“It is not what you make; it is what you keep.” Over the course of your life, taxes will likely be your single largest expense. Each year, from late March through April 15, tens of millions of taxpaying Americans will scramble to reduce taxes. These would-be tax cutters are motivated, inspired, frenetic … but, their suboptimal timing shortchanges their efforts.
Why? Well, in many cases, you cannot defer income at this point. You cannot give charitably at this point. You cannot conduct tax loss harvesting in your portfolio at this point. That strategic account type you had been considering opening in order to reduce your taxes had to be opened before the end of the calendar year … it’s too late now!
Tax planning is best conducted as a proactive, year-round endeavor. With this in mind in early September, a full four months before year end, here are a few things that might help you increase what you keep.
Maximize Income Deferral
For W-2 employees, the first line of defense is maximizing contributions to employer-sponsored retirement plans like 401(k)s.[i] By deferring this income, you immediately reduce your current-year tax burden. If your employer allows it and household cash flow permits, many plan designs allow employees to make additional non-deductible contributions into their retirement plan. Typically, those non-deductible contributions can then be rolled into a Roth account within the plan as part of a Mega-backdoor Roth strategy. In 2026, employees can set aside as much as $72,000/year in their 401(k)s ($80,000 for those 50 and older; $83,250 for those 60-63). If you have a Solo 401(k), you can utilize employer profit sharing on top of your employee salary deferral to reach these same figures.[ii] In the case of the Solo 401(k), the full amount can be deducted from taxable income.
Participate in Employer-Based Benefit Plans
Beyond standard retirement deferrals, you should take advantage of the alphabet soup of employer-based benefits. Health Savings Accounts (HSAs) should be your first priority here. If you are on a high-deductible health plan, the HSA offers a rare triple-tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. HSAs are so good, I advise clients to pay out-of-pocket for medical expenses if their cash flow allows, leaving the HSA funds invested to compound over time. If you work for yourself, you are not left out. You can still do an HSA through providers like Lively and you should. Each and every year, study your benefit options closely with a laser focus on reducing your taxable income.[iii]
Consider Cash Balance Plans for Small Businesses
For small business owners or self-employed professionals with reliable high income, you might consider a Cash Balance Plan, arguably the most powerful tax reduction tool available. This is a defined benefit plan that allows for massive pre-tax contributions, often reaching well into the six figures annually depending on your age and income level. Eight Ventures offers Cash Balance plans through Schwab, allowing clients to maximize tax deductions while still giving us access to our favorite investment strategies.
Charitable Contributions and DAFs
The Apostle wrote “God loves a cheerful giver”[iv] and so does the IRS. The tax code heartily rewards this impulse, but recent tax law changes mean that it now requires additional planning to ensure you maximize the benefits of your generosity. With the standard deduction currently sitting at a relatively high level,[v] many families no longer itemize, meaning they lose the distinct tax benefit of their charitable giving.
One solution for this is a Donor-Advised Fund (DAF). A DAF allows you to “bunch” several years’ worth of giving into a single tax year, pushing you past the standard deduction threshold to secure an immediate, substantial tax deduction. Once the funds are in the DAF, they can be invested to grow tax-free, allowing you to methodically distribute grants to your favorite charities over time.
Another powerful charitable giving strategy is to gift appreciated stock, whether into a DAF or directly to your charity of choice. I have several clients who use this strategy heavily to fund their preferred charities. If you have charitable intent, meaning you are going to give, and you have appreciated investments held for 366+ days,[vi] you would greatly improve your tax efficiency by regularly donating appreciated stocks and certain other publicly traded investments.[vii] You can also donate other appreciated investments such as real estate but there are additional steps which will keep most donors from giving regularly in this fashion. By gifting appreciated investments, you negate the tax liability on the gains, making this far more beneficial than donating cash.
You may say, “I don’t want to sell my great investments and forego future appreciation.” You don’t have to. You can buy the stock back the very same day, resetting your basis at the new buy price. (Wash sale rules only apply when claiming realized losses.)
A well-designed tax strategy, like a household budget, is a powerful tool to ensure that more of your money goes toward your family and the causes you care about. Are you operating in a tax efficient manner? You work too hard not to!
To be continued …
[i] Similar plans include the following: TSP, 401(a), 403(b), 457(b)
[ii] This discussion omits SEP IRAs, SIMPLE IRAs, annual backdoor Roth conversions, and other key account types
[iii] Additional applicable plans include the following: Dependent Care FSAs, Healthcare FSAs, adoption assistance, commuter and transit benefits, education assistance
[iv] Paul; II Cor. 9:7
[v] $32,200 for MFJ
[vi] Taxpayer is limited to deduction of basis, not FMV, on short-term capital gain items
[vii] ETFs, publicly traded bonds, REITs
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