8 Tax Hacks Wealthy Millennials Love
They work hard for the money, and they’re committed to keeping as much of it as possible in their pockets. Financially savvy, these millennials aren’t about to pay a penny more in taxes than necessary.
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This generation is still young — roughly considered anyone born between 1981 and 1996 — but those on the older end of the age bracket have been in the workforce for 20 years. Now that they’ve reached mid-career level, some are earning seriously impressive salaries.
As of 2020, median upper income for a three-person household was $219,572 per year, according to the Pew Research Center. This is more than double the $90,131 that was categorized as middle income.
Sean K. August, CEO of The August Wealth Management Group, a fee-only private wealth management firm, said it’s possible some aspects of wealthy millennials’ tax planning differs from that of other generations.
“For example, millennials may be more likely to prioritize socially responsible investing and charitable giving, which can have tax benefits,” he said. “Additionally, technological advancements may have made it easier for millennials to use tax preparation software and online resources to file their taxes, compared to previous generations.”
Ultimately, he said, a person’s approach to taxes depends on their personal values, unique financial situation and tax obligations.
Whether you’re a millennial or a member of a different generation, you’re probably interested in learning more about how the young and rich are keeping their tax obligations as low as possible. Here are eight popular tax strategies wealthy millennials are using to ensure they pay as little as possible to Uncle Sam.
Working With a Professional
While it can be difficult to generalize how all wealthy millennials approach their taxes, August said many wealthy individuals don’t create their own tax plans.
“It’s common for wealthy individuals, including millennials, to work with financial advisors and tax professionals to ensure they are taking advantage of all available deductions and credits while staying in compliance with tax laws,” he said.
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Maximizing Their Deductions
“Wealthy individuals often have access to tax planning strategies and tax-saving vehicles that the average person may not be made aware of,” said Richard Lavina, CPA, CEO of Taxfyle. “One of these strategies is maximizing their deductions, which can significantly lower their taxable income.”
He said this can be accomplished in many different ways.
“For instance, wealthy individuals may make substantial charitable contributions, deduct state and local taxes, real estate taxes and mortgage interest allowing them to itemize their deductions in excess of the standard deduction provided by the IRS,” he said. “Doing so can reduce their overall tax liability and increase their net worth.”
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“This involves selling investments that have lost value to offset capital gains from other investments, thereby reducing their overall tax liability in a year they anticipate more capital gains,” Lavina said. “For example, a wealthy individual may sell a stock that has declined in value, allowing them to offset capital gains from other stocks they’ve traded.”
He said this can be a smart move, because it reduces your tax bill and allows you to rebalance your portfolio.
Lavina said wealthy individuals often use asset allocation to minimize their tax liability.
“They may allocate assets into tax-advantaged accounts such as IRAs, 401(k)s and annuities,” he said. “This allows them to defer taxes on investment growth until retirement, when they may be in a lower tax bracket.”
He said this can result in substantial long-term savings and help ensure financial security in retirement.
Donating Appreciated Assets
A savvy way to save on taxes while giving back, donating appreciated assets is a popular strategy among affluent members of this generation, said Varsha Subramanian, CPA, a tax manager at FlyFin.
“Wealthy millennials use charitable giving to reduce their taxable income by donating appreciated assets such as stocks and real estate to qualified charities to claim a deduction on their tax returns and simultaneously avoid paying capital gain tax,” she said. “A dual benefit indeed.”
Taking Advantage of the Gig Economy
Subramanian said millennials’ desire to be part of the gig economy can work to their advantage from a tax standpoint.
“Many wealthy millennials today are mainly business owners who want to be their boss, and being their boss comes with many tax benefits,” she said. “When you have your own business, the ordinary and necessary expenses to run your business can be taken as a write-off.”
Investing in Real Estate
In 2022, millennials were the largest share of homebuyers — 43% — according to the National Association of Realtors. Subramanian said this offers an array of advantages, including tax benefits.
“Real estate investments offer a huge range of tax deductions, such as the ability to claim mortgage interest, property taxes, depreciation on the real estate property and much more,” she said. “These deductions don’t just help in saving taxes, but also help in building wealth long term.”
Making Energy-Efficient Choices
“Millennials want to be more socially and environmentally responsible,” Subramanian said. “They own a home, make energy-efficient purchases — like installing solar panels — and become eligible for energy tax credits.”
For example, she said, even upgrading your HVAC system can lower your tax bill.
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