Tax Strategy for Entrepreneurs: 4 Smart Ways to Keep More of What You Earn
Entrepreneurs can save millions with the right tax strategy. In this article, Carson Wealth’s Paul West shares four expert ways to reduce taxes, grow your wealth, and protect your legacy.
As CEO, you’re laser-focused on growing your business. You’re spending the majority of your time thinking through your go-to-market strategy, whether or not you should hire that last candidate, or worrying over your cash position.
All of that is important. But if you want to keep more of what you earn from your hard work, you’ll need to optimize not just your business management, but your wealth management. Just ask Paul West, Managing Partner at Carson Wealth, one of CEO Coaching International’s Diamond Strategic Partners.
“Entrepreneurs are so busy with their business, and their family, that they’re sometimes just checking the boxes on their tax returns and meetings with their CPAs or wealth advisors,” says West. “But if your CFO did that for your business, you’d fire them right away. That’s why I recommend a more proactive, strategic approach.”
4 ways to optimize your tax strategy to keep more of what you earn from your business
In this post, we’re going to break down tax strategies for high-income entrepreneurs so they can keep more of what they earn. These are advanced techniques that require significant amounts of capital. Your CPA may not know some of these exist. “I can’t even tell you how many millions and millions of dollars we’ve saved our clients,” says West.
1. Prepare your bank account for capital gains
How Can Entrepreneurs Reduce Capital Gains Taxes?
Whenever you sell an asset, you pay capital gains tax. But depending on which state you live in, that could take up to a third of what you’ve earned. “If you were going to sell an asset like your house, most people just look at the gross number,” he says. “The same thing happens when selling a business. They’re not thinking about the taxes that take away from that gross number. There are techniques to help you get prepared to reduce that impact.”
West recommends using the capital you already have—such as in money markets or investment accounts—to create capitalized losses that can be carried forward to use against a future business or real estate sale and offset that potential tax loss. This technique is an important one if you’re planning your exit in the next few years.
2. Use ordinary income for tax deferrals
What Is a Tax Deferral Strategy?
A tax deferral strategy gives you more breathing room for certain kinds of taxes. This strategy isn’t about avoiding taxes, but about giving you a chance for more long-term growth through compounding interest. You’ve already got several of these kinds of strategies going through 401(k)s or pre-tax contributions on IRAs.
In addition to a classic depreciation technique—like buying a fixed asset like a car—West recommends looking at all of the possible opportunities to save with tax deferrals.
“You should be looking at asset tax deferrals, opportunity zone tax deferrals, deferred sales, and trusts,” he says. “But we have an investment solution that behaves as a trader fund that allows you to flow ordinary income losses through it.”
3.Set your family up for success long after you’re gone
How Should Entrepreneurs Plan for Family Wealth and Legacy?
West always wants clients to address this as soon as possible, whether you’re in your ‘20s or in your ‘60s. “If you got hit by a truck today and you’re no longer on this earth, did you leave things for your family organized and in control, or did you leave them a mess?” he asks. There are plenty of opportunities to set your family up for success long after you’re gone.
If you choose one thing on this list to do today, it’s this one. Says West, “People constantly push this down on their to-do list. I had a client come in here yesterday because they had a major health scare last week, and we looked into their beneficiaries on their life insurance policy, and it was their ex-spouse. That happens all the time because people just aren’t thinking about it.”
It’s important to double-check your trust, will, and life insurance at regular intervals. But it’s also important to look at other savings and investment vehicles that can pass wealth to other members of your family, like a 529 account. “There are really smart ways to help your kids or grandkids’ education, but also your family in general,” says West. “You can change the beneficiary for the 529 to other family members so it can continue to help your family, and if they don’t use all of it, they can move it into a Roth IRA. It’s a smart way to help them.”
4. Be smart about your philanthropy
How Can Charitable Giving Be a Tax Strategy?
West encourages every CEO to think about their broader legacy. Philanthropy is a tax strategy, but he also feels passionate about the importance of paying it forward. “I love working with people who want to make a difference,” he says. “And it doesn’t mean you have to give every cent to charity. So when they do want to give, it’s my job to help them do it smartly.”
There’s nothing wrong with writing a check to a foundation or organization that speaks to you. But West recommends going deeper with stock shares, business shares, or real estate assets that can really fuel important programs for these organizations—and give you a tax break, too. “If you just donate without thinking it through with all of your assets available, you can lose out on certain tax benefits,” he says.
Be proactive about your wealth management
CEO Coaching International is proud to partner with Carson Wealth. What that means is our coaching clients don’t just get access to CEO coaches who have been in their shoes before—they also can seek advice from specialized experts like West, who work to optimize other aspects of your business and your life.
Learn more about Carson Wealth
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, the firm has coached more than 1,500+ CEOs and entrepreneurs across 100+ industries and 60 countries. Its coaches—former CEOs, presidents, and executives—have led businesses ranging from startups to over $10 billion, driving double-digit sales and profit growth, many culminating in eight, nine, or ten-figure exits.
Companies that have worked with CEO Coaching International for two years or more have achieved an average revenue CAGR of 25.9%, nearly 3X the U.S. average, and an average EBITDA CAGR of 39.2%, more than 4X the national benchmark.
Discover how coaching can transform your leadership journey at ceocoachinginternational.com.
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