1. Income Tax: Mastering the Alternative Minimum Tax (AMT)

One of the most effective high-net-worth tax strategies involves planning around the Alternative Minimum Tax (AMT).

The AMT is essentially a “backup” tax system designed to ensure that high earners cannot use too many deductions to avoid paying a minimum level of tax.

Under this rule, you calculate your tax bill twice:

• once using regular tax rules and
• once using AMT rules that disallow or limit many common deductions.

You pay whichever amount is higher.

For 2026, the AMT exemption has increased to $89,900 for single filers and $140,100 for married filing jointly.

High earners often use strategies like charitable bunching and investing in tax-exempt municipal bonds to reduce AMT exposure.

2. Net Investment Income Tax: Planning Around Investments

Beyond the standard income tax, high-income individuals may also owe a 3.8% Net Investment Income Tax (NIIT) on certain investment income. The NIIT applies when

1. you have net investment income and
2. your modified adjusted gross income (MAGI) exceeds $200,000 for single or head-of-household filers, $250,000 for married filing jointly or qualifying surviving spouses, and $125,000 for married filing separately; these thresholds are not indexed for inflation.

The tax is applied to the lesser of your

• net investment income or
• the amount by which your MAGI exceeds the threshold.

For example, if a married couple filing jointly has $400,000 of MAGI and $80,000 of net investment income, the NIIT is 3.8% of $80,000, or $3,040.

Net investment income generally includes interest, dividends, capital gains, rental and royalty income, and income from passive activities, but it does not include wages, self-employment income, tax-exempt interest, or income from an active business.

The IRS also notes that the NIIT can apply to certain gains from the sale of partnership or S corporation interests if the owner was passive.

Common strategies to reduce NIIT exposure include –

• maximizing contributions to tax-deferred retirement accounts (which reduce MAGI),
• investing in tax-exempt municipal bonds,
• shifting passive rental activities to materially active participation status (only when it makes sense financially and operationally), 
• Tax-loss harvesting – selling investments at a loss to offset taxable gains, and
• using installment sales (when applicable) to spread large capital gains across multiple years.

Given that the NIIT stacks on top of the top long-term capital gains rate of 20%, high earners can face a combined federal rate of 23.8% on investment income, making proactive planning ideal.

→ Related: How to Reduce Capital Gains Tax on Stocks: 4 Tax Strategies

3. Estate Tax: Utilizing Estate Tax and Generation-Skipping Tax Exemption

Did you know that at the federal (and sometimes state) level, your estate can be taxed when you pass away? This is called the estate tax (sometimes referred to as taxing wealth at death).

Fortunately, if your total estate is below the federal estate tax exemption, you generally won’t owe federal estate tax. For 2026, the federal estate tax exemption is $15 million per person (it is inflation-adjusted), and married couples can effectively combine their exemptions, so the total for a couple isn$30 million.

This high exemption is one of the most powerful tools in high-net-worth estate planning. It allows a large amount of wealth to be transferred to the next generation tax-free at the federal level.

Any estate value above the exemption can be subject to a federal estate tax rate of up to 40% (plus any additional state estate taxes, if applicable).

If your estate is approaching or exceeding the federal exemption, keep reading to discover effective tax strategies designed to reduce your taxable estate value.

In the next sections, we’ll walk through three key areas that often trip up even sophisticated planners: the generation-skipping transfer (GST) tax, how trusts pay income tax (which is much more compressed than individual tax brackets), and how gift tax works alongside the estate tax under the unified lifetime exemption.

Generation-Skipping Tax: Complex Estate Planning

The Generation-Skipping Transfer (GST) tax is a major hurdle for those building a multi-generational legacy. This is a flat 40% federal tax on assets passed to “skip persons”—such as grandchildren —designed to ensure that wealth is taxed at every generational level.

Per IRS rules, a “skip person” is any relative two or more generations below you (like a grandchild) or an unrelated person more than 37.5 years younger than you.

Without proper planning, a gift to a skip person can trigger a “triple tax” nightmare where the same dollar is hit by the gift tax, the estate tax, and the flat 40% GST tax. To avoid this, many wealthy individuals create two separate trusts:

1. GST-Exempt Trust: This “bucket” is filled only with assets covered by your $15 million GST exclusion, allowing the money to grow and support grandchildren for decades tax-free.
2. Non-Exempt Trust: This “bucket” holds assets that exceed your exclusion limit and is usually reserved for “non-skip persons” (like your children) to avoid triggering that extra 40% GST tax.

