A note to clients: If you know someone who is frustrated by a surprise on their tax return this year, please consider forwarding this along to them.
I have yet to meet a successful family that is excited about paying more in taxes than their “fair share.” That’s why we have a recurring desire from new clients: “Help me lower my tax bill this year.”
While we sympathize with the intent, we also have to re-focus the conversation around the correct aim–paying less over your lifetime, not just this year. Why? If you are trying to notch a new low score on your tax return, it’s tempting to over defer your taxes until later years. In many cases, those later are at higher tax rates as Social Security and RMDs have kicked in. You’ve paid less this year by paying even more in the future.
Suddenly, that sounds less like good tax planning.
Taxes Are Not a One-Year Event
At Covenant Wealth Management, taxes aren’t treated as a one-year event. They’re an ongoing input into the financial plan right alongside income, investments, risk management, long-term goals, and everything else that shapes a family’s financial life.
Multi-year tax planning allows families to evaluate decisions before they show up on a return, when there’s still room to make thoughtful adjustments. That shift, from reacting to last year to planning for the years ahead, is where real tax optimization usually starts to emerge.
Why Isolated Decisions Create Problems
Many tax-sensitive decisions don’t make sense in isolation:
- The timing and source of retirement income
- Roth conversion opportunities
- Investment transitions
- Charitable strategies
Viewed one year at a time, these decisions can feel disconnected, but when they’re viewed across several years, families can begin to:
- Smooth taxable income instead of unintentionally stacking it
- Avoid unnecessary jumps into higher tax brackets
- Anticipate thresholds, surtaxes, and other details that can surprisingly snag you along the way
The goal isn’t minimizing taxes in any single year. It’s making thoughtful trade-offs over time to manage taxes well across all the years of your life.
Why This Matters Even More for Business Owners
For business owners, multi-year planning is especially important when dealing with irregular income and capital events, whether a partial or full sale of a business or another liquidity event.
The timing and method of those events can significantly affect:
- Money you keep after taxes
- Ongoing cash flow
- Long-term flexibility
- Future tax brackets
When these decisions are coordinated inside a broader financial plan, families are far less likely to be forced into reactive choices later.
The Things That Are Easy to Miss
Multi-year planning also helps surface items that aren’t always obvious in a single year:
- Medicare premium thresholds
- Net investment income taxes
- Shifts in deductions or credits
These aren’t intuitive and are often overlooked unless someone considers the complete picture. Ignoring them doesn’t usually cause immediate problems, but over time, they can materially affect the outcome.
The Bottom Line
Multi-year tax planning doesn’t eliminate taxes, but it can reduce surprises and potentially optimize outcomes. By integrating taxes into a comprehensive financial plan, families can move from reacting to last year’s return to making informed decisions about future years. That’s a key part of stewarding wealth intentionally.
The most effective tax planning doesn’t happen in April. It happens over time.
At Covenant Wealth Management, we approach planning through the lens of financial independence, helping families steward what they’ve built so work becomes optional, and decisions stay intentional over time.
If reading this raised questions or made you curious about how your own planning fits together across the next several years, that’s a good place to start. Thoughtful planning begins with awareness, and awareness begins by looking a little farther ahead.