Most People Think About Taxes Once a Year. Wealthy People Don’t.
It’s easy to treat taxes like a seasonal event – gather your paperwork in March, meet with your CPA, hope for a refund or prepare to write a check, and move on.
But that mindset is costing high earners tens of thousands of dollars every single year.
Because here’s the truth: wealthy people don’t wait until April to “do their taxes.” They build strategies in January, review them in June, and optimize them in December. Tax planning isn’t a filing task. It’s a year-long process that directly impacts how much of your income you get to keep and reinvest.
If you’re earning well into the six figures or managing equity compensation, business income, or investment gains, reactive tax filing isn’t enough. You need an integrated, proactive tax strategy that works with your life not after it.
Let’s walk through how to make that happen.
The Problem: Tax Prep ≠ Tax Planning
Most professionals confuse tax preparation with tax planning.
Tax prep is what happens in the spring:
- Gathering W-2s, 1099s, K-1s
- Sending everything to your CPA
- Filing your return based on what already happened
It’s backward-looking. It’s compliance. It’s necessary but it’s not strategic.
Tax planning, on the other hand, is proactive. It’s where strategy lives:
- Shifting income between years
- Timing capital gains or losses
- Contributing to the right accounts at the right times
- Aligning your investments and business decisions with your tax bracket
When done well, tax planning can reduce your taxable income, create future flexibility, and enhance your long-term wealth.
And it only works if you start early and adjust often.
The Best Technique: Build a Year-Round Tax Strategy
Here’s how we approach year-round tax strategy for our high-income clients:
Q1: Foundation + Forecasting
- Run a tax projection based on prior year income + current year trends
- Identify tax bracket, phaseouts, AMT exposure
- Determine contribution limits for retirement accounts, HSAs, and 529s
- Review equity compensation vesting and potential sale events
Why it matters: Early awareness gives you the full year to act intentionally, not reactively.
Q2: Entity Optimization + Quarterly Payments
- For business owners: Review S Corp salary vs. distribution split
- Evaluate business deductions and estimated quarterly payments
- Consider tax-efficient hiring (spouse, kids, contractor vs. W-2)
Why it matters: Missed payments = penalties. Improper entity structure = thousands lost annually.
Q3: Strategic Adjustments
- Adjust contributions based on income trends
- Realign charitable giving strategies (DAF, appreciated stock)
- Evaluate Roth conversion opportunities during low-income years
Why it matters: By summer, you can course-correct before year-end especially if income spikes unexpectedly.
Q4: Tactical Execution
- Harvest capital losses or gains
- Max out 401(k), HSA, and other deductible accounts
- Pre-pay property taxes or charitable gifts if bunching deductions
- Finalize bonuses, stock sales, or business purchases strategically
Why it matters: Most tax-saving actions require execution before December 31.
Tools and Techniques for High-Income Tax Optimization
Here are a few proven strategies we use to help high earners keep more of what they make:
Tax-Deferred Accounts
- 401(k) or Solo 401(k) – Max out pre-tax contributions
- SEP IRA or Cash Balance Plan – Great for high-earning business owners
- HSA – Triple tax advantage if eligible
Roth Strategies
- Backdoor Roth IRA – For those over income limits
- Mega Backdoor Roth – Available through select employer plans
- Roth Conversions – Useful during lower-income or sabbatical years
Charitable Giving
- Donor-Advised Funds (DAFs) – Front-load giving for a deduction now, distribute over time
- Appreciated Stock Donations – Avoid capital gains + deduct fair market value
Capital Gain Planning
- Time sales to stay under thresholds
- Use Qualified Opportunity Zones (QOZs) or installment sales to defer recognition
Business Deductions
- Retirement plan contributions
- Health insurance premiums (for self-employed)
- Equipment/software purchases before year-end
- Home office and business mileage (if structured correctly)
Alternative Approaches (and When to Use Them)
There’s no single “best” tax strategy. It depends on your income structure, lifestyle, and long-term goals.
|
Approach |
Best For |
Pros |
Cons |
|
CPA-Focused |
Simple W-2 earners |
Straightforward, annual support |
Limited to filing, not strategy |
|
Wealth Advisor + CPA Coordination |
High-income W-2 + stock options |
Integrated investment + tax guidance |
Requires collaborative professionals |
|
Comprehensive Wealth Manager |
Entrepreneurs, multi-entity owners |
Custom structures, aggressive planning |
Expensive, may require oversight |
|
DIY Software |
Early-career, simple returns |
Cost-effective |
High risk of missed savings |
Truly Aligned Tip: Your advisor and tax pro should be talking to each other. If they’re not, you’re likely missing opportunities.
FAQs
What’s the difference between tax prep and tax planning?
Tax prep is filing your return. Tax planning is a proactive strategy throughout the year to reduce your taxable income and optimize your finances.
How early should I start tax planning?
The best time to start is in Q1. Many strategies – like Roth conversions, charitable gifts, and capital gain timing must be executed before year-end.
Is tax planning only for business owners?
No. High-income W-2 employees, especially with equity comp or investment income, can benefit significantly from proactive planning.
Can charitable giving reduce my tax bill?
Yes, if you itemize and give strategically (e.g., appreciated stock or via a DAF), you can receive a deduction while also avoiding capital gains tax.
What if I didn’t plan ahead this year?
You can still maximize Q4 moves – harvest losses, make charitable contributions, and max out deductions. But the real opportunity is setting up a system for next year.
Final Thoughts: Tax Planning Is a Lever – Not a Burden
If you’re earning a high income and only thinking about taxes in April, you’re playing defense. The wealthiest individuals play offense. They use tax planning as a lever for building wealth, not just minimizing pain.
At Truly Aligned, we work with high-income professionals and business owners to integrate year-round tax strategy into their broader financial plan. Not because we’re obsessed with taxes but because we’re obsessed with helping you keep more, give more, and live more.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
Stock investing includes risks, including fluctuating prices and loss of principal.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through The Wealth Consulting group, a registered investment advisor. The Wealth Consulting group, WCG Wealth Advisors and Truly Aligned, INC are separate entities from LPL Financial.