Retain Your Wealth Using These Tax Tips

In September, Business Insider published a story about Patagonia’s founder, Yvon Chouinard, who saved more than a billion dollars in taxes by giving away his company’s wealth to fight climate change. That’s a billion dollars … with a capital-B!

How did he do it?

Rather than pocketing the money for the sale of his business, he donated the proceeds to a nonprofit trust. The deal also included setting up a trust for the family, in which he transferred the family’s 2% shares into a 501(c) (4) rather than a 501(c) (3); thus, avoiding the federal gift tax. The balance of the family’s privately-owned company stock also went into a nonprofit.

Though the family is on the hook for over $17 million in taxes, they were able to avoid paying an estimated $700 million on the stock’s capital gains due to donation structure and strategy.

What can you do to retain your wealth?

With year-end fast approaching, here is a list of 16 things you can do to retain your wealth.

1. Make a charitable donation to offset the tax costs of converting a traditional IRA to a Roth IRA.
2. People aged 70-1/2 or older can make a qualified charitable distribution from their IRA to support their favorite public charities. Note: Certain public charities may not be able to accept complex assets, so gifts to donor advised funds or private foundations may work better in these instances.
3. A gift to a donor advised fund can offset a high-income year. Cash gifts to public charities and donor advised funds provide the highest charitable deduction for lifetime gifts — up to 60% of adjusted gross income.
4. Gift appreciated assets to a private foundation to offset the tax consequences of rebalancing a portfolio in volatile markets. Donating appreciated assets offers a tax deduction of up to 30% of adjusted gross income and the opportunity to avoid capital gains taxes at the sale of the asset. Market downturns provide unique opportunities to make charitable gifts to offset income and capital gains taxes.
5. Claim depreciation on property placed in service.
6. Deduct business expenses, such as travel, vehicles, office supplies, work-related education, a home office, and more.
7. Hire your children into the business for tax benefits. According to the IRS: “Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to Social Security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.”
8. Roll forward business losses or net operating losses.
9. Earn income from investments rather than your job.
10. Sell inherited real estate using the step-up in basis.
11. Buy whole life insurance. It’s like an insurance policy and investment account all in one.
12. Have multiple residences to lessen your tax bill.
13. Open a health savings account, which can be a triple-tax win. Here’s how. Contributions are tax deductible. The account earnings grow tax free. And, if used for qualifying healthcare expenses, distributions are tax free.
14. Open a Solo 401(k) plan for tax-deductible contributions and tax-deferred growth of investment earnings.
15. Defer income by waiting until the next year to accept payments, causing the income to be taxed in the new year.
16. Harvest tax losses to avoid paying short-term gains tax.

There is an abundant amount of tax strategies you can use to keep your wealth. Reach out to me and we’ll find the right solutions for your situation.

Additional Resources

• How can rich people pay so little in taxes?
• 5 Tax Tips for the Rich and Famous (and you!)
• Don’t Fall for These Tax Traps