Last April, you wrote a $90,000 check to the IRS.
Your accountant said everything was done correctly. That may be true, but it's also possible you overpaid, not because of a mistake, but because of a missed strategy.
Every tax-saving tool — cost segregation studies, backdoor Roths, QBI optimization — falls into one of three categories. Once you understand this framework, you stop chasing random tactics and start operating with a real plan.
The difference between understanding this hierarchy and ignoring it? $20,000-$100,000 more in your pocket every year.
Think of tax planning as a hierarchy:
Most business owners only focus on minimizing tax. They chase deductions every December, optimize entity structures, time expenses strategically. But the biggest wins come when all three levels are used together in a strategic way.
The most powerful form of tax savings is elimination. These are strategies that make certain income or growth completely tax-free, not just delayed or reduced.
Roth IRAs and Roth 401(k)s allow money to grow tax-free and be withdrawn tax-free in retirement. High earners often use a backdoor Roth IRA or Roth Solo 401(k) contributions.
Contribution limits for 2025:
If you're doing a Roth conversion, be aware of the IRS pro-rata rule. This rule causes your conversion to be partially taxable if you have other pre-tax IRA balances. Planning is key.
Example: Convert $100,000 now and pay tax upfront. In 20 to 30 years, that $100,000 could grow to $300,000 or more. You will owe nothing when you withdraw the funds in retirement.
If you have a high-deductible health plan, the 2025 HSA contribution limit is $8,550 for families. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.
After age 65, you may also use the funds for general retirement spending. While you will owe regular income tax on non-medical withdrawals, you avoid penalties.
Both Roth and HSA strategies require advance planning. But the long-term payoff is significant. These are the closest things to permanent tax elimination.
If elimination isn't possible, your next move is deferral. Deferral means pushing tax bills into the future while keeping more capital in your hands today.
A Solo 401(k) lets you contribute up to $70,000 in 2025. If you're 50 or older, that goes up to $77,500. These contributions involve both employee deferrals and employer profit-sharing components.
This money grows tax-deferred and reduces your current-year income. You pay tax only when you withdraw the money in retirement.
For a business owner earning $400,000, contributions of $70,000 may cut this year's tax bill by $25,000 or more.
Selling investment real estate? If you reinvest the proceeds into another qualifying property, a 1031 exchange lets you defer paying capital gains tax.
You must identify the new property within 45 days, and complete the purchase within 180 days. This allows 100 percent of your equity to keep growing without losing a chunk to taxes.
Eventually that gain becomes taxable, but you control when.
If you're selling a business or asset, structuring the sale as an installment lets you spread income over several years. This often lowers your tax rate and improves cash flow.
Keep in mind that depreciation recapture and some gains may still be taxed upfront. It’s important to work through the numbers in advance.
The IRS safe harbor rules let you prevent underpayment penalties while still keeping flexibility.
You can usually avoid penalties by either:
This allows many business owners to keep more cash in the business instead of overpaying during the year. The balance is due the following April, but the IRS doesn't charge interest as long as you meet safe harbor thresholds.
When you can't avoid or defer taxes, you minimize what you pay this year. This is the default mode for most business owners and tax professionals.
Every legitimate business expense reduces your taxable income. But this isn’t just about saving receipts at the end of the year — it’s about proactively aligning your spending with your tax strategy.
Let’s say your business earns $400,000 in revenue. If you have $100,000 in deductible expenses — office rent, contractors, technology, marketing, software, travel, and continuing education — your taxable income drops to $300,000.
Depending on your federal and state tax brackets, that $100,000 in deductions could lower your total tax bill by $30,000-$45,000+.
But it gets better. Many overlooked expenses can also be deductible, including:
The key is documentation and intention. A clear expense policy, categorized transactions, and monthly bookkeeping not only improve clarity. They unlock deductions you might otherwise miss.
Business deductions are the most accessible and immediate way to minimize your current-year tax. But doing it right requires more than a shoebox of receipts.
Pay yourself a reasonable salary (something the IRS pays close attention to) and take remaining profits as distributions. Unlike salary, distributions are not subject to the 15.3% self-employment tax, which can result in meaningful tax savings.
For $400,000 in profit with a $160,000 salary, the remaining $240,000 in distributions saves approximately $32,000 annually in self-employment taxes.
You're not eliminating taxes, you still pay income tax on distributions. You're minimizing the self-employment tax component.
>> Calculate your S-Corp savings potential now: See immediate ‘minimize’ opportunities in under 2 minutes.
Most pass-through business owners can deduct 20% of qualified business income. For $400,000 in profit, that's a potential $80,000 deduction, saving $20,000 to $29,600.
Service businesses (lawyers, doctors, financial advisors) face income limitations above $394,600 (married filing jointly). Work with your CPA to navigate the phase-outs.
>> Learn more: How to Maximize Your QBI Deduction: The Wage Optimization Strategy That Saves $26,000+
The most effective tax planning uses all three tiers simultaneously.
Here's how a $400K profit business uses the complete framework:
Before optimization (Minimize only):
After optimization (All three tiers):
Avoid:
Defer:
Minimize:
New tax bill: $61,000
Total annual savings: $54,000 by stacking all three strategies instead of just minimizing.
The hierarchy matters:
Right now, before you close this tab:
Avoid: Did I max all tax-free opportunities?
Defer: Did I max all deferral strategies?
Minimize: Is my entity structure optimized?
If you answered "no" to any of these questions, the good news is you have opportunities for improvement.
You have more control over your tax bill than you think.
Tax planning is not about last-minute deductions. It's about structuring your business, income, and investments in a way that gives you control.
Stack all three, and you turn tax planning into a real wealth strategy.
Ready to make a change?
Schedule a consultation and we’ll help you build a custom tax plan that fits your business, your goals, and your income.
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