At higher income and asset levels, taxes are rarely a single line item. Federal income tax, the net investment income tax, alternative minimum tax, state income tax, and eventually estate and gift taxes can all apply, sometimes to the same dollars. The decisions that drive those taxes, such as when to sell, where to hold investments, and how to give, are spread across the year and across several accounts.
High net worth tax planning is the practice of looking at those decisions together, ideally before they are made. This guide outlines the main areas families review with their CPAs and financial advisors. It is educational and does not describe what any individual should do.
The Taxes That Tend to Matter Most
Ordinary income tax: Applies to wages, bonuses, business income, interest, and retirement distributions at graduated rates.
Capital gains tax: Long-term gains on assets held more than a year are generally taxed at lower federal rates than ordinary income.
Net investment income tax: A 3.8% tax that can apply to investment income for taxpayers above certain income thresholds.
Alternative minimum tax: A parallel tax system that can be triggered by items such as incentive stock option exercises.
State income tax: In California, capital gains are taxed as ordinary income, which raises the combined rate on a sale.
Estate and gift tax: Applies to transfers above federal exemption amounts, which were set at a higher, inflation-indexed level by legislation passed in 2025.
Managing the Timing of Income
Because tax brackets are progressive, the year in which income is recognized can affect how much tax is owed.
Spreading large gains: Selling appreciated assets over more than one tax year can help avoid stacking a large gain into a single year.
Deferring compensation: Some executives can defer part of their pay through nonqualified plans, which come with their own risks.
Accelerating income: In a lower-income year, such as early retirement, recognizing income through Roth conversions or gains may be worth evaluating.
Coordinating equity events: Option exercises and restricted stock vesting can be planned around other income where possible.
Capital Gains and Losses
Tax Loss Harvesting
Selling an investment at a loss can offset realized gains, and up to a limited amount of ordinary income each year, with unused losses carried forward. Wash sale rules restrict buying a substantially identical investment within 30 days. Our article on tax loss harvesting covers this in more detail.
Embedded Gains
Long-held positions with low cost basis can be difficult to sell without a large tax bill. Our insight on embedded capital gains explains why these positions can be challenging to unwind and the factors to weigh.
Holding Periods
Selling an asset held one year or less generally produces short-term gain taxed as ordinary income. Tracking holding periods before a sale can make a meaningful difference.
Asset Location Across Account Types
Where an investment is held can affect its after-tax return. Taxable accounts, tax-deferred accounts such as traditional IRAs, and tax-free accounts such as Roth IRAs each treat income differently. Placing investments that generate ordinary income in tax-advantaged accounts, and investments with more favorable tax treatment in taxable accounts, is one approach that people review with their advisors.
Retirement Accounts
Workplace plans: Contributions to 401(k) and similar plans can lower current taxable income. Annual limits apply.
Plans for business owners: Cash balance and other defined benefit plans can allow larger deductible contributions for some owners, with ongoing funding commitments.
Roth conversions: Paying tax now to convert pretax savings can reduce future required distributions and create tax-free income later, depending on future rates.
Required minimum distributions: Large pretax balances can create sizable required withdrawals later in life, which may push income into higher brackets.
Charitable Giving
For families who give, the method of giving can affect the tax result.
Appreciated securities: Donating stock held more than a year can allow a deduction for its fair market value while avoiding tax on the gain, subject to limits.
Donor-advised funds: Contributing in a high-income year can provide a deduction then, with grants to charities made over time.
Qualified charitable distributions: IRA owners above a certain age can direct distributions to charity, which can count toward required distributions without adding to taxable income. Annual limits apply.
Bunching: Combining several years of gifts into one year can help itemized deductions exceed the standard deduction.
Transfer Taxes and Estate Planning
Gifts during life and transfers at death are part of the tax picture. Annual exclusion gifts, direct payments of tuition and medical expenses, and the use of lifetime exemption through trusts are concepts families discuss with their estate attorneys. Holding appreciated assets until death may provide heirs with a step-up in cost basis under current law, which can influence decisions about what to sell and what to give.
Business Owners and Executives
Business owners: Entity structure, owner compensation, the qualified business income deduction, and state pass-through entity tax elections can affect the total tax bill.
Founders: Qualified small business stock rules may allow some gains on eligible C corporation stock to be excluded from federal tax if requirements are met.
Executives: Incentive stock options, nonqualified options, and restricted stock each have different tax timing, and alternative minimum tax can apply to some exercises.
Building a Tax Planning Calendar
Tax planning can work better as a year-round process than as a spring filing exercise.
First quarter: Review the prior year's return for carryforwards and changes.
Mid-year: Run a projection, check estimated payments, and flag expected events.
Fourth quarter: Review loss harvesting, charitable gifts, conversions, and retirement contributions before year-end.
Questions to Bring to Your CPA
A short list of questions can make a planning meeting more productive:
Projection: What does this year's projected income look like, and which bracket am I likely to land in?
Carryforwards: Do I have capital loss or charitable carryforwards that could be used this year?
Thresholds: Am I near an income level where the net investment income tax, Medicare premium surcharges, or other limits start to apply?
Estimated payments: Are my withholding and estimated payments on track to help avoid underpayment penalties?
Upcoming events: How would a planned sale, exercise, or gift change the picture?
How Auric Approaches Tax Planning
Auric Capital Partners' tax minimization strategies focus on helping portfolio and planning decisions support after-tax outcomes. Tax-aware strategy is built into the firm's investment approach, from asset location to loss harvesting, and the work is coordinated with each client's CPA, who handles tax preparation and formal tax advice.
For executives and professionals, business owners, and retirees with several moving parts, the goal is to bring tax considerations into decisions early rather than after the fact. Learn more about the team.
Let's Connect
If you want a clearer view of how your investments and tax planning work together, we would be glad to talk. Contact Auric Capital Partners to arrange a meeting in Aliso Viejo or virtually.
Frequently Asked Questions
What is high net worth tax planning?
High net worth tax planning is the coordinated review of income timing, capital gains, retirement accounts, charitable giving, and estate transfers to understand and manage the tax effects of financial decisions.
What is the net investment income tax?
It is a 3.8% federal tax that can apply to investment income, such as interest, dividends, and capital gains, for taxpayers with income above certain thresholds.
How can high net worth individuals reduce capital gains taxes?
Approaches people review include spreading sales across tax years, harvesting losses, donating appreciated securities, and holding assets long enough to qualify for long-term rates. Each has tradeoffs.
Is tax loss harvesting worth it?
It can be useful for offsetting gains, but wash sale rules, transaction costs, and the effect on future cost basis are part of the evaluation.
When should tax planning happen?
Tax planning can be most useful as a year-round process, with projections mid-year and a review before year-end, rather than only at filing time.
Does California tax capital gains at a lower rate?
No. California taxes capital gains as ordinary income.
This content is for educational and informational purposes only and should not be considered investment, tax, or legal advice. It is not a recommendation to buy or sell any security or to adopt any particular investment strategy. Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results, and no strategy can guarantee a profit or protect against loss. Please consult with a qualified professional about your individual situation. Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Adviser. Auric Capital Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.
