“Tax Regulations” probably doesn't top anyone's list of topics to pursue during annual meetings. But for many financial advisory firms and their chief financial officers, wading through that subject offers fertile ground for opportunity.

I navigate this landscape daily, consistently telling clients that strategic tax decisions are often the unsung heroes of their businesses, quietly freeing up resources, buffering against risk and ultimately providing favorable conditions for substantial growth.

Optimal tax structuring is the cumulative effect of choosing the right entity, tapping into available credits, taking advantage of well-designed retirement plans and staying vigilant about new rules. One of the primary responsibilities for chief financial officers is to ensure the firm’s financial health — and that these tax strategies will give you a competitive edge.

In a rapidly evolving financial landscape, where does this potential lie? Let's break down the three core focus areas.

1. Structure for Maximum Tax Efficiency

A surprising number of firms never reconsider their default LLC or S-Corp status after they start growing. When earnings cross a certain threshold, rethinking entity classification can open new avenues for minimizing taxes. Smaller or midsize firms often enjoy the savings that an S-Corp can deliver by distributing a portion of income as shareholder distributions, rather than solely as wages.

And once personal tax brackets move beyond 21%, exploring a C-Corp structure becomes more appealing. The 21% flat corporate tax rate can significantly trim the total tax bill when dividends or other distributions are managed wisely.

QBI Deduction

Financial services may be labeled a “specified service trade or business," but that doesn’t spell doom for the 20% qualified business income deduction under Section 199A of the tax code. Advisors can use this deduction as long as taxable income remains beneath specific thresholds — the phase-out begins at $191,950 for single filers or $383,900 for joint filers in 2024.

It requires close monitoring of both salaries and distributions, but the resulting tax savings can be a major advantage.

Strategic Retirement Plans

Offering a Cash Balance Pension Plan alongside a 401(k)/profit-sharing plan has been a breakthrough strategy. By contributing to both, we can defer more income than we ever could with a traditional 401(k) alone. While these plans come with administrative costs and contribution requirements, the increased tax-deferred retirement savings have made them well worth the effort.

SALT Workarounds

The $10,000 state and local tax deduction cap can be a heavy burden in high-tax states. However, many states now offer pass-through entity tax elections that effectively shift state income taxes to the business entity itself. By doing so, we’ve been able to deduct these state taxes at the entity level — completely bypassing the SALT cap.

It’s a strategy that has saved my firm tens of thousands of dollars annually; it can work for yours as well.

2. Key Credits and Deductions

R&D Tax Credits

It’s easy to dismiss the research and development credit if you’re not building traditional tech. However, many organizations have successfully claimed it for developing artificial intelligence-driven financial modeling, upgrading compliance automation tools and refining risk assessment platforms. If you’re pouring resources into proprietary fintech, it’s worth exploring whether your efforts qualify for research-related tax breaks.

Work Opportunity Tax Credit

Hiring veterans and long-term unemployed individuals enables firms to earn credits of up to $9,600 per eligible employee. Not only will it bolster the bottom line, but it will also foster a more diverse and community-focused hiring strategy.

Energy Efficiency Tax Credits

Owning our office buildings gave us the opportunity to claim substantial deductions through Section 179D of the tax code after installing energy-efficient HVAC systems and lighting. If your firm has made similar upgrades, you may be sitting on a valuable tax deduction that also aligns with sustainability goals.

Home Office Deductions

With remote and hybrid work becoming more prevalent, many companies are setting up dedicated home offices. Ensuring that everyone adequately documents these spaces can yield legitimate home office deductions. When implemented correctly, this strategy a simple way to lower overall taxable income — particularly if much of your firm’s workforce operates remotely.

3. Work With a Tax Advisor

To ensure that we're always operating at peak tax efficiency, several key areas demand consistent attention.

First, tax strategies should be dynamic. Legislation evolves, and what worked last year might be suboptimal now. Therefore, a regular reassessment — at least annually — of structures, compensation models and deduction approaches is crucial to capturing new opportunities and discarding outdated methods.

Beyond compliance, strategically leveraging tax-efficient investment vehicles within internal portfolios, like tax-loss harvesting, qualified dividends and municipal bonds, provides a compounding advantage over time. Furthermore, as we consider strategic growth moves such as mergers and acquisitions, the tax implications become even more intricate. Proper deal structuring, addressing aspects like asset or stock sales, installment payment strategies and goodwill treatment can significantly affect the financial success of such ventures.

Finally, recognizing the specialized nature of tax law, particularly within professional service firms, engaging with expert CPAs provides invaluable insights. Their knowledge base ensures that you uncover hidden savings and proactively adapt to the ever-shifting legislative landscape.

Tal Binder is CEO of Gelt, a provider of tax solutions for individuals and businesses.

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