How we saved a California business owner ~$750,000 in taxes this year

When we first met, his finances looked exactly like most successful business owners’ finances do:

Messy.

Not because he’s unsophisticated — but because he’s focused on the only thing that actually creates wealth: his business.

Here’s what we did.

1. Fix the concentrated portfolio (without triggering taxes)

His investment account was concentrated in a handful of stocks that had grown over time with no real risk management.

We rebuilt the portfolio and harvested around $500k of capital losses throughout the year, which allowed us to rebalance everything tax‑free.

That alone saved a massive amount of tax drag.

2. Add tax‑free income for a CA resident

We added real estate exposure designed to pass through tax‑free rental distributions.

For someone living in California — where ordinary income is routinely cut in half by taxes — receiving tax‑free monthly cash flow is a huge upgrade to after‑tax yield.

3. Install real retirement infrastructure (not just a 401k)

We implemented both a 401(k) and a cash balance plan for the business.

This allows him to defer $300k+ per year, and as a C‑corp, it helps avoid taxation at both the corporate and personal level.

Down the road, the plan is to move:

cash balance plan → rollover IRA → Roth IRA

using what I half‑jokingly call the “super‑duper mega tax‑free Roth conversion” once he retires.

4. Offset salary with ordinary deductions

He takes a reasonable salary from the business.

We paired that with ordinary income deductions from tax‑aware hedge funds in the portfolio, which helped neutralize the tax hit from earned income.

5. Put private equity where taxes don’t matter

Finally, we accessed private equity inside his IRA, where it can compound for decades without worrying about current taxes.

Higher potential returns, zero annual tax drag.

When you add it all up — harvested losses, tax‑free income, retirement deferrals, ordinary deductions, and better asset placement — his 2025 tax bill is roughly $750,000 lower than it would have been otherwise.

That’s the difference between having a pile of accounts and having a coordinated strategy.