Tax-Aware Investing for Business Owners
Your Advisor and CPA should know each other
At Hoeven Wealth, we believe that investment planning and tax awareness are linked at both the individual and business level. We work closely with your CPA to design a cohesive financial picture in order for your portfolio, your business income, and your tax obligations to all work in harmony. Coupled with other investments, K-1 incomes can begin to introduce layers of complexity. You are trying to build wealth and a business without letting taxes quietly erode the progress you are making.
Quarterly Estimates: A Job We Take Off Your Plate
Coordinating quarterly estimated tax payments at both the state and federal level is just one more thing on your plate. Since your estimates need to reflect your business income, your investment income, any planned distributions, and the credits or deductions available to you, who better to manage this than your financial advisor who has a view into all these moving parts.
We work directly with your CPA to handle quarterly estimated payments at the state and federal level, so you have one integrated team, not a patchwork of advisors working in silos.
We work directly with your CPA to remit your quarterly estimated payments on your behalf. Our goal is to ensure that your estimates are accurate, timely, and calibrated to your full financial picture. This is part of what we mean when we say we are the project manager for your financial life. You pay enough in taxes, don’t leave an unnecessary tip through underpayment penalties or overpayment interest-free loans.
We are not CPAs, and we do not provide tax advice. What we do provide is a level of coordination and proactive communication with your tax professional that most investment managers do not. We share portfolio activity, planned transactions, and year-to-date income projections with your CPA throughout the year to enable real-time coordination.
This kind of collaboration is especially valuable for business owners, whose financial decisions rarely fit neatly into a single domain. Your accountant understands your entity structure and your obligations. We understand your investment portfolio and your long-term goals. When those two perspectives are in regular conversation, the result is a financial plan that is more integrated than what either professional could provide working alone.
Tax-Conscious Portfolio Design
Not all investment returns are taxed the same and neither are all investment accounts. Asset location is the discipline of matching asset types to account types in a way that minimizes the overall tax drag on your portfolio. For business owners with meaningful taxable investment accounts and retirement accounts, this coordination can make a measurable difference, often without changing what you own, just where you own it.
Additionally, one of our key planning considerations for manufacturing and engineering principals and owners is cash flow irregularity. A year in which your business generates unusually high income may not be the year to realize a large capital gain. Whereas, a year with significant deductions or losses at the entity level might be an ideal time to harvest investment gains at a lower effective rate. By understanding where your business income is trending, we can make more informed decisions about when to rebalance, when to harvest losses, and when to hold positions. At Hoeven Wealth, tax-loss harvesting analysis is performed daily. Tax-loss harvesting is most valuable when it is practiced consistently, rather than reserved for dramatic market downturns or a one-time year-end review. For business owners, having a bank of capital loss carryovers provides meaningful flexibility in managing gains in higher-income years.
Coordinating Distributions and Salary
How you pay yourself from your business is one of the most consequential tax decisions a business owner makes. The balance between wages and pass-through distributions affects your self-employment tax exposure, your ability to fund retirement accounts, and your overall effective tax rate. We work with your CPA to understand your compensation structure and design a withdrawal plan that fits within it.
In our Annual Service Calendar, you see that Q1 is when we do our tax efficiency planning with you. In retirement, or in years when your business income is lower, the order in which you draw from taxable accounts, tax-deferred accounts, and Roth accounts can impact your lifetime tax burden. Drawing strategically from each bucket can smooth your tax rate across years, preserve more of your wealth from Required Minimum Distributions (RMD), and potentially give you greater flexibility to manage future tax law changes.
If you are reviewing or preparing your 2025 return and realize you have never had a conversation specifically about how your portfolio is designed around your tax situation, we would welcome that conversation. There is often more opportunity than people realize, and the best time to start planning for next year and when reviewing this year.
Disclosure:
The information presented in this article is intended for general educational purposes and should not be interpreted as individualized financial, investment, tax, or legal advice. Any hypothetical examples, scenarios, or illustrative anecdotes are used strictly to demonstrate financial planning concepts and do not reflect all client results. Because each person’s financial situation is unique, the strategies or ideas discussed may not be appropriate for your circumstances. As an investment adviser representative of a registered investment adviser, we act in a fiduciary capacity and provide advice tailored to each client’s objectives only after adequate understanding of the client’s situation. Before making any financial decisions, please consult with your adviser or another qualified professional.
Neither Hoeven Wealth nor XY Investment Solutions provide tax or legal advice. The tax and estate planning information offered is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
