Now that this year’s Tax Day is behind us, here are a few of the most important planning strategies wealthy investors and upper income earners are considering for this year and beyond to reduce their taxes.
Increase In Estate Tax Exemption
Last year’s tax bill permanently raised the estate tax exemption to $15 million per person, up from $13.99 million. It was initially set to be cut in half at the end of 2025.
Please note that this change has nothing to do with your individual state’s tax exemption. Florida has no estate or inheritance taxes while Illinois’ estate tax credit is still $4M.
Many estates find themselves in a planning quandary because they’ll owe nothing at the Federal Level but still get whacked by their individual states.
Long vs. Short Tax Loss Harvesting
Minimizing capital gains has become crucial after several years of strong market gains. The S&P 500 has surged more than 75% since the beginning of 2023.
Investors are increasingly turning to long-short tax-loss harvesting. This is an aggressive form of a popular strategy used to minimize capital gains.
With traditional tax loss harvesting, investors sell losing assets to offset realized gains on others. Long-short tax strategies, on the other hand, borrow against the portfolio to buy short positions expected to fall and maintain long positions expected to thrive.
It can be extremely aggressive as well as effective.
Bonus Depreciation
OBBBA renewed bonus depreciation, allowing businesses to deduct the full cost of qualifying assets like machinery, computers, or vehicles the first year they are used.
Many clients with operating businesses are investing with bonus depreciation in mind. Real estate developers and investors try to maximize their return by assessing which property components can be depreciated faster using a process called Cost Segregation.
Changing Your Tax Home
A wave of blue states are considering new taxes on top earners and high-net-worth individuals in order to cover cuts in federal aid. California’s one-time billionaire tax proposal may end up on the November ballot, while Maine and Washington have recently passed millionaire taxes.
As these proposals gain traction, a growing number of clients are asking how to change their tax domicile. Depending on their state, residents can avoid state-level taxes by creating trusts in states with favorable trust income laws like Delaware.
The most straightforward way to avoid local taxes is to change your tax home, but clients are often reluctant to take the steps necessary to establish their intent not to return. For instance, moving to Florida means that you’d need to try to run your business from Florida.
If you think you have problems now, imagine how many nightmares you’d have if you weren’t at your business most of the time.
Opportunity Zones
Last year’s tax bill also offered an incentive for business and real estate owners to postpone selling their assets. The bill made permanent the qualified opportunity zone program, which allows investors to defer capital gains by rolling them over into a fund that invests in a lower income community.
The opportunity zone funds created under the first Trump administration still exist, but you can only defer the taxes until the end of this year. The new opportunity zones, which have yet to be designated, come with enhanced benefits, especially for investors in rural communities.
For instance, if you hold your investment in a qualified rural opportunity fund for five years, your capital gains are reduced by 30% for tax purposes. But you only have 180 days to roll over your gains, and the new opportunity zone rules don’t take effect until 2027.
Let me leave you with this…
Tax planning can be a foreign concept to many, especially those with a lousy accountant. It’s the legal process of doing the planning necessary to lower your ultimate income tax bill without creating any red flags or audits
The time to do this is now. If you wait until next January when you’re worried about your 2026 bill, little can be done at that late date.
If this is at all a concern, please book a complimentary tax planning appointment with me today. You’ll be glad you did.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
www.AccountingSolutionsLtd.com
Disclaimer: The content on our website or newsletter is provided solely for general informational purposes and should not be construed as tax, accounting, legal, investment, or professional advice of any kind. Accessing this information does not create, and is not intended to create, an accountant-client relationship. This information may not reflect the most current tax laws, accounting standards, or regulatory developments and may not apply to your specific jurisdiction or circumstances. It is not a substitute for consulting qualified professionals. Before making any decisions or taking any actions, you should seek advice from a professional who is fully informed of all relevant facts pertaining to your situation.
Tax-related content on this site is not intended, nor may it be used by any taxpayer, to avoid penalties that may be imposed under applicable tax laws. To comply with IRS requirements, we inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties or promoting, marketing, or recommending any transaction or matter addressed herein.
All information is provided “as is,” without any guarantee of completeness, accuracy, or timeliness, and without any warranty, express or implied, including but not limited to warranties of performance, merchantability, or fitness for a particular purpose. We disclaim all liability for any loss or damage arising from reliance on this information.
Links to third-party websites are provided for convenience only; we do not endorse or assume responsibility for their content. All materials are the property of our firm and may not be reproduced with
out prior written consent.