Tax Time – Strategies for Tax Sheltering
By Denise French, EA, CRPC, CDFA, MAFF/CVA, ABV
Tax season is more than a filing deadline—it is an opportunity to proactively manage your tax liability and strengthen your long-term financial plan. Effective tax sheltering is not about aggressive tactics or gray areas. It is about using legitimate, IRS-approved strategies to reduce taxable income, defer taxes, and improve after-tax wealth.
Whether you are a business owner, high-income professional, or rebuilding financially after divorce, thoughtful tax planning can produce meaningful savings year after year.
Below are core strategies I regularly review with clients.
What Tax Sheltering Really Means
Tax sheltering involves legally reducing current tax exposure by:
The goal is not simply to pay less tax this year—but to improve your lifetime after-tax outcome.
Strategy #1: Maximize Retirement Contributions
One of the most reliable and straightforward tax shelters is retirement plan funding.
Employer-Sponsored Plans
If available, prioritize contributions to:
Benefits include:
Advisor tip: Many high earners underutilize catch-up contributions after age 50—an often-overlooked opportunity for additional tax-advantaged savings.
IRA Contributions
Depending on income and eligibility:
Even when a deduction is not available, tax-deferred growth can still be valuable. High-income individuals may also benefit from strategies such as backdoor Roth IRA contributions.
Strategy #2: Use Health Savings Accounts (HSAs)
For those enrolled in a high-deductible health plan, an HSA is one of the most powerful tax tools available.
HSAs offer triple tax advantage:
When used strategically, HSAs can function as a supplemental retirement account for healthcare costs.
Advanced planning note: Some clients pay medical expenses out of pocket and allow the HSA to grow long term.
Strategy #3: Optimize Business Owner Opportunities
For self-employed individuals or business owners, tax sheltering opportunities expand significantly.
Common planning tools include:
In many cases, business owners have the largest tax-planning runway—but only if planning occurs before year-end.
Strategy #4: Strategic Use of Depreciation
Real estate and certain business assets allow depreciation deductions that can shelter current income.
Potential tools:
However, depreciation strategies must be evaluated carefully, particularly in divorce or pending sale scenarios, due to potential recapture issues.
Strategy #5: Tax-Loss Harvesting in Investment Accounts
In taxable brokerage accounts, harvesting losses can offset capital gains and reduce current tax liability.
Key principles:
Important caution: Avoid wash sale violations when repurchasing similar securities.
This strategy is especially valuable in volatile markets. Your advisor should be automatically doing this for you each year. We perform this task annually for our clients.
Strategy #6: Charitable Giving Strategies
For charitably inclined clients, giving can be structured to enhance tax efficiency.
Options include:
Donating appreciated stock can eliminate capital gains tax on the gifted shares while still generating a charitable deduction.
Strategy #7: Review Filing Status and Dependency Planning
In divorce and co-parenting situations, tax sheltering is not just about investments—it is about proper filing strategy.
Planning opportunities may include:
A coordinated approach between financial advisor, CPA, and attorney often produces the best results.
Strategy #8: Income Timing and Deferral
For clients with variable income (bonuses, RSUs, business income), timing matters.
Potential planning moves:
Advisor insight: The years immediately following divorce often present unique low-income planning windows.
Common Mistakes to Avoid
In my practice, the most frequent tax-planning missteps include:
Tax planning is most effective when it is proactive—not reactive.
Final Thoughts
Smart tax sheltering is about intentional planning, not last-minute scrambling. The most successful strategies are implemented thoughtfully throughout the year and aligned with your broader financial goals.
If you are navigating a major life transition—such as divorce, business growth, or approaching retirement—this is an ideal time to revisit your tax strategy. Small adjustments made early can compound into significant long-term savings.
As always, any tax strategy should be reviewed in coordination with your CPA and tailored to your specific situation.