Schwab research suggests that working with a financial advisor may help some investors improve tax efficiency, although results vary widely based on income, state, fees, and tax law changes.
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6 smart tax strategies high net worth investors use to protect their wealth
1. Give your portfolio a solid tax plan
Tax exposure is a constant concern for investors, especially those with a diversified portfolio. A 2017 Elsevier study found that financial advisors generally have lower portfolio turnover than other advisors, which can help reduce taxes.
These advisors will also develop other tax-efficient investment strategies that minimize withdrawals, maximize after-tax returns, and make your wealth transition-ready.
Overall, a 2020 Vanguard study estimated that certain advisory services can add about 3% in net returns annually for some investors, though results vary and are not guaranteed after fees and market effects.
2. Protect your income and lower your tax bill
Beyond considering deductions, a qualified advisor can help high-income earners implement these tax-saving strategies:
- Maximize deductions (charitable, mortgage, and business expenses)
- Use tax-advantaged accounts (401(k), IRA, HSA, FSA)
- Shift to more tax-efficient investments (municipal bonds, ETFs, long-term gains)
- Restructuring your business (LLC, S-Corp, or trust-based strategies)
3. Use credits to reduce taxes in excess of adjusted gross income
The advisor will have knowledge of tax credits that high-income earners can use to save on their taxes, including credits such as:
- Child and Dependent Care Credit
- Credits for energy efficient homes and electric vehicles
- American Opportunity and Lifelong Learning Credits
- Savings credit for retirement contributions
4. Use tax loss harvesting to offset gains
A qualified advisor will know how to utilize tax loss harvesting to reduce your total taxable gains, such as:
- Compensating gains with current losses
- Rebalancing portfolios to be more tax efficient
- Creating future opportunities for tax relief
5. Retirement and Inheritance Planning: How Taxes Shape Your Financial Future
Using trusts, gifts, and Roth conversions can not only reduce your tax bill, but also protect the wealth you have built to pass on to your family.
6. Take Advantage of Expert Guidance – Don’t develop complex tax strategies on your own
High-income investors have enough money, and managing taxes alone can be a full-time job. For some investors, an advisor’s fee may be less than the potential cost of correcting a tax error made when filing on your own.
How a financial advisor can help you lower your tax bill
- Analyze your withdrawal strategy to keep you in lower tax brackets
- Optimize Roth conversions before starting RMDs
- Use charitable giving and trusts to make tax smarter positions
- Establish an income strategy to reduce additional charges for medical care
- Build a smart, tax-advantaged inheritance plan for your heirs
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sources:
2. https://finance.wharton.upenn.edu/~itayg/Files/bondfunds-published.pdf
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