Post Updated on March 11, 2025 by Taylor.
I know: filing your taxes is about as fun as getting your teeth pulled. But the fact is, if you aren’t thinking about your taxes, you’re missing out on some major gains. Much like going to the dentist, a little ‘financial hygiene’ can save you major grief once tax season rolls around.
Most high earners work with Tax Preparers to help with filing. The benefits of doing so are fairly common knowledge. It’s less common to hear about working with a Tax Planner. But, let me tell you, this is one of the best kept secrets high income earners have.
What is Tax Preparation?
Tax Preparers are often licensed accountants, though they don’t have to be. They collect your financial and tax information, calculate your profits and losses, and submit your tax returns to the IRS on your behalf.
It’s a great service, right? It takes a lot off your plate. But there’s a missed opportunity here. It’s not that tax preparers aren’t doing a great job, it’s just that they look at your taxes retrospectively. So, they might catch that you could have saved a lot of money had you allocated your money differently, but they can’t go back in time to fix the miss.
What is Tax Planning?
At Four Points Wealth Management, we use tax planning to optimize your tax returns. That is to say, we plan for the future. We are looking ahead. Tax planners are not replacements for tax preparers. We work in concert with your tax preparers to ensure you are maximizing your tax returns.
If tax preparation is reactive, you can think of tax planning as proactive.
Especially for high income clients, this becomes really important. In fact, it is often the secret sauce to saving thousands of dollars. It takes into consideration how much money you’re making, the ways in which you are making it, where you are allocating it, and what the current tax code allows you to do. When you have all the up-to-date tax code information, you can proactively use it to your advantage.
How Would a Tax Planner Help You?
Tax planning empowers you to make the right financial decisions at the right time.
For a lot of my clients, particularly those who have started their own businesses and set up an LLC, their setup starts out pretty basic. But once they start earning income, they can be taxed differently based on how they file. Should they file as an S Corp? C Corp? We analyze how the tax code could affect them in any scenario.
Thankfully, technology has come a long way and there are a lot of resources available to us. We no longer need to get qualified as an accountant to decipher the IRS code. We use AI technology to model all sorts of taxable outcomes.
One thing I look at with a lot of our clients is Roth conversions. We consider whether it’s beneficial to move funds from a traditional IRA or 401(k) into a Roth. Based on past tax returns, we estimate their tax situation for next year. What’s the max they should transfer to stay in the same financial bracket? Or does it make sense to move to a higher tax bracket?
We can let you know which conversion would propel you into a completely different bracket.
Timing Plays a Critical Role
One of my clients was trying to figure out if it was better to sell their business this year or next. We analyzed how we could structure the sale in the right way.
As we went through the process, we realized they could save a significant amount of taxes if they were able to spread the sale over a number of years.
So, the timing of your income gains can make a big difference. And there are ways to create gains over a number of years—following all the rules, of course—to incur the greatest gain overall.
This is something so few people realize, but everyone should know.
Current Tax Codes Are Set to Expire in 2025
If you were driving down the interstate using Google Maps as a guide, you’d want that voice on your phone to tell you what was coming before you missed it. You’d also want it to let you know if there’s construction on the day you’re driving. Or if there’s an accident. And you’d want it to choose a better route for you, if so.
Proactive tax planning is a lot like using a GPS. As the tax code changes, you want someone who can foresee the obstacles that might get in your way. You want someone who can give you alternate routes forward.
At the end of 2025, the tax cuts from 2017 are set to expire. My guess is that a lot of them will be renewed, but the fact is: we don’t know, yet. Leveraging technology, we can model what *might* happen if they sunset. What would your tax situation look like in 2026? These predictions can ensure you don’t get blindsided regardless of what happens.
This is THE Time to Start Working with a Certified Tax Planner
Whether or not the tax codes expire at the end of this year, having the foresight to navigate any shifts can save you a lot of money.
Tax planning is an ongoing experience. The codes are extremely complex and your financial life isn’t constant. You have to continue to look at it year after year after year.
There will be jumps and reductions in income. There are a lot of moving pieces in your life, not to mention changes in tax law. We can’t control or influence that, so we have to stay on top of it over time.
I like to check on taxes in the spring, when it’s top of mind, and then again at the end of the year.
Planners Account for Long and Short Term Strategies
When it comes to tax planning, it’s important to consider both short and long-term strategies.
