When most people think about tax planning, they think reducing taxes this year.
But it's really about lowering the total taxes you pay over your lifetime.
This primarily comes from:
- Income taxes
- Capital gains taxes
- Estate taxes
Let’s go through each:
1. Income Tax Planning
Most people only think about income tax when it’s time to file. But by then, it’s too late to make a real impact.
Proactive income tax planning happens during the year and years ahead.
Here are a few ways to do that:
Reduce income in high income years by deferring
- Use retirement accounts (401(k), IRA, HSA, Solo 401(k), deferred comp plan, etc.) to reduce taxable income now
- Use real estate, cost seg studies, bonus depreciation, tax credits, etc. to reduce your taxes this year
- Shift income to lower-bracket family members through gifting or family employment strategies
- Do real tax planning around entity elections, QBID, how you pay yourself, SE tax planning, etc.
- Use charitable giving (maximize with a DAF) to reduce taxes
- Push income to the next year
Pay taxes in lower earning years
- Roth contributions in low years (Roth IRA, Roth 401(k), Mega backdoor Roth, etc.)
- Do Roth conversions when you have room in low to mid brackets (pair with a DAF contribution to help offset it)
- Accelerate realizing income
- Avoid bonus deprecation, cost seg, etc. in low years where the benefit is smaller
- Push charitable giving to the next high earning year
The goal isn’t to avoid taxes altogether, it’s to pay them when your rate is the lowest.
2. Capital Gains Tax Planning
Capital gains are one of the most controllable taxes, but only if you understand the rules and plan accordingly.
You pay capital gains tax when you realize a profit on an investment.
Here are some ways to help offset them:
Harvest Gains and Losses Intentionally
- Use tax-loss harvesting to offset gains and reduce your current liability. The losses are used to offset gains, then $3,000 of income, then carry forward to the next year
- Use direct indexing or long short direct indexing to generate even more in losses
- Focus on tax location: put interest bearing investments in tax deferred, highest growth assets in tax free, and tax efficient in taxable
- In low-income years, you may qualify for the 0% capital gains tax rate (a great time to realize appreciated assets)
- Donate highly appreciated stock vs donating cash so you can avoid the capital gain and then buy back the investment at a new, higher cost basis.
Be Strategic With Investment Sales
- Selling appreciated assets all at once can trigger a large tax bill
- Consider spreading gains over time or using opportunity zones, installment sales, or charitable remainder trusts to reduce the hit
Step-Up in Basis and Long-Term Holding
- Holding assets until death provides a step-up in cost basis, erasing the capital gains tax burden
Wherever possible, aim for long-term holding periods to qualify for lower long-term capital gains rates.
Capital gains taxes can be reduced through great planning.
3. Estate Tax Planning
If your net worth is approaching (or may exceed) the federal estate tax exemption, currently $13.99M per person in 2025, estate tax planning becomes critical.
Without it, all wealth above that $28mil is taxed at 40%.
That is a really high tax you want to avoid.
The current estate exemption is historically high, but it won’t last.
- Consider using gifting strategies (outright or via trusts) now to lock in today’s exemption before it drops.
- Moving funds when you are younger can be extremely impactful, as it may only use $1mil of exemption, but could end up getting 10x+ that out of your estate with growth.
Move Future Growth Out of Your Estate
- Use intentionally defective grantor trusts (IDGTs) or grantor retained annuity trusts (GRATs) to transfer appreciating assets while minimizing gift tax impact.
- Help pay for education, health, etc. where you can do an unlimited amount per year.
- Shift assets that have the potential for outsized growth early, the tax savings compound over time.
- Gift to your children yearly up to the $19,000 amount per person (double if married)
Align Gifting With Legacy Goals
Combine estate planning with charitable planning through charitable lead trusts, foundations, or donor-advised funds to align your values with your tax strategy.
The earlier you plan, the more flexible and impactful your estate strategy becomes.
Tax planning isn’t something you do in April.
And it’s not just about the current year, it’s about your whole life.
Pulling each lever strategically (based on your situation and goals) is how you minimize taxes over a lifetime, not just one tax season.
