Did you know that unmitigated taxes can be a drag on your wealth? While the exact tax burden of ultra-high-net-worth families and individuals can vary significantly based on several factors including income, capital gains, the breadth of your estate, and more, the reality is that overlooking tax mitigation as part of your overall wealth management strategy will cost you.
In an increasingly complex financial landscape rife with evolving tax laws, partnering with a knowledgeable advisor and executing the right tax mitigation strategies can determine whether you retain more of your wealth or see it erode over time. Here are a few topics to discuss with an advisor when looking to reduce your tax liability.
Tax-Efficient Investment Strategies for Ultra High Net Worth
Advantages of Tax-Loss Harvesting
Among the many tax mitigation strategies we leverage at Caprock, tax-loss harvesting continues to be one of the most effective. According to one study, a tax-loss-harvesting strategy yielded a before-transaction-cost tax alpha of 1.08% per year, which may not sound like a lot, but for large scales of wealth, this is a significant amount as it compounds over time.
Tax-loss harvesting is when one sells underperforming securities at a loss to offset capital gains taxes owed from selling assets that are profitable. Take for example, an investor who earns $100,000 in capital gains by selling appreciated stocks but holds other stocks that dipped in value, creating an unrealized loss of $20,000. If the investor harvests that loss by selling the diminished shares, they can subtract the $20,000 capital loss from the $100,000 in capital gains for a net capital gain of $80,000, thus reducing their tax burden.
At Caprock, our tech-powered platform empowers advisors to analyze each client’s portfolio throughout the year. Opportunities to implement tax-loss harvesting and preserve more of their wealth are identified by sophisticated analytics and data connectivity. This mix of technology and dedicated advisors ensures investors make timely, informed decisions and stay in line with tax-loss harvesting rules.
And if your portfolio is stagnant and at a point where there are no stocks at a loss (this is called portfolio ossification), we have strategies to work around that.
Tax Strategies for Wealth Preservation: Don’t Sleep on Estate Planning
It’s never too early or too late to connect your estate attorney with your advisor. The two must work in lockstep to ensure the estate is well-structured, tax-efficient, and legally compliant. The estate plan should then be reviewed regularly to ensure it meets your goals. Effective estate planning strategies for high-net-worth families can significantly reduce your taxes by leveraging tactics like gifting, charitable contributions, trusts, and tax-advantaged accounts. These methods help ultra-high-net-worth individuals and families mitigate their tax burden during their lifetime and when transferring wealth.
The goal is to make sure more of your estate’s wealth is passed on to your heirs.
Stay Apprised of Evolving Tax Laws
Evolving tax laws can significantly impact the effectiveness of tax mitigation strategies. Whether the result of shifting government policy, economic conditions, or regulatory guidance, changing tax laws can throw a wrench into any wealth management plan.
For example, the federal Tax Cuts and Jobs Act of 2017 nearly doubled the estate and gift tax exemption, helping the ultra-wealthy pass along substantial gifts tax-free. That exemption is scheduled to be sunset at the end of 2025 and will significantly lower the tax-free threshold.
As existing tax strategies become less effective and new methods of minimizing tax liability come to light, it’s important to work with an advisor who has their finger on the pulse of the dynamic tax landscape.
Assess Your Tax Burden
Tax mitigation strategies are often an overlooked component of the overall approach to wealth management.
At Caprock, we place tax management in the foreground. We bring together a highly skilled, tech-savvy team of advisors who specialize in crafting tailored, intricate tax mitigation strategies.
Contact Caprock for an assessment of your tax burden and potential opportunities to retain more of your wealth.
The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. Registration with the SEC does not imply a certain level of skill or training. Caprock, its Employees, Affiliates and Advisers are not tax or legal professionals and do not provide such advice. Therefore, the discussions contained herein are for informational purposes only and should not be construed as a recommendation or endorsement of a strategy. Please consult with your tax or legal professional for further guidance and information.
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