Step 3 of Saving Taxes Your Way: Prioritize
There are dozens of tax strategies. Most people either pick one randomly because they heard about it online, or they never pick at all. Neither works.
Prioritizing means ranking the strategies that actually fit you, and there’s a framework for it.
The Tax Code Is Full of Exceptions
The general rule in the tax code is simple and brutal. Everything is taxable, nothing is deductible, and there are no credits. The rest of the code (tens of thousands of words) is the exception to that rule. Every strategy lives somewhere in those exceptions. The question is which exceptions fit your situation.
Three Filters
You run every candidate strategy through three filters. The ones that pass all three go to the top of the list.
Optimized means the highest tax savings relative to what it costs you to run the strategy. This is pure math.
Take a Roth IRA. Say you have $100,000 to invest. In a taxable brokerage account, that grows to $1,000,000 over thirty years. At a 20% capital gains rate, you owe roughly $180,000 in tax on the gain. Put the same money in a Roth IRA instead and that growth comes out tax-free. If setting up and running the strategy costs you $5,000 in professional fees, the ROI is $180,000 saved on a $5,000 investment. That’s 36x, or a 3,500% return. Clears any ROI bar.
Real estate works the same way. A $1,000,000 property growing at 3% annually is worth about $1,159,000 after five years. Add depreciation and other deductions generating fifty cents of tax savings per dollar invested and the total return looks very different than straight appreciation alone. Run the math on every strategy in dollar terms. Dollars in, dollars out. If it clears your threshold, it stays in the running.
Convenient means it fits your resources and your skill set, not just your spreadsheet. A strategy that requires $300,000 in liquid capital is convenient if you have $1,000,000 sitting in cash. It’s not convenient if you’re running lean. A strategy that requires building a rental business isn’t convenient if you’ve never managed a property. Inconvenient strategies burn time and money getting up to speed, and that cost eats into the ROI you calculated on paper.
The most convenient strategies are almost always things you’re already doing. Look at your statement of net worth. What’s already there that isn’t working as hard as it could from a tax standpoint?
Preferred means it fits your personality and your life. This is where your P&L comes in. Money doesn’t lie. What you’re already spending on tells me what you already enjoy. If your P&L shows you traveling constantly, travel deductions are a natural fit. If your net worth statement shows real estate stacking year after year, real estate strategies belong at the top of the list. If your P&L shows regular giving to causes you care about, there are charitable strategies worth exploring.
The strategy that lands at the intersection of all three is your top priority. Anything that hits two of three goes second. Anything that hits only one goes to the bottom of the list or off it.
Why Strategies Fail
People abandon tax strategies when the perceived cost (in time, money, or stress) exceeds the perceived reward. That’s it. A strategy that looks brilliant on paper but requires you to do things you hate or don’t have time for will get dropped. Once you drop it, you get none of the benefit.
A 90% optimized strategy you actually run beats a 100% optimized one you abandon. Every time.
Short-term rentals are the clearest example. The tax savings are real and can be enormous, but they require active management, 100+ hours of material participation, tenant issues, maintenance, and the operational grind of running a hospitality business. For the right person, it’s a natural extension of what they already do. For the wrong person, it becomes a nightmare they quit inside a year and the savings never materialize.
Same applies to oil and gas investments, qualified opportunity zones, automobile deductions, charitable strategies, and plenty of others. They work for the right person. They fail for the wrong one.
What It Looks Like in Practice
Here’s a real example. A client is a real estate investor. It’s obvious from his statement of net worth. The portfolio grows every year. His P&L shows money going into real estate education, events, networking. He lives and breathes it. But on his tax return, he isn’t claiming real estate professional status.
Real estate professional status removes the $25,000 passive loss limitation that applies to most investors. If you qualify, losses from depreciation and expenses can offset your ordinary income up to the business loss limitations, which are significantly higher. For someone already spending most of their working hours in real estate, the qualification requirements aren’t a burden. They’re already being met. One tweak to how activity is documented and the savings are substantial.
He was already on the path. We just pointed it in the right direction.
Another example is travel. If you already travel frequently, the question is how much of it can legitimately become business travel. Attend an industry event. Bring your laptop and log real work hours. Do client meetings. When travel is primarily for business and personal activity is incidental, the deductions are real. Your P&L was already showing the spend. We just adjusted the angle.
What Fits, Sticks
The right strategy isn’t the one with the highest theoretical return. It’s the one with the highest practical return, factored for the real probability that you’ll actually run it, consistently, over years.
Prioritize what’s optimized, convenient, and preferred. The intersection is where savings compound into something that actually moves your financial picture.
Stay smart,
Jonathan Sussman CPA
