Smart Tax Planning Strategies

Tax planning is the most underused financial lever available to most households and small businesses. The Internal Revenue Code rewards specific behaviors — saving, investing, retiring, giving, educating — and the cost of simply not noticing those rewards compounds over decades. Below are the strategies we lean on most, organized by who they apply to and what time of year matters.

The foundation: a written plan, not a list

Every client we work with starts with a one-page written plan: a list of known actions for the year, dates on which each action needs to happen, and a checkpoint calendar. The plan is reviewed every January, every July, and as life events occur. Most clients who adopt this approach reduce their lifetime tax bill by a meaningful percentage — and almost all discover at least one issue each year they would have missed.

For individuals

1. Time income and deductions consciously

If you control when a bonus, a freelance invoice, or a Roth conversion lands, you control which tax year pays for it. The classic move: when income in year A is expected to be lower than year B (a bridge year, sabbatical, or job change), accelerate deductions into A and defer income into B. When year A has unusually high income, do the opposite. Tax planning is rarely about absolute lowest — it's about lowest across two years and the transitions between them.

2. Max retirement accounts, in the right order

Few decisions produce a higher internal rate of return than capturing an employer 401(k) match. From there, the order matters because each account type has different tax mechanics.

1. 401(k) match — 50–100% instant return. Never leave it on the table.
2. HSA (Health Savings Account) if eligible. Triple-tax-advantaged: deductible in, tax-free growth, tax-free out for medical expenses.
3. Roth IRA or traditional IRA — depends on current vs. expected retirement bracket.
4. Finish maxing the 401(k) — usually in the form that aligns with retirement expectations.
5. Taxable brokerage — for any additional savings beyond account limits.

3. Tax-loss harvesting

Selling losing positions to offset realized gains can reduce a tax bill without changing your overall investment strategy. Up to $3,000 of unused losses can offset ordinary income; remaining losses carry forward indefinitely. Watch the wash-sale rule: repurchasing the same or substantially identical security within 30 days of the sale disallows the loss. Investors tax-loss harvest near the end of the calendar year, with harvesting-and-cash-buying strategies often producing better after-tax outcomes than letting losses sit unused.

4. Charitable giving, structured for the deduction you actually need

Two strategies override the default 'give what feels right this year' approach. First, bunching: combine two or three years of giving into a single year, push total itemized deductions above the standard deduction, then take the standard deduction in subsequent years. Second, appreciated stock: donating long-term appreciated shares directly avoids capital gains tax entirely and still gives you a deduction equal to the fair market value.

Donor-advised funds (DAFs) let you take the deduction in a high-income year and recommend grants to charities over time. They're well worth considering for anyone with charitable intent exceeding $5,000 annually.

5. Roth conversions in low-bracket years

Bridge years between jobs, the gap before Social Security begins, the year you retire before pension payments start — these all tend to produce unusually low ordinary income. They are perfect windows for converting part of a traditional IRA or 401(k) to Roth. You pay tax at today's known rate and remove the future RMD obligation from your eventual drawdowns. The pro-rata rule for Roth IRAs is now partially bypassable for high earners thanks to SECURE 2.0 changes — but each client's situation deserves a specific analysis.

For small businesses

Choose (and re-choose) the right entity

Entity choice drives how profits, losses, distributions, and exit events are taxed. Sole proprietors and single-member LLCs pay self-employment tax (Social Security + Medicare) on net earnings. S-corp owner-employees pay self-employment tax only on their salary, with distributions escaping self-employment tax — often the largest available savings for an established small business. C-corps face double taxation but may suit businesses planning for outside investment or eventual sale at significant gains.

Use the Qualified Business Income (QBI) deduction

Section 199A allows many pass-through owners to deduct up to 20% of qualified business income. Whether the full deduction is available depends on your taxable income, the type of business (specified service trades face stricter phase-outs), and W-2 wages paid or unadjusted basis of qualifying property. Practical implication: a single new hire can push a borderline case into the full 20%, while a higher-than-expected year can eliminate the deduction entirely. Both are addressable in advance if you have a real estimate of the year rather than last-minute numbers in March.

Capture every retirement-plan option available to owners

• SEP-IRA: simple, owner-friendly; up to 25% of compensation for each eligible employee, including the owner.
• Solo 401(k): larger combined employee + employer contributions for owner-only businesses; Roth option available.
• Cash Balance / Defined Benefit: large deductible contributions for stable, profitable businesses; requires a third-party actuary.
• SIMPLE IRA: low-cost option for teams under 100 employees; mandatory employer match or non-elective contribution.

Time equipment, vehicle, and Section 174 R&D purchases

Bonus depreciation percentages change year to year, as do Section 179 dollar limits. Section 174 mandatory capitalization of R&D expenses — a dramatic change made several years ago — remains a planning item for software, product-development, and engineering firms. For most small businesses, a single equipment purchase near year-end can produce a five-figure deduction that more than offsets an otherwise unfavorable income year.

Year-end checklist (use in October–December)

1. Project 2025 income and compare against 2026 expectations. Identify the better year to harvest gains or accelerate deductions.
2. Confirm employer match was captured all year. If not, increase contributions to the max by year-end.
3. Max HSA if eligible. Many plans allow a single-year catch-up lump sum.
4. Review charitable intent for the year. Decide between 'give this year' and bunch-into-DAF.
5. If a Roth conversion makes sense, size it against expected marginal brackets — including phase-out cliffs.
6. For business owners: review equipment purchases, contractor payments (1099-NEC thresholds), and estimated tax underpayment risk.
7. For investors: review the portfolio for tax-loss harvesting before December 29 (allowing for the 30-day wash-sale window).