Advanced Tax Strategies for High‑Net‑Worth Individuals
Income‑shifting techniques to reduce your tax burden and build your legacy -- designed and implemented with full compliance.
What is Income Shifting?
Income shifting is a proactive tax‑planning approach that reallocates income from a higher‑tax environment to one where it may be taxed at a lower rate. Examples include transferring income to family members in lower tax brackets, placing assets in accounts with favorable tax treatment, and deferring income to future years when rates may be lower.
When implemented correctly, these strategies are fully compliant with tax law but require thoughtful design, professional oversight, and precise documentation.
Quick Tip
Donating appreciated assets to charity can lower taxable income while avoiding capital gains--often one of the most tax‑efficient ways to give.
When Income‑Shifting May Make Sense
- You face higher marginal tax rates and want to reallocate income.
- Family members are in lower tax brackets and could receive certain income streams.
- You hold assets across account types and want to optimize placement.
- You expect significant capital gains and want to manage the impact.
- Your philanthropic or estate goals align with tax planning.
- You operate across multiple jurisdictions and must consider local rules and treaties.
Seven Income‑Shifting Strategies
1) Income Splitting & Family Structuring
Shift taxable income to family members in lower brackets using spousal accounts, prescribed‑rate loans, family partnerships, or trusts. Strictly observe attribution rules and document carefully.
2) Asset Location & Income Type
Place tax‑inefficient assets (e.g., bonds/REITs) in tax‑deferred accounts and tax‑efficient assets (e.g., index funds) in taxable accounts. Favor qualified dividends and long‑term gains where appropriate.
3) Retirement Vehicles & Deferred Comp
Max out retirement contributions for tax deferral. Consider Roth conversions in lower‑income years and use deferred compensation to shift income into potentially lower‑tax years.
4) Charitable & Estate Tools
Donate appreciated assets to reduce income and avoid some gains. Explore CRTs, discretionary trusts, and family investment companies to align tax efficiency with legacy goals.
5) Tax‑Efficient Investing & Loss Harvesting
Harvest losses to offset realized gains while respecting wash‑sale rules. Direct indexing enables ongoing, tax‑aware portfolio adjustments.
6) High‑Value Insurance (PPLI)
Qualified investors may hold alternatives within a life‑insurance wrapper for tax‑deferred growth and estate benefits. Requires specialized administration.
7) Timing & Policy‑Responsive Planning
Align recognition of income and deductions with expected rate changes; accelerate or defer strategically as tax policy evolves.
Key Considerations and Potential Risks
- Complexity & costs: Formal entities, specialized admin, and ongoing oversight may be required.
- Regulatory changes: Tax rules evolve; advantages can narrow or expire.
- Compliance demands: Accurate documentation, timely reporting, and rule adherence are essential.
- Holistic fit: Ensure strategies align with liquidity, estate goals, risk tolerance, and portfolio design.
- Jurisdictional issues: Multi‑state and cross‑border scenarios require coordinated professional advice.
