Family Office Tax Strategy – 2025 Edition

Family Office Tax Strategy

Family offices, managing substantial wealth for affluent families, frequently encounter complex tax challenges, including high estate taxes, compressed trust brackets, and limitations on deductions that can diminish generational wealth transfer. Inexperienced advisors may fail to integrate recent legislative changes, such as those from the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, leading to overpaid taxes or inefficient structures.

Are you confident your family office is optimized under the updated 2025 tax regime to preserve assets and minimize liabilities? At Kewal Krishan & Co, our expert tax advisors help family offices save an average of $50,000 annually, potentially totaling $1 million over a decade through sophisticated strategies. This blog presents the 2025 edition of family office tax strategies, grounded in Internal Revenue Code (IRC) provisions, with detailed examples and compliance steps.

From leveraging enhanced QSBS exclusions to utilizing non-grantor trusts for SALT deductions, these approaches are tailored to navigate OBBBA’s extensions of lower rates and increased exemptions. Discover how to fortify your family’s financial legacy with proven tactics linked to Our Tax Planning Services.

Core Tax Strategies for Family Offices in 2025

Family offices can employ advanced strategies under the IRC to optimize taxes, enhanced by OBBBA’s permanent individual rate reductions (top 37% under IRC § 1) and estate exemption increase to $13.99 million in 2025 ($15 million from 2026 under IRC § 2010).

1. Enhanced QSBS Investments

Invest in QSBS under IRC § 1202 for up to 100% gain exclusion ($15 million cap for post-July 4, 2025 acquisitions), with issuing corporations up to $75 million assets. Report exclusions on Form 8949 with code “Q”.

2. Non-Grantor Trust Utilization

Shift income to non-grantor trusts taxed separately under IRC § 641, allowing multiple $40,000 SALT deductions per trust (OBBBA amendment to IRC § 164, 2025-2029). File Form 1041 for each trust.

3. Carried Interest Planning

With OBBBA taxing carried interest as ordinary income under IRC § 1061, structure funds to minimize exposure or defer via Opportunity Zones (IRC § 1400Z-2).

4. Charitable Remainder Trusts (CRTs)

Fund CRTs with appreciated assets under IRC § 664 for income streams, charitable deductions (up to 30% AGI under IRC § 170), and capital gains deferral.

5. Foreign Tax Credit Optimization

Leverage OBBBA’s reduced 10% foreign tax credit haircut (IRC § 245A) for international investments, claimed on Form 1116.

For guidance, refer to IRS Publication 541.

Detailed Example: Maximizing Family Office Savings

Consider a family office managing $50 million, generating $2 million investment income in 2025, with the patriarch in the 37% bracket.

• QSBS: Allocates $5 million to QSBS (post-July acquisition), realizing $4 million gain excluded under IRC § 1202, saving ~$952,000 (20% + 3.8% NIIT).
• Non-Grantor Trusts: Creates four trusts, each receiving $500,000 income, claiming $40,000 SALT per trust ($160,000 total), saving $59,200 (37% of $160,000) vs. single $40,000 cap.
• Carried Interest: Defers $300,000 carried interest gain into Opportunity Zone, postponing $111,000 tax (37%) until 2030.
• CRT: Contributes $1 million appreciated stock (basis $200,000), deferring $800,000 gain and claiming $400,000 deduction, saving $148,000 (37%).
• Foreign Credits: Claims $50,000 on foreign dividends, with 10% haircut allowing $45,000 credit (saving $5,000 more than pre-OBBBA).

Total savings: ~$1,275,200, with deferred elements enhancing liquidity.

Alternative Scenario

Skipping trusts and CRT: Savings drop to $957,000, losing $318,200 from SALT stacking and CRT benefits.

Step-by-Step Guide for Taxpayer Compliance

To implement these strategies and ensure IRS compliance, follow these steps:

1. Assess Portfolio: Review assets for QSBS eligibility, trust income shifting, and foreign exposure per IRC § 1202, § 641, § 245A.
2. Structure Trusts: Draft non-grantor trusts avoiding grantor powers (IRC §§ 671-679); fund by year-end.
3. Invest in QSBS/Opportunity Zones: Acquire QSBS post-July 4; reinvest gains within 180 days, report on Form 8997.
4. Establish CRT: Contribute assets to CRT, file Form 5227, claim deduction on Schedule A.
5. Calculate Credits: Document foreign taxes for Form 1116, applying 10% haircut.
6. File Returns: Submit Form 1040/1041 by April 15, 2026, attaching Forms 8949, 8997; extend if needed with Form 4868/7004.
7. Pay Estimates: Adjust for trust income via Form 1041-ES to avoid penalties (IRC § 6654).
8. Retain Records: Maintain trust documents, appraisals, and foreign tax proofs for three years (IRC § 6001).

For international family offices, explore Our Cross-Border Tax Services.

Common Pitfalls to Avoid

• QSBS Disqualification: Ensure five-year hold and qualifying business; violation voids exclusion (IRC § 1202).
• Grantor Status Errors: Inadvertent powers include assets in estate (IRC § 2036).
• SALT Stacking Limits: Exceed reasonable trusts; IRS may aggregate under anti-abuse rules.
• Foreign Credit Mismatches: Fail to substantiate taxes paid, disallowing credits (IRC § 905).

Why Work with a Tax Expert?

Family office tax strategies under 2025’s OBBBA demand expertise in QSBS, trusts, and credits, where missteps can trigger audits or lost savings. Generic advisors may undervalue SALT stacking or CRT deferrals, costing millions. Kewal Krishan & Co crafts bespoke structures under IRC provisions, ensuring compliance and optimization. Our proficiency resolves complexities, as in Our Tax Litigation Services.

Conclusion

The 2025 family office tax landscape, shaped by OBBBA, offers robust strategies like enhanced QSBS, non-grantor trusts for SALT, and CRTs to curtail taxes and preserve wealth. Balancing income shifting with estate planning is key, with meticulous documentation ensuring success. Proactive adaptation to these provisions is essential—refine your family office strategy now to secure enduring benefits.

Call to Action

Schedule a consultation with Anshul Goyal, CPA EA FCA, a licensed U.S. CPA and Enrolled Agent, admitted to practice before the IRS, specializing in tax litigation and cross-border tax for U.S. businesses and Indians in the U.S. Contact us at Kewal Krishan & Co to tailor your family office tax strategy.

About Our CPA

Anshul Goyal, CPA EA FCA, is a licensed U.S. CPA and Enrolled Agent, representing clients in IRS tax litigation and assisting with cross-border tax compliance for U.S. businesses and Indians in the U.S. His expertise ensures tailored strategies that maximize savings and ensure compliance.

Disclaimer

This blog provides general information for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. Consult a qualified tax professional before making decisions. The author and firm disclaim liability for actions taken based on this content.

FAQs

1. What is QSBS for family offices?

Exclusion up to $15 million on gains from qualifying small business stock (IRC § 1202).

2. How do non-grantor trusts help with SALT?

Each claims $40,000 deduction under OBBBA amendment to IRC § 164.

3. What’s carried interest under OBBBA?

Taxed as ordinary income (IRC § 1061).

4. How does a CRT work?

Defers gains and provides charitable deduction (IRC § 664, § 170).

5. What’s the foreign tax credit haircut in 2025?

Reduced to 10% (IRC § 245A).