When Your Net Worth Reaches This Number, It's Time To Upgrade Your Tax Plans

As you begin saving money, accumulating wealth, and collecting property, there are certain unwritten rules you should know about before reaching a seven-figure net worth. For example, you should increase your liability insurance coverage to protect your growing portfolio, and avoid the temptation of luxury purchases just because you have more money to spend. Also, once you reach a certain figure in liquid assets — usually $1 million — you should focus more heavily on protecting your wealth from taxes. 

Reaching the $1 million figure generally means you're now considered a high net worth individual, and, as such, you likely need to adjust the focus of your tax planning strategies from what they were as you were building your assets. You should also upgrade your estate plans at the $1 million mark. Your tax plans, pre-$1 million, likely focused on ensuring your retirement account contributions were maxed out  as a way to reduce your net income and help you move to a lower income tax bracket. However, once you reach $1 million, finding additional strategies to reduce your tax burden – such as maximizing charitable giving deductions and minimizing capital gains taxes — should become your focus.

One of the many mistakes that mass-affluent people frequently make as they manage their wealth is failing to fully understand capital gains taxes. Because high net worth individuals tend to have upwards of 90% of their assets in stocks and other investments, according to a 2026 study from Long Angle, capital gains taxes frequently affect them. In fact, the Tax Foundation estimates that the federal government collected more than $1 trillion in capital gains taxes between 2022 and 2025. With that said, if you don't have a solid strategy in place you could end up paying more than your fair share.

To avoid racking up large capital gains tax bills as your liquid assets surpass $1 million, you need to carefully monitor the timing of any sales of stocks and bonds used as investments. When you sell an asset after holding it for less than a year, your tax rate on any gains could be as high as 37%. However, if you hold the asset for more than a year it's generally considered a long-term gain — with a tax rate topping out at 20%. Don't be afraid to reach out for help if you find the topic confusing. The best strategy for most people is meeting with a tax planning professional as soon as they reach the $1 million mark and start feeling the pinch from capital gains taxes.

When you reach $1 million in liquid assets, you may want to do some good, or even leave a legacy, with some of that money. Plus, while helping people and organizations in need can feel good, it can also reduce your tax bill. However, simply writing random checks to your favorite charities is not an effective strategy to reduce your taxes. Instead, tax planners may recommend setting up a donor-advised fund (DAF). By doing this, you can provide grants to your desired charities out of this DAF at any date in the future. Logistically, al you have to do is make contributions to the DAF in order to receive a full tax deduction for those contributions. Plus, the investments placed inside the DAF grow tax free. However, once you contribute to a DAF, you cannot retrieve the money back out for your own use.

This charitable giving can serve as a solid way to offset capital gains. If you have assets that would generate significant capital gains taxes when you sell them — you can instead donate the assets to a charity or DAF instead. When using this type of donation, you not only avoid capital gains taxes but can also deduct the full market value of the appreciated asset from your taxes — as long as you don't surpass income limitations set forth in tax law.