While the 2026 GST exemption matches the estate tax at $15 million, this area of law is extremely complex. Navigating “inclusion ratios” and “automatic allocations” requires direct consultation with an attorney, wealth advisor, and a qualified tax advisor to plan accordingly and avoid a surprise 40% tax bill.

4. Trust Income Tax: Strategic Trust Planning

Trusts are a cornerstone of any sophisticated wealth plan because they provide legal protection for your assets, can help eliminate the probate process and can reduce your overall estate tax.  

Trust income is also subject to an annual income tax. Surprise, surprise.

In 2026, trusts hit the top 37% tax bracket at just $16,000 of taxable income. To lower this burden, sophisticated high net worth tax strategies often utilize the following structures:

• Intentionally Defective Grantor Trust (IDGT): This trust is “defective” only for income tax purposes, meaning you pay the income taxes (instead of the trust) so the trust assets can grow 100% tax-free for your heirs. It’s a powerful way to “gift” the tax payments to your children without using your lifetime exemption.
• ING Trusts (DING/NING/WING): These are set up in states like Delaware or Nevada to help residents of high-tax states (like California or New York) avoid state income tax on investment gains. For founders, these are often used for Qualified Small Business Stock (QSBS) to “stack” exclusions, allowing each trust to claim its own $15 million tax-free gain limit independently of the owner.

Note: Certain states, like California, now tax ING trusts at the state level. Discuss with your estate planning attorney and tax advisor.

• Grantor Retained Annuity Trust (GRAT): You put an asset into this trust for a few years and get back your original investment plus interest. Any extra growth or “upside” can potentially shift to your children completely tax-free, making it ideal for high-growth stocks.
• Charitable Remainder Trust (CRT): You donate an asset to this trust, receive an immediate charitable tax deduction, and get an income stream for life. Although the income stream is subject to tax, when you pass away, whatever is left is not taxed and goes to your favorite charity.

Note: These trusts are extremely complex and often require direct consultation with a wealth advisor, attorney, and CPA to ensure they are drafted and administered correctly.

5. Gift Tax: Annual and Lifetime Gifting

Gifting remains a premier way to shift assets out of your estate, build generational wealth, and reduce your wealth taxes while you are still alive.

Just like any other financial activity, gifts – the transfer of money or property to another person while receiving nothing (or less than full value) in return- are subject to tax. Different from income tax, however, gift tax is typically paid by the giver rather than the recipient. 

In 2026, the annual gift exclusion is $19,000 per recipient. If you give more than the annual exclusion to any one person in a single year, you are generally required to file Form 709 (a gift tax return) to report the transfer to the IRS.

Taxable gifts that exceed this annual limit include things like –

• giving a child a $50,000 down payment for a home,
• transferring the title of a vehicle worth $25,000, or
• providing $30,000 in seed money for a friend’s business.

While these gifts must be reported, you typically won’t owe any actual taxes until your total lifetime gifts exceed the $15 million lifetime exclusion. Once you cross that historic $15 million threshold, any further gifts above the annual exclusion are subject to a flat 40% gift tax.

Example of the Gift Tax in Action: If you are married and have three children, you and your spouse can each give $19,000 in cash to each child. This means your family can move $114,000 ($38,000 x 3) out of your taxable estate in 2026 without filing a gift tax return or using a penny of your $15 million lifetime exemption.

Certain gifts are always excluded from the gift tax, regardless of the amount:

• Tuition paid directly to a qualifying educational institution.
• Medical expenses paid directly to a healthcare provider.
• Gifts to your spouse (if they are a U.S. citizen).
• Gifts to political organizations.
• Gifts to qualifying charities.

Important Limitation: To qualify for the $19,000 exclusion, the gift must be a “present interest,” meaning the recipient has the immediate right to use or enjoy the property. The exclusion typically does not apply to gifts of future interest, such as a gift that the recipient cannot access until a later date.

Because these rules are nuanced, it is best to discuss your gifting plans with an estate planning attorney and a tax advisor before proceeding to ensure they qualify for the exclusion.