Mortgage Interest Deduction
This incentive is designed to encourage homeownership by providing a tax break on the interest you pay on a house. To apply you must itemize on IRS Form 1040 Schedule A to claim the deduction, if you qualify for this you are also able to deduct the interest paid on a second home. This is ideal for High Net worth Individuals who may own multiple properties.
Ordinary incomes such as wages are taxed at 35% however, long term capital gains that originate from the sale of investments from assets such as stocks and bonds that are held for more than a year are taxed at just 15%.
Heirs to wealth can save even more on tax thanks to the step-up. This allows High Net Worth individuals to pass along their wealth in assets that have increased in value with their heirs never paying any taxes on it. This is possible through the special Internal Revenue Service inheritance rules that states when an individual inherits assets such as stock, real estate or a business the step-up can apply, what the deceased originally purchased them for – to the current market value, therefore, when selling assets the heir would only be taxed on their gain in value for the time of the inheritance.
Tax retirement plans are designed to aid people to save for retirement. Taxpayers can shelter their personal income via 401(k) plans, pension plans, and individual retirement accounts. According to the Tax Policy Centre, High Net Worth Individuals can enjoy 80% of tax write-offs when planning for retirement.
The charitable-giving deduction operates as a matching program. If you make a donation you receive a tax break, the value of the deduction increases with the income. For example, if a High Net Worth Individual gave $1,000 to charity (in a 10% tax bracket) $100 are returned on taxes, however, if a donator was in the 35% tax bracket $350 is returned. To claim this an IRS Form 1040 Schedule is required to claim the charitable donation.
For those that are willing to chase even more appealing and beneficial tax incentives, some countries have made it their goal to entice investors via tax incentives.
The Italian government has recently announced a number of proposals to entice HNWI to transfer their tax residence to Italy with the option of a “substitute tax” that charges a yearly fee for foreign-related income. The tax is equivalent to 100,000 euro and is charged irrespective of the amount of income that Is earned abroad. Another aspect is that the taxpayer is not required to report assets or financial investment to tax administrators.
Cyprus has introduced the “Domicile” regime, High Net Worth individuals declare Cyprus as their taxable jurisdiction and receive an exemption from Cyprus personal taxes such as the special contribution for defences. Taxpayers who have an income of €100,000 annually from outside Cyprus will be given a 50% tax exemption.