Tax Planning Strategies for Various Life Stages and Wealth Levels

January 13, 2024 | By Jon Powell, CFP®| Financial Planning

Filing taxes is something we dread and fear each year, but with a little planning, taxes become less expensive and less bothersome. Tax planning not only aims to help save a bit of money, but also is important to avoid penalties, organize their documents, and prepare for the future. Failing to plan for taxes, conversely, is akin to throwing money down the drain.

Tax planning is especially crucial for people considering retirement. At this age, careers are winding down and families are preparing to rely on Social Security and retirement portfolios to support them for the next several decades. Depending on when someone retires, there may still be kids in college and mortgages to pay off. For these people, learning strategies that can lower taxes and protect assets is a must.

Below are some of the strategies that can lower taxes for people with differing tax situations.

Tax planning for high-income earners 

Simply put, the more money you make, the more opportunities there may be to benefit from smart tax planning.

Fully fund tax-advantaged accounts. You can lower your taxable income and possibly your tax bracket by moving as much money as possible into traditional IRAs, Roth IRAs, and Health Savings Accounts (HSAs)

Roth IRA conversions. With Roth IRAs, you can make 100-percent tax-free distributions when you retire, but some high-income earners are not allowed to make direct contributions to Roth IRAs. However, they can convert traditional IRAs into Roth IRAs. Conversions can be expensive upfront, but worthwhile over time. Aiming to fill up current tax brackets at efficient tax rates is key.

Charitable donations. The IRS allows taxpayers to deduct charitable cash donations of up to 60 percent of their gross income and non-cash donations of up to 30 percent. As a result, charitable contributions are among the most popular and common strategies for lowering tax bills. There are a number of options in the types of donations possible.

Optimizing assets. Investments differ in their tax efficiency, and you can often lower your tax bill by reviewing and reorganizing your assets. For instance, keeping mutual funds and ETFs that produce qualified dividends in taxable investment accounts while allocating funds that produce ordinary dividends to IRAs can be an effective way to realize income at preferable tax rates.

There are a variety of investments that high-income earners can consider for tax efficiency, such as tax-exempt municipal bonds.

Take advantage of itemized deductions. Filers who itemize can deduct the interest paid on their mortgages, state and local taxes, medical expenses in excess of 7.5 percent of their adjusted gross income, and more.

Tax planning for small business owners

Small business owners face a different set of tax challenges, but also a new set of opportunities to save. Tax planning should be considered an integral part of managing any small business. Here are a few tactics.

Company structure and tax status. Be sure you have the most tax-efficient structure for your business: sole proprietor, partnership, LLC, S corporation or C corporation. A business’s structure affects how its owners file taxes. If your company has outgrown its structure, you may be able to switch to a structure that can save money on taxes.

Pass-through businesses—sole proprietorships, partnerships, LLCs, and S corporations—are not taxed as corporations (or on the business level), but instead are through the owners’ individual tax returns

Tax deductions. One of the most common small-business deductions is the home office deduction. Taxpayers are able to deduct expenses ranging from real estate taxes to utilities. The amounts are usually based on the square footage of the space used, space used regularly and exclusively for business. 

Many businesses can also take advantage of the qualified business income, or QBI, deduction, which allows small business owners to deduct up to 20 percent of their share in the company’s income.

These are just a few of the strategies available for small business owners. Other tactics include leveraging tax credits, deferring income, and setting up retirement accounts. As a small business grows, generally so do its tax challenges as well as tax opportunities.

Tax planning for real estate investors

Investing in real estate is traditionally the most popular way to build wealth, and locating tax-saving opportunities is as essential a part of real estate investing as locating the right properties. Employing the right strategies can save real estate investors thousands on their tax bills annually.

Tactics these investors should explore include minimizing capital gains taxes, taking full advantage of deductions, and deferring tax with tax incentives. These investors also have the ability to borrow against the equity they’ve built in their properties with cash-out refinances, which provide cash for new investments.

Again, employing tax strategies is an integral part of managing the investment, one that takes ongoing research as tax regulations constantly change.

Tax savings for families 

Managing a family is not unlike managing a small business, with tax planning playing a central role in financial success. It’s essential for parents to learn what deductions and exemptions are available, a situation that has been in flux over the past five years. Tax cuts for corporations passed in Congress in 2017 erased the personal exemption, though offered a higher standard deduction for some families. More changes came in the wake of the pandemic, with the American Rescue Plan in 2021 raising the maximum child tax credit.

Parents should also explore the earned income credit, the adoption credit, and other family tax options.

Tax planning strategies for retirement

Pre-retirement is arguably the most important stage for tax planning. Here, retirement accounts take center stage. Contributions to 401(k)’s, and both Traditional and Roth IRAs should be maximized. People planning to retire should learn how to manage and eventually come up with a distribution strategy from various accounts to improve the tax efficiency of retirement income.

This includes making catch-up contributions, taking advantage of the saver’s credit, and avoiding early withdrawal penalties. It’s also essential to time retirement account withdrawals on a year-to-year basis.

Federal employee retirement tax planning

Federal employees need to look at additional considerations. With the exception of tax-free accounts such as Roth accounts, retirement income is still taxed. This includes income from the Federal Employees Retirement System (FERS), the Thrift Savings Plan (TSP), and Social Security—which are taxed differently depending on your income, location, and other factors.

These retirement income sources have their own specific tax rules. For instance, the part of FERS benefits based on your own contributions are not taxed, while the part based on government contributions and interest are. As for Social Security, up to 85 percent of benefits may be taxed depending on your income.

Federal employees must also consider TSP contributions, IRA and Roth conversions, and health savings accounts.


Two things are certain in life: taxes, and constant changes in tax laws. This makes consulting with a tax professional beneficial, especially for people with multiple income sources, people who plan to move to a different state or country, and people who want to leave a legacy for their heirs. Taking deliberate steps to manage your taxes now, and in the future, can potentially allow you and your loved ones to keep more of what you’ve worked hard to earn.

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