Tax Day Got You Down? 7 Strategies for Smarter Tax Planning

By: Scott Sturgeon, JD, MBA, CFP®
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If you’re like a lot of Americans, the passing of April 15th left you experiencing that familiar sensation of sticker shock upon seeing how much of your hard-earned income was paid in taxes. For high-income earners especially, that figure can be substantial & it can be frustrating to see countless hours of professional work translated into a considerable tax liability.

This concern is one I encounter regularly among professionals with higher incomes. Physicians, for example, spend years dedicated to education and career development, only to find a significant portion of their earnings allocated to taxes. What’s particularly unfortunate is recognizing that with appropriate planning, some of those taxes could have been mitigated.

Tax planning operates on a simple principle: while complete tax elimination often isn’t possible, implementing strategic approaches over many years can considerably reduce the total amount of taxes a household might pay over their lifetime. It’s often more about preparation and foresight rather than scrambling for deductions at the last minute.

In the last year alone, I helped numerous clients in implementing tax reduction strategies resulting in significant tax savings both in the present day and in the future as well. Interestingly, many of these approaches aren’t particularly complex; they simply require a recognition of which strategies make the most sense for each unique financial situation, then being diligent in making sure those strategies are being implemented over time.

So what exactly do I mean by tax reduction strategies? Here are some of the most effective tax planning strategies we employed in the last 12 months:

Health Savings Account (HSA) Investing – Tax deduction for contributing, tax-free growth in the investment account, and tax-free withdrawals to reimburse yourself for medical expenses. It certainly comes with some rules you have to adhere to, but few accounts offer that combination of current & future tax savings.

Backdoor Roth IRA Contributions – Allows high income earners to contribute to Roth IRAs when they might otherwise make too much to do so directly. It’s a great compliment on top of what they may be putting into 401(k)s, 403(b)s, Profit Sharing Plans, etc.

Roth Conversions – Moving money from Pre-Tax IRA to a Roth IRA. You pay income taxes on the converted amount, but doing so in relatively low income tax years can provide tax-free withdrawals later. It’s a longer term strategy, but can make sense depending on the timing involved.

Municipal Bond Exposure – Income from these types of bonds is federally tax-free & may also be tax-free at the state level. For high income earners, it can sometimes make sense to receive a lower yield that’s tax free over a higher yielding account or investment that’s taxable.

Tax Loss Harvesting – Selling assets for a loss, but immediately reinvesting in a different asset, thereby ‘locking in’ the loss to be used later against capital gains or as a potential deduction against ordinary income.

Donor Advised Funds – Establishing these funds to bunch multiple years of charitable contributions into a single tax year for deduction purposes while distributing gifts to charities over time.

Tax-efficient Withdrawal Planning – Creating a strategic order for withdrawing from different account types during retirement to minimize tax impact.

Importantly, tax planning isn’t something that can be done effectively as you’re scrambling to file this year’s return. The most effective tax strategies require implementation throughout the year – with many necessitating establishment well before December 31st (if not multiple years before).

If you find yourself dissatisfied with the amount you pay in taxes, I’d love to have a conversation. Proper tax planning isn’t about exploiting loopholes – it’s about utilizing the tax code intelligently to preserve more of your earnings. After all, those resources represent your professional efforts. Shouldn’t more of those assets be working for your benefit?

Still curious to learn about more financial planning topics? Check out the content below!

Roth IRA Conversion: Does it Make Sense for You?

The #1 Hidden Retirement Risk You May Not Be Aware Of