Success Stories
Business Owners
Am I really doing everything I can to lower my taxes?
Consider a successful business owner in her mid-50s. Her income consistently places her in the highest marginal tax bracket, and she is exploring ways to reduce her tax burden. At the same time, she is beginning to think about retirement within the next decade and wants to ensure she has built enough wealth to maintain financial independence and her current lifestyle.
She contributes the maximum to her company’s 401(k) plan but is not eligible to make Roth IRA contributions due to her income level. Her compensation includes wages, and she benefits from the treatment of certain pass-through income not being subject to payroll taxes. Based on prior advice, she has been told that she is already doing everything possible to minimize her tax liability.
But is that really the case?
Key Concerns
In this scenario, the business owner is concerned that the amount of federal and state income taxes paid each year creates a catch-22: the more income she earns, the more she pays in taxes, and the more she invests, the more taxable income those investments generate. This cycle leaves her questioning whether she is truly optimizing her financial strategy.
Some of the key questions she considers include:
Is there anything else I can do to lower my taxes?
Can I do anything more than maximize my 401(k) contributions?
I don’t have the time to constantly reach out to my multiple professionals handling different aspects of my finances. Can you help me save time while being more effective in my overall planning?
Our Customized Approach
In situations like this, the planning process often begins by stepping back to clarify the business owner’s long-term vision and goals. From there, a coordinated approach may involve:
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Tax Review: Conducting a detailed review of prior tax returns, sometimes with the support of a tax practice such as David Burgio CPA, LLC, to identify potential planning opportunities.
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Entity Structure: Collaborating with an advanced planning team and business attorney to evaluate the most favorable type of business entity, particularly in the event of a future sale of the company.
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Retirement Planning: Exploring specialized retirement plan options through resources such as a Strategic Retirement Solutions department, with the goal of maximizing tax efficiency and retirement readiness.
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Estate & Succession Planning: Reviewing estate planning documents to ensure they align with the owner’s vision, while also addressing tax efficiency, probate considerations, and succession planning.
This type of comprehensive, cross-disciplinary approach is designed to bring greater clarity and alignment between personal goals, business strategies, and long-term wealth planning.
The Results
Breakthrough
In this example, the business owner developed a more focused financial strategy that addressed several key areas of concern:
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Retirement Planning: Exploring advanced retirement plan designs that allow higher levels of tax-deductible contributions, which may reduce taxable income and accelerate progress toward financial independence. In some cases, coordination with a CPA can help uncover opportunities that were not previously considered.
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Roth Strategies: Taking advantage of Roth 401(k) contributions can help create tax-free income in retirement. For high-income earners who are not eligible for direct Roth IRA contributions, strategies such as backdoor Roth IRA contributions may also be considered.
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Investment Planning: Reallocating non-retirement investments into a more tax-efficient portfolio may reduce ongoing tax liability while keeping long-term goals in focus.
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Estate & Succession Planning: Working with an estate and corporate attorney to review documents may help ensure they reflect the business owner’s current wishes, provide for succession planning, and minimize the impact of taxes and probate.
The Bigger Picture:
By coordinating these planning areas under one integrated framework, individuals may gain greater clarity, reassurance, and efficiency in their financial lives. Processes such as the Custom Wealth Architect™ can help align different pieces into a cohesive plan, while the Custom Wealth Inspection™ supports ongoing updates to keep strategies current as life, economic conditions, and laws change.
In Summary:
It is difficult for business owners to stay up to date on evolving tax laws, economic shifts, and personal life changes on their own. A proactive, coordinated approach can help reduce the burden, improve decision-making, and support the pursuit of a more confident and fulfilling financial future.
*This is a case study and is for illustrative purposes only. Actual performance and results will vary. This case study does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted. This case study does not represent actual clients but a hypothetical composite of various client experiences and issues. Any resemblance to actual people or situations is purely coincidental. In a fee-based account, clients pay a quarterly fee, based on the level of assets in the account, for the services of a financial advisor as part of an advisory relationship. In deciding to pay a fee rather than commissions, clients should understand that the fee may be higher than a commission alternative during periods of lower trading. Advisory fees are in addition to the internal expenses charged by mutual funds and other investment company securities. To the extent that clients intend to hold these securities, the internal expenses should be included when evaluating the costs of a fee-based account. Clients should periodically re-evaluate whether the use of an asset-based fee continues to be appropriate in servicing their needs. A list of additional considerations, as well as the fee schedule, is available in the firm's Form ADV Part 2 as well as the client agreement.
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