For many individuals, tax planning is reactive. They suddenly notice Tax Day sneaking up on them and then scramble to find the documents and help they need to meet their obligations. In many cases — approximately 19 million per year, according to the US Internal Revenue Service — filers simply give up on meeting the deadline and request a six-month extension.
A proactive approach yields much better results. Rather than stumbling toward the annual April 15 deadline, unsure if they’ve identified all the ways to maximize their tax strategies, a proactive approach gives filers plenty of time to identify and carry out all the steps that will serve their unique tax profile.
“The best thing filers can do to make the most of tax season is to begin preparing well before it begins,” says Arron Bennett, Founder of Bennett Financials. “The best approach is to begin preparing early in the year, rather than put prep work off and find yourself scrambling to get taxes done as the deadline approaches.”
Bennett founded Bennett Financials to help businesses save substantial amounts on taxes through advanced tax planning strategies typically reserved for ultra-high-net-worth individuals. Over time, he expanded the firm’s services to include Fractional CFO roles, guiding clients on how to reinvest tax savings into strategies that skyrocket their profitability and accelerate business growth. Today, the firm provides strategic financial guidance, offering expert tax planning and long-term financial growth strategies.
“Many high-net-worth individuals we work with plan throughout the entire year rather than waiting until December,” Bennett shares. “Most major tax strategies start coming off the table in August, September, October, and November. For this reason, many of my higher-net-worth clients — those with $1 million, $5 million, or $10 million — begin consulting with us very early in the year.”
Making time for advanced tax strategies
Optimizing tax planning strategies often involves making changes to spending and saving patterns well before tax filings are due. Filers who wait until the last minute to engage with tax filings essentially disqualify themselves from making many of the moves that can benefit them.
This can include, for example, the approach filers take to charitable giving. Timing donations to occur at a particular time — a strategy known as donation bunching — can increase deductions in a way that reduces tax obligations.
Setting up and funding tax-advantaged accounts, such as health savings accounts, is another proactive way to optimize tax planning strategies. Making the maximum donation to retirement accounts can also reduce tax obligations.
Bennett points to investing in sustainability initiatives as a way to proactively reduce tax obligations. A number of renewable and clean energy credits are available, and investors can often also claim deductions for expenses related to launching and maintaining sustainability initiatives.
“Solar projects often provide a $1.10 to $1.20 tax credit for every dollar invested, along with significant depreciation benefits that lower adjusted gross income,” Bennett explains. “Including that type of investment in our client’s tax strategies allows them to get more than a dollar deduction for every dollar invested.”
However, claiming those types of adjustments demands that filers be proactive and launch tax planning strategies well before tax season.
“Our clients know that waiting until December or later limits their ability to access key tax deductions, so they proactively engage with their tax team early to stay ahead,” Bennett says. “With solar projects, for example, clients may invest in these monthly, allocating $5,000, $10,000, $15,000, or even $20,000 per month throughout the year. This spreads out the cash flow impact and avoids the need for a large lump sum at the end of the year.”
Combining tax savings and high ROI
With advance planning, filers can take the steps necessary to integrate their tax strategy into their overall wealth-building strategy. This allows them to consider how tax optimization can fuel their investing and which investments can support their tax planning strategy.
“Proactive planners seek strategies that allow for both tax savings and a return on investment,” Bennett says. “For example, oil and gas investments often yield a 60 to 92 percent depreciation expense on the dollar. If a client’s proactive tax planning yields $100,000 in tax savings, they can reinvest that $100,000 into oil and gas projects, which might provide $92,000 in depreciation and, in the long term, a return of around 140 percent. Similarly, real estate investments offer depreciation that offsets active income, cash flow positivity, and long-term appreciation when sold.”
Bennett suggests that the overarching goal of tax planning should be to find as many ways as possible to use money more than once. For example, itemized deductions allow you to use your money for charitable donations or medical expenses, and then use it again to lower your taxable income and overall tax bill.
“Whether through solar projects, oil and gas, or real estate, your tax planning strategy should focus on leveraging every dollar for more than a dollar’s worth of benefit while ensuring a strong rate of return,” Bennett explains. “This proactive, strategic approach is essential for maximizing tax efficiency and overall wealth growth.”