Tax-efficient investing is a core part of any successful investment strategy, involving both making the most out of tax-advantaged accounts and selecting investments with tax efficiency in mind.
New 2025 tax policy changes offer new opportunities to save, grow and keep more of what you earn. Speak to your advisor about their implications for you specifically.
1. Tax-Free Cash Flow
Financial planning is of vital importance for business owners. This should involve analyzing fixed and variable costs, setting aside contingency funds and reviewing budgets regularly. Effective cash flow management can also help mitigate against risks from an unpredictable economy or market shift.
Tax-efficient investing is a method of investing that reduces taxes on investment returns, leaving more cash for you to invest. By employing strategies such as asset location and investment selection, you can reduce the taxes you owe on investment returns.
Tax-loss harvesting allows investors to reduce their taxable capital gains and pay taxes on less income; similarly, new entrepreneurs can take advantage of larger deduction limits for startup costs to help launch their businesses with minimal upfront tax liabilities.
2. Tax-Free Growth
Tax-efficient investing can make more sense if it becomes part of your overall financial plan. By understanding its benefits and including it into your strategy, you may increase the chance for investment success.
Example: Timing retirement account contributions correctly can help lower taxable income. Furthermore, investing in tax-advantaged accounts to minimize taxes on bond interest and capital gains could further minimize taxes; you could even use a technique known as tax loss harvesting to offset gains that have increased and potentially reduce overall tax liability.
This year is an opportune time to review your tax situation and identify potential planning opportunities that exist. With the final year for the 60 percent bonus depreciation rate approaching year-end 2024, purchasing equipment or technology prior to year-end might prove advantageous; additional considerations could include taking advantage of paid family and medical leave credits or capitalizing on other applicable deductions.
3. Tax-Free Dividends
Now is the time, before tax season hits, to take stock of whether your investments are as tax efficient as they possibly can be. Maximizing your retirement account contribution, investing in tax-advantaged assets, or donating to charities are all good ways to get lower taxes and boost your portfolio.
Municipal bonds (the debt securities of states, counties and cities) pay investors tax free federal income — a popular option for investors who live in high-tax regions or seek steady income.
However, these strategies should not replace a comprehensive investment strategy. Working with an advisor is the best way to evaluate both benefits and costs while tailoring it specifically to your unique situation. Visit our free financial advisor matching tool for more information in finding professionals in your area.
4. Tax-Free Sales
Apart from taking advantage of all available tax deductions for business owners, there are also several strategies they can employ to lower taxable investments and maximize after-tax returns. They include tax advantaged accounts, asset allocation and proactive tax control.
Capital gains means the difference between purchase price and disposal price of an investment. With options such as wash sales limit, tax loss harvesting and maximization depreciation maximization, owners reduce taxes while matching investment strategy with long-term objectives.
By employing these strategies and working with an experienced financial advisor, small business owners can save on taxes, improve cash flow and create a more prosperous future for themselves and their employees. Get started now – schedule a FREE 15-minute consultation now! At Xendoo we specialize in offering tailored tax strategies and real-time insights to help small business owners reduce liabilities and maximize savings – contact us to find out more about our comprehensive services!
