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Financial planning strategies to save, defer, or eliminate income taxes

February 03, 2026

by Paresh Shah, CFP®, PareShah Partners LLC

For accountants working closely with clients, the goal is often the same: file accurate returns while ensuring clients pay no more in taxes than legally required. Yet in practice, many tax returns are reactive. The real opportunity lies in proactive financial planning — especially when deployed early in the calendar year. Coordinated financial planning strategies can help business owners and families not only defer taxes but, in some cases, significantly reduce or even eliminate income tax liabilities.

Business Owners

The business-owning client presents a unique opportunity for CPAs and financial planners to collaborate on layering strategies that reduce adjusted gross income, optimize retirement savings and improve long-term tax positioning. The following vehicles should be considered based on business structure, cash flow and the age of the principal owner:

  • Simplified Employee Pension (SEP)IRAs: For sole proprietors or small businesses, a SEP IRA allows for deductible contributions of up to 25% of compensation or $70,000 in 2025. These plans are simple to administer and a great first step for newer business owners.
  • SIMPLE IRAs: Designed for businesses with fewer than 100 employees, these plans allow employee deferrals and man­datory employer contributions. They’re a low-cost entry point into retirement savings with tax-deferred growth.
  • 401(k) + profit sharing plans: These plans offer flexibility and higher limits: $23,500 in salary deferrals plus $46,500 in employer contributions for a com­bined total of $70,000 (or $77,500 for those 50 and older with catch-ups plus additional catch up for those in the age band of 60 to 63).
  • Cash balance plans: These defined benefit plans are ideal for high-income earners, especially those over age 50. They can allow deductible contributions ranging from $100,000 to over $300,000 depending on age and income.
  • Traditional defined benefit plans: Structured to provide a guaranteed income stream in retirement, these plans can accommodate significant annual deductions, especially when front-loaded for retirement catch-up purposes.
  • Combination plans: Pairing a 401(k)/profit sharing with a cash balance plan allows business owners to supercharge their retirement contributions — and deductions — in a tax-efficient way.
  • Restricted Property Trusts (RPTs): These trusts allow C corporation or LLC owners taxed as C corporations to make pre-tax contributions toward a permanent life insurance plan. The tax deduction is taken up front, with future income tax deferral.
  • Captive insurance arrangements: For companies with at least $2 million in annual profits and identifiable risks, forming a captive insurance company can allow tax-deductible premiums while building reserves for self-insured risks. Premiums remain in the ecosystem of the business, growing tax-deferred.

High-Income Families Without Business Income

Clients without business income often feel they’ve exhausted their tax planning options, especially if they’re maxing out employer-sponsored plans. But several strategies remain available, particularly for those with investment portfolios and a willingness to diversify:

Oil and gas partnerships: Investments in drilling partnerships may allow for up to 90% of the initial funding to be deducted in year one through intangible drilling costs (IDCs), especially for those investing as general partners. These deductions can shelter passive income and sometimes offset active income for qualified investors.

Depletion allowance (natural resource income): Approximately 15% of gross income from oil and gas investments can be excluded from taxable income annually due to the depletion deduction.

Leveraged equipment depreciation programs: Programs leveraging IRC §179 and bonus depreciation allow investors to acquire depreciable equipment and claim the deduction in the
current year — even when only a small percentage of capital is deployed as down payment. This strategy is particularly useful when matched to high W-2 or capital gain income.

AQR TA Delphi Plus strategy: Designed specifically for taxable investors, this long/short hedge fund structure has demonstrated the ability to convert short-term gains into offsetting losses and ordinary income into more favorable tax character assets. Over the past three
years, the tax benefit averaged over 10% annually, pushing net after-tax returns well above their pre-tax counterparts.

Each of the above strategies comes with complexities. Implementation must be tailored to the client’s income sources, legal structure, risk profile, and liquidity needs. CPAs know the tax code. Financial planners understand the mechanics of investment vehicles. When these disciplines combine, the result is an integrated, data-driven approach to reducing income taxes — not just at filing, but through the year.

Reprinted with permission of the New Jersey Society of CPAs, njcpa.org.

Paresh Shah is a Certified Financial Planner™ with PareShah Partners LLC. Securities offered through Lion Street Financial, LLC. (LSF), member FINRA & SIPC. Advisory services offered through Merkkuri Wealth Advisors, LLC, an Investment Adviser registered with the U.S. Securities & Exchange Commission. LSF is not affiliated with PareShah Partners or Merkkuri Wealth Advisors.