Can Strategic Financial Planning in San Antonio Help Lower Your Taxes?

As a high-income earning entrepreneur, professional, business owner, or executive, you’ve worked hard to accumulate significant wealth over the years. While this accomplishment brings great satisfaction, it may also present unique challenges – particularly the payment of increasing taxes. 

As a financial planning firm in San Antonio, Texas, we have assisted successful individuals and families with strategic financial planning solutions focusing on minimizing taxes.  

Today’s blog will review seven strategic tax planning measures to consider as a high-income earner who would benefit from a comprehensive financial plan that focuses on tax mitigation.

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Tax-efficient investing strategies

As a high-income earner, you more than likely are in a higher tax bracket, making tax-efficient investing strategies much more important for your financial planning process.  It’s not just how much your investments earn but also how much of that return you get to keep after taxes and other expenses.

Tax is a form of erosion that reduces the money you will have for your future use. Therefore, it should be managed like any other type of expense.

Here are some of the residual benefits of using a tax-efficient investment strategy: 

  • You get to keep a higher percentage of your returns by reducing your taxes on investment gains.

  • Taxes can significantly affect the compound growth rates of your investments. A tax-efficient investment strategy allows you to retain more earnings, which can be reinvested for future returns.

  • Many tax-efficient strategies involve deferring taxes until a later date. For example, this can benefit you if you expect to be in a lower tax bracket after you retire.

You should also consider the following seven tax-efficient investment strategies that you can incorporate into your comprehensive financial plan:

  1. Use tax-advantaged accounts such as 401(k)s, IRAs, and HSAs to reduce taxable income. Many employers match some portion of employee contributions to 401(k)s, producing an automatic positive rate of return on your contributions.

  2. Asset location is another tactic you can deploy. Asset location refers to deciding which types of investments to hold in which types of accounts to minimize tax liabilities. This approach is based on the principle that different investment accounts are subject to different tax rules. For example, taxable brokerage accounts, tax-deferred retirement accounts like 401(k)s, traditional IRAs, and tax-free retirement accounts like Roth IRAs all have different tax liabilities.

    Different asset classes generate different types of income (capital gains, dividends, interest income) that are taxed differently. This allows you to manage your tax liability by holding assets that generate heavily taxed income in tax-advantaged or tax-free accounts. For instance, bonds, which generate interest income, could be held in a tax-deferred account since interest is usually taxed at regular income tax rates, often higher for high-income earners. Meanwhile, stocks that generate more capital gains and qualified dividends that are usually taxed at a lower rate, could be held in personal savings accounts.

    Asset location strategies are just one piece of your holistic financial tax planning strategy, but they can help you maximize your after-tax investment returns.
  3. Consider the use of funds that are specifically designed to minimize taxes. These can include passively managed index funds, ETFs, and tax-managed funds with lower turnover rates

  4. Long-term investing is one of the most effective strategies to reduce potential taxation. Investments held for longer durations (typically at least one year) are often subject to significantly lower capital gains taxes than short-term realized gains.

    Thinking long-term regarding your investments can reduce your tax exposure and enhance wealth creation. As a high-income earner, you may have the discipline to bear the temporary ups and downs of the securities markets, allowing your assets to stay invested. The power of compound interest, where earnings are reinvested to generate additional earnings, becomes particularly powerful over longer periods.

    Long-term investment strategies can provide dual benefits. They provide a way to reduce short-term tax liabilities and generate sustained growth over longer periods. 

  5. Tax loss harvesting is another financial planning strategy used by high-income earners to reduce their tax liabilities by utilizing realized losses to offset realized gains in their portfolios. You can realize losses to offset realized gains, thereby creating additional value for investments that did not meet your return expectations.

    Suppose you realize a loss on a particular investment. In that case, the amount of the loss can be used to offset the realized capital gains from other investments, thereby decreasing your taxable liability. This strategy is particularly effective for high-income earners who frequently face substantial capital gains tax liabilities due to the significant investment returns they can generate.

    It’s important to point out that the IRS has a regulation known as the “wash-sale rule.” This rule prevents investors from declaring a loss when they sell an investment and buy the same or similar investment within a 30-day window on either side of the sale.

    Despite this limitation, you can reinvest the sale proceeds into different securities with potentially higher expected returns, thereby maintaining your desired asset allocations to various classes of investments.

    Income shifting is another financial planning strategy to consider.  This refers to the strategic allocation of income to different parties, often family members or business entities, to minimize your tax liabilities.

    This practice is common among high-income earners seeking to reduce their tax exposure due to the progressive nature of the tax code, where tax rates increase with income levels. For example, if you own a business, you could employ your children or spouse, shifting some of the income to these lower earners who fall into lower tax brackets. This effectively reduces the overall tax liability of the family as a whole.

    Similarly, income can be shifted to business entities like corporations or trusts, which may be taxed at lower rates or have other advantageous tax considerations.

  6. Charitable giving is another effective financial planning strategy for high-income earners seeking to manage their tax liabilities. When you contribute to a qualifying charitable organization, you can claim the donation as an itemized deduction on your tax returns. Depending on your tax bracket, this can lead to significant tax savings. For example, if you are in the 37% tax bracket, a $10,000 donation could potentially reduce your tax bill by $3,700.

    These donations can also help you manage your wealth by controlling your income level. For instance, making significant charitable donations can prevent your income from reaching a level that might push you into a higher tax bracket.

    If you donate appreciated assets, such as stocks or real estate, you can avoid capital gains taxes that would be due if you sold the assets outside the trust. This means you benefit from a charitable deduction and avoid taxation on the asset’s appreciation, providing a dual tax advantage.

    With the implementation of donor-advised funds, you can also make a large donation in one year to receive a substantial tax deduction and then recommend grants from the fund in future years.


About PAX Financial Group:

Having a fiduciary partner who upholds Judeo-Christian principles can be important as your wealth grows and financial complexities increase in magnitude and frequency. As your financial partner and advocate, we believe in being fully transparent and having frequent conversations about your wealth and financial well-being.   

Our focus is on what you care about most. Using a personalized discovery process, we’ll meet with you to understand what drives you and get clarity on your goals and financial concerns.  

We assist financially successful individuals and families with comprehensive wealth management services in San Antonio and beyond. To learn more about our customized tax planning services, connect with us

This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Biblically Responsible Investing (“BRI”) involves, among other things, screening for companies that fit within the goal of investing in companies aligned with biblical values. Such screens may serve to reduce the pool of high performing companies considered for investment. Investing involves risk. BRI investing does not guarantee a favorable investment outcome. PAX Financial Group has conducted due diligence for their Biblically Responsible Investing (BRI) process and proudly serves as each client’s advocate using fully vetted third-party specialists for the administration of BRI methodology. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product and should not be relied upon as such.

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