High-net-worth taxpayers have various year-end opportunities to minimize tax liabilities. Key strategies include using the estate and gift tax exemptions, taking advantage of trusts, and making strategic gifts during periods of market downturns. Here are some specific ideas:
- Estate and Gift Tax Exemption: The exemption is $13.61 million for 2024, increasing for inflation in 2025. Consider using the increased exemption before it reduces to approximately $7 million after Dec. 31, 2025. While the election results may impact these features, nothing is set in stone yet.
- Maximizing Exemptions: High-net-worth married taxpayers should max out their exemptions before the end of 2025.
- Spousal Exemptions: Married couples not maxing out both exemptions should use one spouse’s exemption over $7 million. Unmarried taxpayers should seek personalized tax advice.
- Annual Gift Exclusion: In 2024, the exclusion is $18,000 per person per year, or $36,000 for married couples. Use this exclusion before year-end. The exclusion for 2025 is $19,000 per person.
- Early Gifting: Make 2025 gifts in January to shift appreciation outside of your estate.
- Using Trusts: Consider trusts for significant gifts to benefit from asset protection, estate tax benefits, and protection in case of divorce.
- Non-Cash Assets: Gift non-cash assets during market downturns for potential tax advantages.
- Spousal Lifetime Access Trusts (SLATs): Use SLATs for lifetime gifts while retaining indirect access to the funds through a spouse.
- High-Interest Rate Strategies: Utilize strategies like charitable remainder trusts and qualified personal residence trusts when interest rates are high.
- Discounted Assets: Gift assets subject to discounts for lack of marketability and control. Business owners should consider stacking income tax exclusions for qualified small business stock.