount and minimize potential estate taxes that may apply to your remaining assets.

Taking advantage of these exclusions requires careful planning with the assistance of an experienced attorney who understands wealth preservation strategies like gift-giving and trust formation.

5. Take Advantage of Tax Loss Harvesting

Tax loss harvesting involves selling investments that have experienced losses in order to offset capital gains earned when selling or transferring other investments. This strategy may allow you to reduce your overall taxable income by deducting capital losses against capital gains. It is important to note that this strategy should be implemented carefully and in consultation with a financial advisor or tax professional.

Contact an Experienced Naperville Tax Planning Attorney

If you need assistance with your tax planning needs, or if you have any questions about how these or other strategies could benefit you, contact the knowledgeable DuPage County estate planning lawyer at the Gierach Law Firm. Our attorney has extensive experience helping clients navigate complex taxation issues, and we develop customized plans tailored to our clients’ unique circumstances and goals. Contact us at 630-228-9413 to set up an appointment.