Most of the time, long-term tax planning deals with retirement and requires anticipating future needs. This demands a certain eye for detail as well as patience to reach the desired outcome.
When it comes to short-term tax planning, we switch gears from retirement to your yearly tax return. Many people can reduce their current tax bill by contributing to a traditional IRA or 401k, but that may not be the best long-term tax strategy. You may also want to consider making contributions to a Health Savings Account if you are eligible.
If you are an investor, you could also focus strategies around capital gains tax that will help keep your ROIs in your own pocket. Consider tax efficiency in your investment strategy, as taking short-term capital gains can derail your financial gains.
Tax Planning Can Help You Avoid Common Pitfalls
Some people go through so much effort around a tax strategy, but don’t end up saving very much as a result. Working with a Tax Planner can help you avoid making decisions that could hurt you more than help you long-term.
For example, I once had a client who transferred a bunch of his properties into an S Corp. Unfortunately, it doesn’t offer as many tax benefits as he would have liked. He’s now in the process of unwinding it, but it is an incredibly difficult process.
The most common pitfalls include overpaying taxes, getting a surprise tax bill, or paying too much in taxes during retirement. These are all things that can be avoided if you approach them with a strategic eye.
Overpaying Your Taxes
It’s quite easy to overpay your taxes. The best solution is to pay close attention to your tax return. I, myself, nearly overpaid in taxes in 2021 because I missed contributions to my health savings account (HSA). I made full contributions to my HSA, but the contributions were missed when we filed our taxes. Due to COVID, we received a late notice in the mail showing our full HSA contribution.
When I went through to double-check my tax situation, I realized the error and spoke with my accountant, getting a much larger return than I would have otherwise. In the end, reviewing all of my tax documents really paid off. If there are mistakes on your tax return, they could come back to haunt you down the line.
Surprise Tax Bills
In my experience, business owners run the biggest risk of owing the IRS at the end of the year.
By tax planning, you can create a clear plan to turn that tax bill into a refund. A good starting place is to anticipate your projected income and expenses. By anticipating future needs you can create a plan to mitigate your tax situation.
You might consider reviewing your legal business structure, adding a company sponsored retirement plan, or implementing a healthcare plan, to name a few, to reduce your business tax burden.
It’s also important to understand what you can write off, what is considered income, and when you need to pay. Once you understand where you are currently and where you will be in the future, tax season shouldn’t be able to sneak up on you.
Paying Too Much in Retirement
I’ve met many retirees that saved diligently in their 401ks and IRAs over the years, enjoying the benefit of tax deferral along the way. However, Uncle Sam doesn’t forget about untaxed income, so once people reach retirement, often at the peak tax bracket in their life, they find their taxes to be their biggest expense to incur as they step into retirement.
One of the greatest tax gifts many people have access to is the Roth 401(k). In fact, it was recently discovered that Peter Theil, the famous billionaire entrepreneur, has about $5 Billion in his Roth accounts.
By understanding what your income streams will look like in retirement, you can manage your tax burden in a better way. This process can start as soon as you start saving for retirement, but it’s most valuable for those in their late 40s and 50s who are hitting their peak earning years and have the most opportunity to integrate long-term tax planning into their financial plan.
At Four Points Wealth, We Focus a Lot on Tax Planning
It’s a core tenant of your financial wealth.
While there’s no exact income threshold you need to hit to start doing tax planning, you may want to consider talking to a financial planner once your household income reaches about $250,000, or $150,000 for a single person. This is considered about the top 10% of income earners. If you feel like you pay too much in taxes or think you’re missing an opportunity to save on taxes, you should consider a full tax planning analysis at a wealth manager’s office. At Four Points, we use comprehensive tax planning software to help you see opportunities to manage your taxes more efficiently.
For help in understanding how you can be strategic about your taxes or would like a copy of our 2025 Tax Cheat Sheet to use as a quick reference guide while you do your taxes, please don’t hesitate to contact us. We’re always happy to help you in your pursuit of building a strong financial future.
About the Author:
Taylor Leary, known as the Millennial Financial Advisor, is a Certified Financial Planner ® in Denver. He passionate about empowering his generation to make smart financial decisions. Taylor helps high-income professionals and ambitious investors build wealth, manage risk, and create lasting financial stability.
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