The tax framework that saved my client $15 million

IT'S NOT WHAT YOU MAKE — IT'S WHAT YOU GET TO KEEP

Over the last decade, I've helped business owners save hundreds of millions in taxes using just three words.

AVOID. DEFER. MINIMIZE.

Every sophisticated tax strategy — from the $10MM QSBS exclusions to Puerto Rico tax deals — boils down to these three mechanisms.

Most people think about taxes one year at a time, optimizing for April 15th. The wealthy think in decades, optimizing for their entire lifetime.

RULE #1: AVOID

Avoiding tax altogether is the optimal outcome. You would have paid tax, but because you took action, you no longer owe it. Genius.

Tax exclusions that eliminate taxes forever:

• Home sale exclusion: $500,000 tax-free for married couples ($250,000 for individuals)
• QSBS (Qualified Small Business Stock): Up to $10MM (or 10x basis) tax-free on qualified stock sales
• Roth IRA withdrawals: Tax-free forever after age 59½

Smart structuring moves:

• Step-up in basis: Your heirs inherit assets at current market value, eliminating built‑in capital gains. That $2MM stock portfolio with a $200,000 basis? They get it at full $2MM — no capital gains tax.
• Appreciated stock donations: Never pay capital gains, get full deduction

Real example: Client donated $2MM in appreciated stock (basis $400,000). Avoided $240K in capital gains taxes, got $740,000 in deductions. Net tax benefit: $980,000.

Tax credits — the holy grail: R&D credits, ERC, conservation credits. These can generate $1.20+ in benefits for every $1 invested. I've seen single credit transactions save $3MM+ in taxes.

RULE #2: DEFER

The further you push taxes out, the smaller they become. Time value of money means deferring taxes lets you invest the difference and compound wealth.

Traditional retirement accounts: The real benefit isn't the deduction — it's tax-free compounding. $100K deferred at age 30 becomes $1.6MM by retirement, all growing tax-deferred.

1031 exchanges for real estate: Trade properties, defer all taxes until death. Then your heirs get the step-up and avoid taxes. It's the ultimate tax arbitrage.

Installment sales: Sell an asset and carry the note to spread gain recognition over time. Instead of paying tax on $1MM up front, spread it over five years at $200K annually. That's managing your tax brackets.

Cost segregation and bonus depreciation: A $500,000 rental property might generate $150,000 in first-year depreciation. At 37% marginal rate, that's $55,000 in immediate tax savings. The depreciation now is worth more than depreciation later.

RULE #3: MINIMIZE

This is where the big money lives. It's about your Lifetime Effective Tax Rate (LETR):

Total taxes paid over your life ÷ Total income earned over your life

A 2-point difference in LETR on a $10MM lifetime income equals $200,000 more wealth.

The business owner tax advantage: W-2 employees pay tax on every dollar earned. Business owners shift thousands in life expenses above the tax line — phone, car, education, home office, travel. Over 30 years? The business owner's LETR runs 5-7 points lower.

Entity structure optimization: Solo proprietors pay self-employment tax on all profit. S-Corp owners pay payroll tax only on salary, taking the rest as distributions. For six-figure earners, this saves $10K-$20K annually. Set it up once, save forever.

QBI deduction mastery: Pass-through business owners get a 20% deduction on business income — that's $80K deducted on $400K income, saving $29,600 in taxes. But high earners need sufficient W-2 wages or lose the deduction. The 2/7 salary rule maximizes your deduction while minimizing payroll taxes.

Geographic arbitrage: Moving from high-tax to no-tax states can save high earners $50K+ annually in state taxes alone. Over 20 years: $1MM+.

Strategic income timing: I worked with a young retiree who converted his entire $15MM traditional IRA to Roth in one year. Massive tax bill, but he wanted to never pay tax on Social Security and qualify for lowest Medicare premiums. Sometimes accelerating tax forward makes sense.

Advanced minimization strategies: Texas ranchers use agricultural losses to offset W-2 income during peak earning years. The land appreciates, provides capital gains treatment on sale, or gets stepped up on death.

The $0 tax year trap: Retirees celebrating zero taxes are wasting standard deductions and low brackets. Strategic Roth conversions at 10-12% today prevent 32%+ RMDs later. A $0 tax year often means higher lifetime taxes.

Your 2026 Deadline Window

Here's what most people don't realize: S-Corp elections for 2026 must be filed by March 15, 2026. Miss this deadline, wait until 2027.

Solo 401k setups for maximum contributions need to happen before year-end 2026.

We're 11 months out from these deadlines. Perfect timing to model scenarios, run projections, and position for next year.

Should you elect S-Corp status? Max traditional 401k or go Roth? Accelerate income or defer it? Move states before a big liquidity event?

The answer depends on where you are in your lifetime earnings curve. Most people are guessing.

The Planning Reality

Based on working with thousands of clients, the planning problem won't solve itself. CPAs need to understand your goals and timeline. Planning doesn't come with a $750 tax return — it requires time, attention, and expertise.

You'll need to take the lead. Be upfront about wanting tax efficiency. Consider:

• Setup costs vs. annual savings
• Risk tolerance for aggressive strategies
• Return on hassle — is the complexity worth it?

Tax planning isn't for everyone. Some prefer paying taxes to managing complexity. Never let the tax tail wag the economic dog.

But there's no set menu. Every situation is unique. One variable change can shift your optimal strategy.

Your Next Move

At Better Bookkeeping, we use this AVOID-DEFER-MINIMIZE framework to build complete tax strategies for business owners. We map your lifetime effective tax rate, identify where you are in your earnings curve, and create multi-year plans optimizing taxes over decades.

These strategies require proper implementation and ongoing compliance — but when done right, the savings compound year after year.

We're 11 months from your 2026 year-end. Perfect timing to model scenarios and lock in structure changes before deadlines hit.

Want to see your complete lifetime tax picture? Schedule a consultation here or hit reply — I read everything.

Let's stop optimizing for this year and start optimizing for your life.

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P.S. The clients who save the most are the ones who plan ahead. March 2026 will be here before you know it. Time value of money favors early action.