Stop thinking about taxes one year at a time. Do this instead.
WHY YOUR "SMART" TAX STRATEGY IS COSTING YOU $200K
A new client came to me last year for a review — he was pretty proud of his tax planning approach.
For 15 years, he'd maxed out his traditional 401k. Every year, he saved 30-35% on taxes by deferring that income. He thought he was being smart — it is the conventional advice.
Fast forward to today. He's 73, retired, and all of a sudden those Required Minimum Distributions are hitting hard. He's pulling out $180K annually whether he needs it or not, and he's paying tax on every dollar at the top bracket.
The lifetime cost of his "smart" tax strategy? Over $200,000 in unnecessary taxes.
His mistake wasn't bad execution, it was just short-term thinking. He optimized for one year at a time instead of thinking about how he should optimize over his entire life.
LETR: The Metric That Actually Matters
Most people focus on their effective tax rate for the current year. But the number that determines how much wealth you keep over your lifetime is different:
Lifetime Effective Tax Rate (LETR) = Total taxes paid over your life / Total income earned over your life
This changes everything about how you should think about taxes. Because the goal isn't to pay zero tax this year — it's to pay the lowest total tax over a lifetime of earning.
Three Insights That Change How You Plan
1. Low tax years are gold — don't waste them
When you're young and earning $60K, your effective tax rate might be 12-15%. That's when you should be PAYING taxes, not deferring them.
Use Roth 401k contributions. Do Roth conversions. Lock in that low rate now, because when you're making $300K+ as an established business owner, you'll wish you had more tax-free money to pull from.
Most people get it backwards — they defer taxes when rates are low and end up paying them when rates are high.
2. Business ownership changes your LETR forever
A W-2 employee making $150K pays tax on $150K.
A business owner making $150K can shift thousands in life expenses above the tax line — cell phone, auto, education, subscriptions, part of their home…
Over 30 years of working? That's not just annual savings. That's compound wealth. The business owner's LETR might be 5-7 percentage points lower than the W-2 earner at the same income level.
Even a $10K side hustle opens up deductions that W-2 workers can't touch.
3. The $0 tax year mistake
Once you hit retirement, some people celebrate posting $0 in taxes. "I'm living off savings — I don't owe anything!"
But you're wasting your standard deduction and the lowest tax brackets. You could be doing strategic Roth conversions, pulling income at 10-12%, and setting yourself up for lower RMDs later.
A $0 tax year in retirement often means a higher LETR over your lifetime.
We're 8 Weeks from December 31st
This isn't just about philosophy. Understanding your LETR changes what you should do RIGHT NOW.
Should you max your traditional 401k or go Roth? Should you bonus yourself to increase your salary? Should you accelerate income or defer it? Should you start that side business?
The answer depends on where you are in your lifetime earnings curve, and most people are guessing.
At Better Bookkeeping, we help business owners map their LETR, identify where they are in their earning lifecycle, and build tax strategies that work over decades, not just one year.
We have just over 8 weeks left to optimize 2025. But more importantly, we have time to shift how you think about taxes for the next 30 years.
Want to see what your lifetime tax picture looks like? Let's build your LETR strategy and make moves before December 31st that set you up for decades. Schedule a consultation here.
Let's stop optimizing for this year and start optimizing for your life.