How the Wealthy Use Tax Planning as a Tool for Growth - Part 3

Table of Contents

• Go Beyond Multifamily Summit

• How the Wealthy Use Tax Planning as a Tool for Gro …

• Entity Structuring: Stop Giving the IRS More Than …

• Passive vs. Active Income: Why Your Real Estate Lo …

• Ways to work with us

If you’re just joining us—first of all, welcome! (And where have you been?) We’ve been diving into the surprisingly strategic world of tax planning—not just the “check the box” kind, but the kind that fuels growth. In this installment, we’re continuing to unpack how tax planning shapes the way we think, plan, and build. In previous posts we discussed

Part 1 - Why Tax Planning Isn't Just for the Wealthy (or Tax Season)

Part 2- The Tax Planning Lifecycle – What You Need at Each Stage

Before we dive in—shameless appearance plug incoming! I’m excited to be speaking at the Go Beyond Multifamily Summit this Friday and Saturday. Catch me on Saturday from 5:40–6:10 PM on the Retirement Loophole panel (yes, it’s as juicy as it sounds). Haven’t signed up yet? It’s free to register, so go ahead and lock in your spot: https://gobeyondmultifamily.com/

How the Wealthy Use Tax Planning as a Tool for Growth

We’ve saved our clients over $30 million in taxes over the last five years. Yes, million with an "M." Sounds like a late-night infomercial, but it’s real—and it didn’t happen with one flashy trick. It happened through consistent, proactive planning.

Before we start imagining yachts and private jets, let’s get grounded: most of our tax plans save clients five figures. Not every win is headline-worthy, but small, smart moves add up quickly. The only way to actually save money on your taxes? Be proactive.

If you’re waiting until April to “do your taxes,” it’s too late to do anything about them. If you’re waiting until December to call your CPA, you’re behind a crowd doing the same. And if you feel like you pay too much in taxes, it’s probably because… you do.

It’s like that old saying: the best time to plant a tree was 30 years ago. The second-best time? Today. Same goes for tax planning.

Take this example: we save a client $30,000. That’s money in their pocket now. If they invest it with a modest 6% return over three years, that grows to $35,730. Not bad for dollars the IRS was never going to refund anyway.

Entity Structuring: Stop Giving the IRS More Than You Owe

If your business has outgrown side hustle status, you need to be thinking strategically about your entity structure. Why? Because your setup might be quietly draining your bank account.

Say you’re making $200K or even a million in revenue and still operating as a sole proprietor. Congrats—you’re paying self-employment tax (an extra 15%) on top of your income tax. If you’re in the top bracket (37%), you’re giving away 52% of every dollar you make. Ouch.

Same goes for certain partnerships. If you're a general partner, you're getting hit with self-employment tax, too. That’s why the S-Corp is a secret weapon. S-Corp income is subject to income tax, yes—but not self-employment tax. That same $200K could be taxed at 37% instead of 52%. Huge difference.

Quick PSA: you do have to pay yourself “reasonable compensation” as an S-Corp owner, and setting it up right takes planning. But done correctly, it can save you thousands—year after year.

Then there’s the ever-popular LLC. We love them too. An LLC is a tax structure shapeshifter—it can be treated as a sole prop (please don’t), partnership, S-Corp, or even C-Corp. That flexibility is gold. But remember: for IRS purposes, your tax classification matters more than the LLC label.

C-Corps, with their flat 21% tax rate, sound appealing—and sometimes they are (like in income-splitting or deferral strategies). But they need to be deployed carefully. That’s what we’re here for.

And don’t forget the asset protection side. LLCs, partnerships, and corporations shield your personal assets from lawsuits. Sole proprietorships? Not so much. If something goes wrong, your house, your car—even your dog’s orthopedic bed—could be at risk.

Bottom line: entity structure isn’t just about taxes. It’s about preserving what you’ve built.

Passive vs. Active Income: Why Your Real Estate Losses Might Not Help Your W-2

We work with a lot of real estate investors and syndicators, and here’s a crucial truth: passive loss limitations are real. If you think your real estate K-1 losses can offset your W-2 or business income, slow your roll.

The IRS breaks income into three categories:

1. Active – W-2 or business income where you're materially involved.

2. Portfolio – Stocks, bonds, dividends, capital gains.

3. Passive – Real estate and other activities you’re not actively managing (like LP interests in syndications).

Here’s the catch: passive losses only offset passive income. So if you're a CPA (hello again) or have a regular job, and you get big passive losses on a K-1, you can’t use them to reduce your active income.

The good news? Those losses aren’t gone—they’re just suspended. You can use them later, either when:

• You generate passive income, or

• You sell the investment that created the loss.

This is where strategy matters. We help clients structure income and participation to match losses with the right type of income—and yes, sometimes even unlock those passive losses sooner.

Heard of real estate professional status? That’s the unicorn that allows passive losses to offset active income. It’s legit, but the bar is high. Definitely not for hobbyists.

We’ve helped clients unlock real value here by looking at their whole picture: businesses, roles, entities—then designing a game plan that works.

There’s more we could dive into—like how to reduce taxes through strategic investments, bonus depreciation, or deferral tools like 1031 exchanges and Opportunity Zones—but we’re flirting with the attention-span cliff here.

If you want to go deeper, reply to this email. Seriously, tell me what you want to know and we can get you answers.

And don’t miss what’s coming next in this 5-part series:

• In Part 4, we’ll share Real Stories – Case Studies from the Firm, so you can see how strategic planning looks in the real world.

• Then in Part 5, we’ll reveal why Tax Planning Starts with Clean Books—and how to get yours in order.

 If you’re ready to get proactive, we offer three ways to work with us for tax planning. (And yes, we’ll help you pick the right one.)