Four Common Tax Planning Mistakes – High Net Worth Individuals
With the wealth of information available on the internet, social media, and through friends, it can be difficult to confirm what is true and what is false when it comes to financial strategies.
I constantly see financial advice being provided online by non-financial and tax professionals that is simply not true.
Furthermore, since tax laws have undergone several iterations over the years (as recently as July of 2025), I often find that folks are behind in properly optimizing their personal tax situation.
Therefore, in today’s blog we are going to review four common areas I see folks make mistakes (usually unintended) with their tax planning:
- Writing Off Real Estate Losses
This is a topic I often see broadcasted on the internet and especially on social media platforms. While it is true that you can use losses from real estate to offset your ordinary income, there are specific requirements that need to be met to allow you to do so. Many social media influencers will make it seem easy to write off losses and pay $0 in income tax, when in reality, there is a lot they are leaving out of their explanation.
For starters, it is important to understand that ordinary income is considered active income, and real estate income is considered passive income. So, ordinary income cannot be offset by losses from passive income, however, if you meet certain requirements that deem you to be an active participant in a rental property, losses from this activity can qualify for a special allowance and be used to offset ordinary income. In addition, you must meet a Modified Adjusted Gross Income (MAGI) number to qualify for the special allowance.
This special allowance is up to $25,000 of losses. PLEASE NOTE - there is a lot more that goes into qualify as an active participant, but for today’s purposes just be aware that you need to fit this definition. If the real estate loss is disallowed on the current year return, the loss is carried over until it can be used.
These types of rental losses are different from being deemed a real estate professional (REPS) – which is when the losses are not considered passive. So, in this scenario, real estate losses can be used to offset other income.
Real estate can be a very powerful income and wealth building tool, but you need to understand the basics, and work with a professional well versed in these topics in order to make sure you are operating the right way.
ALWAYS CONSULT WITH YOUR TAX ADVISOR
- Federal Tax Withholdings
Over the past few years of reviewing tax returns during the planning process, I have come across many folks who always seem to owe (sometimes significantly) additional tax dollars when they file. Generally, this is caused by not withholding the correct amount from a paycheck or not paying enough in quarterly tax payments (if you are self-employed).
If you are paid W2 wages, you elect your tax withholding level by filling out a W4 form – this is typically completed when you first start a job. I have seen many people go from receiving a huge tax refund every year (over withholding) to owing a lot in taxes because they did not update their withholding elections as their income increased. It is very important to manually adjust your tax withholding as needed, as no one else will notice or do it for you – payroll companies and HR will not prompt you to do this!
This is where I find many people do not know the difference between the amount they are withholding from their paycheck, and their actual tax liability. A person’s tax liability is determined by computing their taxable income level (after deductions & adjustments) and applying it to the appropriate marginal tax brackets to eventually produce their total tax.
If you believe you will be a bit short on your withholding amounts for Safe Harbor rules, you could consider working with your tax team to make estimated payments through the year. Estimated payments are due on the following dates for 2026:
- April 15th
- June 16th
- September 15th
- January 15th (2027 for the 4th quarter payment)
This is a good bridge into our second mistake…
- Marginal vs. Effective Tax Bracket
Simply stated, your marginal tax bracket is the federal income tax rate that is applied to your highest dollar of income. We adopt a progressive tax system in the U.S. - so different income levels are taxed at different marginal rates – i.e. not all of your income is taxed at the same level.
The current marginal tax rates are as follows for single and joint filers:
0%, 10%, 12%, 22%, 24%, 32%, 35%, 37%
Let’s say you file taxes married filing jointly and your total income is $200,000, after the standard deduction - $32,200 in 2026 – your taxable income would be $167,800, which puts you in the 22% marginal tax bracket. Although not all of your income is taxed at a rate of 22% - the figures below are taxable income:
$0 - $24,800: 10% of the amount over $0
$24,800 - $100,800: 12% of the amount over $24,800
$100,800 - $211,400: 22% of the amount over $100,800
Which calculates a tax liability of $26,340 and puts your effective tax rate at approximately 15.7%. So, yes, your income does put you in the 22% marginal tax bracket, but the effective tax rate you end up paying is below 22%.
In conclusion, understanding the above can unlock endless tax planning opportunities, and in its simplest form – assist you in making the appropriate payroll tax elections, which hopefully results in holding onto more dollars!!
- Standard vs. Itemized Deduction
When most people work with their CPA or file their own taxes, they take the standard deduction on their return – which is $32,200 for couple filing taxes married filing jointly for 2026 (2025 standard deduction is $31,500) – vs. using itemized deductions.
Itemized deductions work similar to the standard deduction in that it reduces the amount of income that is taxed. Common itemized deductions include home mortgage interest, donations to charity, property taxes, state income taxes and the list goes on.
The ultimate decision to use the standard vs. itemized deduction depends on which election will result in a lower tax liability. However, you do need to have enough eligible expenses to qualify for itemizing deductions – in other words, if you are married filing jointly and you do not have itemize deductions that exceed $32,200, you will be taking the standard deduction.
Amongst all this, a common mistake I see folks make is to assume that all charitable donations and mortgage interest is tax deductible – which is not the case. These items are only deductible if you are itemizing deductions.
For example, let’s say you and your spouse donated $10,000 to a charitable organization and you just bought a new home which you paid $5,000 of mortgage interest and property taxes of $3,000 on in the calendar year. This only adds up to $18,000 - unless you have state income taxes that will push you over the standard deduction threshold of $32,200 for 2026, you will not have enough to itemize.
Quick side note – as rules changed for itemizing deductions in 2025 and beyond – more specifically referring to the Salt and Local Income Taxes cap (SALT Cap).
In July of 2025 The One Big Beautiful Bill (OBBA) enacted several changes, one impactful one being the adjustment to the SALT CAP:
Here are some key aspects of the OBBBA changes to the SALT cap:
- The cap increase is temporary, starting at $40,000 (up from $10,000) in 2025 and rising by 1% annually until 2029.
- High-income taxpayers may see reduced or no benefit from the increased cap due to an income-based phaseout. Taxpayers with a Modified Adjusted Gross Income (MAGI) over $600,000 ($300,000 for married filing separately) are still limited to the original $10,000 deduction.
- The cap is scheduled to return to $10,000 in 2030
What could this mean for you? In the past if you were affected by the cap, you may now be in a better position to qualify for itemizing deductions or capture a larger deduction. More importantly, use these to your advantage in planning strategies – capital gains harvesting, ROTH conversions, etc.
In any case, the takeaway here is that you should have good understanding of the tax impact of your decisions prior to making them, and you should not base purchasing a larger home or making charitable contributions solely by the tax impact – as you will most likely not see the gain here.
In any event, I hope you were able to derive some value from today’s discussion concerning mistakes I see folks make within their tax planning.
Moreover, I hope this highlighted how important it is to work with professionals that are experts in the services you need – rather than folks on social media, or family friends who do not have skin in the game when it comes to your personal financial decisions.
As always, please do not hesitate to reach out to me directly with any questions.