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When you’re wealthy or a business owner (or a wealthy business owner), tax planning can be complex, and certain strategies may be overlooked — even with professional help.
Tax laws change frequently, and without proactive planning, opportunities can slip through the cracks.
Below are nine tax moves to double-check — including what not to do and what not to miss — so you can minimize your tax bill without falling into traps.
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1. Neglecting backdoor Roth strategies
The mistake: This strategy is often missed because income limits lead many to believe Roth IRAs aren’t an option. But with proper planning, a backdoor Roth can provide decades of potential tax-free growth.
The fix: Use the backdoor Roth IRA. Contribute to a non-deductible traditional IRA, then convert to Roth. Done correctly, the conversion incurs minimal to no tax.
For those with the right 401(k) plan, the mega backdoor Roth allows after-tax contributions beyond normal limits, then converts them to Roth, potentially adding $30,000 to $40,000 annually. (Not all plans allow this, so check yours.)
If you’re a solo business owner, you may be able to add the mega backdoor Roth feature to your plan by working with a qualified third-party administrator (TPA) to customize your solo 401(k) for after-tax contributions and in-plan Roth conversions.
Bottom line: Don’t let income limits block Roth savings. They are powerful tools for long-term tax-free growth.
2. Skipping the health savings account (HSA)
The mistake: Savers may overlook HSAs because they’re less familiar than 401(k)s or IRAs, yet they offer unique tax advantages.
The fix: Max out your HSA if you have a high-deductible health plan. HSAs provide a triple tax break: Contributions are deductible, growth is tax-free and withdrawals for medical expenses are tax-free. Treat it like a stealth retirement account by investing the funds and paying current medical costs out-of-pocket so the HSA compounds untouched.
Bottom line: HSAs are one of the most powerful tax tools available. Don’t overlook them.
3. Failing to deduct self-employed health insurance properly
The mistake: It’s easy for taxpayers to miss this deduction because it’s claimed differently than itemized deductions and the rules aren’t always clear.
The fix: Deduct premiums above the line on Schedule 1 of Form 1040. You can deduct 100% of premiums (even dental and long-term care) for yourself, spouse and dependents if you’re not eligible for an employer plan. This reduces adjusted gross income (AGI), lowering income and self-employment taxes.
Bottom line: Health insurance is costly. Claim this deduction correctly to save thousands.
4. Overlooking the ‘Augusta Rule’
The mistake: Not many people outside of specialized tax planning know about this rule.
The fix: Under Section 280A(g), you can rent your home to your business for up to 14 days annually, and the income is tax-free. Host legitimate business events at your home, charge fair market rent and document everything. The business deducts the rent; you exclude the income.
Bottom line: Done properly, this rule can shift thousands from taxable business income to tax-free personal income.
5. Not employing family members to shift income
The mistake: Families may not realize legitimate employment can create tax advantages.
The fix: Put kids or a spouse on payroll for legitimate work. Wages paid by a sole proprietor or single-member LLC to children under 18 are exempt from FICA taxes.
Their income is taxed at their lower rate — often 0% if under the standard deduction. This shifts income out of your higher bracket and can fund a Roth IRA for the child.
Bottom line: Keep it legal with real work, reasonable pay and proper payroll filings. Done right, it’s a family tax win.
6. Not considering corporate structure
The mistake: Not giving extensive thought into corporate structure and whether or not to elect S corp status.
The fix: Sole proprietors pay self-employment tax on their net business earnings, but with an S corp, only the salary you pay yourself is subject to payroll taxes. Profit distributions beyond your reasonable salary aren’t hit with Social Security and Medicare taxes, offering tax savings year after year.
Once your income exceeds the Social Security wage base, more earnings are subject to Medicare tax (plus a surtax for high earners).
By splitting income between salary and dividends, an S corp can help manage and reduce these taxes, making them advantageous for many profitable small businesses.
Bottom line: For profitable businesses, an S corp can save thousands annually while maintaining liability protection.
7. Thinking the S corp is ‘one-size-fits-all’
The mistake: Some business owners may not realize S corp status comes with rules and costs that need careful evaluation.
The fix: Use the strategy carefully and keep it manageable.
Pay yourself a reasonable salary that reflects the work you actually do. Cutting it too low may save taxes today but can cause serious problems later.
Factor in all the costs, not just the tax savings. Payroll, compliance, changes to the qualified business income (QBI) deduction and separate tax filings add time and expense, and smaller businesses may not see a net benefit.
Simplify your structure where possible. If you operate more than one business, you may not need multiple S corps. The IRS allows a parent S corp to own subsidiaries as Qualified Subchapter S Subsidiaries (QSubs), letting you file a single return instead of several (depending on ownership). If you already have multiple S corps, consolidating or electing QSub status can reduce complexity and accounting costs.
Bottom line: Use S corps strategically. Keep your structure simple and avoid unnecessary entities. Seek unbiased tax-professional help to figure out what is best for your situation.
8. Letting the tax tail wag the dog
The mistake: Splurging on high-end items — like a luxury SUV — simply because you can claim a tax deduction often leads to unnecessary spending.
The fix: Before making an expensive purchase, ask yourself if your business truly needs this upgrade or if you’re just drawn in by the allure of a tax break.
Remember, it’s easy to convince yourself that the deduction makes the splurge worthwhile, but you could end up with an expensive asset you don’t need and be surprised by additional tax consequences when you sell it.
Make sure your buying decisions are based on real business needs, not just the temporary appeal of a tax write-off.
Bottom line: Don’t let tax breaks drive bad financial decisions.
9. Chasing risky tax shelter investments
The mistake: Exotic investments — like oil and gas deals or syndicated conservation easements — promise huge deductions, but they can be far riskier than they appear and may not deliver the tax benefits or financial results you expect.
The fix: Ask yourself: Would I invest if there were no tax benefit? If not, walk away. IRS scrutiny of abusive shelters is intense, and economic substance matters. Stick to investment strategies that make sense before factoring in the tax savings aspect.
If it sounds too good to be true, it probably is — and may result in audits or penalties.
Bottom line: Tax savings should be the cherry on top of a sound investment, not the sundae.
The cost of not knowing
Tax planning is complex, and even experienced taxpayers can overlook opportunities or fall into traps. The key is ensuring every move has solid reasoning beyond “my accountant said so.”
The tax code offers plenty of legal ways to save (including Roth conversions, HSAs and proper deductions) but also pitfalls, such as dubious shelters and unnecessary complexity.
Ask questions, understand the plan and seek second opinions if needed. It’s your money and your return, and it’s up to you to maximize your wealth while staying compliant.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
