Owner resources

Tax-Coordinated Investing for Business Owners, Working With Your CPA

Owners do not need another tax preparer. They need investment decisions made with the tax return in mind and shared with the CPA before year-end, not after. This page covers asset location, gain timing, and Roth-conversion windows, and how a CPA- and CFP®-credentialed advisor coordinates them with the CPA you already use.

Educational only. Not personalized investment, tax, or legal advice. Vital Investment Management, LLC is a fee-only fiduciary and SEC-registered RIA (CRD #300811). Vital does not prepare tax returns or provide legal services. Nothing here is a strategy to “avoid taxes.”

What “tax-coordinated” means here

Every investment decision leaves a tax trail: which account an investment sits in, when a gain is realized, and whether a traditional balance is converted to Roth. Tax-coordinated investing means making those decisions with the owner’s tax picture in view and sharing them with the owner’s CPA early enough to matter. It is not tax preparation and it is not a promise of a lower bill. The point is to avoid unforced errors and to time decisions deliberately.

Why owners need this more than most

A business owner’s income rarely moves in a straight line. Pass-through income, distributions, bonuses, retirement-plan contributions, a large equipment purchase, or a partial sale can change taxable income a lot from one year to the next. Portfolio decisions made without that context can land in the wrong year. Decisions made with it can use the years when income is lower.

Asset location: which account holds what

Asset location means deciding which holdings belong in taxable brokerage accounts, which in tax-deferred accounts such as a 401(k) or traditional IRA, and which in Roth accounts. Interest, dividends, and realized gains are taxed differently by account type and holding period. Holdings that throw off a lot of ordinary income are often considered for tax-deferred accounts, while broadly diversified, lower-turnover holdings are often considered for taxable accounts. The right answer depends on the household’s overall allocation, liquidity needs, and expected tax brackets. Location changes inside retirement accounts generally do not create a current tax event; changes in taxable accounts can.

Gain and loss timing

• Holding period. Gains on positions held more than one year are generally taxed at long-term rates, and gains on shorter holdings at ordinary rates. A sale a few weeks later can be taxed differently.
• Lower-income years. A year after a sale, a sabbatical, a business loss, or a heavy reinvestment year may be a better year to realize gains or rebalance a concentrated position. Your CPA can say whether it is.
• Harvesting losses. Realizing losses to offset gains can be useful, but the wash-sale rule disallows a loss if a substantially identical security is bought within 30 days before or after the sale. Harvesting is about record-keeping and coordination, not a source of return.
• Large liquidity events. A business sale, an earn-out payment, or a large distribution should be sequenced with estimated tax payments so the cash and the tax arrive in a planned order.

Roth-conversion windows

A Roth conversion moves money from a traditional IRA or eligible plan balance into a Roth account. The converted amount is generally taxable in the year of conversion. Owners tend to look at conversions in years when taxable income is unusually low, for example after a business sale closes, between leaving the business and starting Social Security or required minimum distributions, or in a year the business shows a loss.

A conversion cannot be undone once it is made. It can raise the tax bill for the year, affect estimated payments, and change Medicare premium brackets in later years. Separate five-year rules apply to Roth withdrawals. Whether a conversion makes sense, and how much to convert, should be modeled with your CPA using a current-year projection before December 31.

A calendar that keeps the CPA in the loop

A CPA and CFP® on the investment side, with your CPA still preparing the return

Dillon Goodman is a Certified Public Accountant (licensed in Colorado since 2019) and a CERTIFIED FINANCIAL PLANNER™ professional, as disclosed in Vital’s Form ADV Part 2B. That background helps him ask better questions about sequencing, cost basis, and entity distributions. At Vital, his role is investment management and financial planning. Vital does not prepare or file tax returns. Your current CPA stays your tax preparer, and we share proposed trades, conversions, and large withdrawals with them before anything is executed.

Questions to ask any advisor who says they are tax-aware

• Who prepares my return, and how will you share proposed trades with that person before year-end?
• How do you decide which holdings go in taxable, tax-deferred, and Roth accounts?
• How do you track cost basis and wash-sale windows across all of my accounts, including ones you do not manage?
• What would make a Roth conversion a bad idea for me this year?
• How are you paid, and does any tax-related recommendation change what you earn?

What this page will not do

• Project returns, “tax alpha,” or a percentage of tax saved.
• Promise that any technique reduces or eliminates tax.
• Replace your CPA, tax attorney, or the preparer who signs your return.

Related reading

• Tax-efficient investing for Colorado owners
• Business retirement plans: SEP vs SIMPLE vs solo 401(k) vs cash balance
• Investing business sale proceeds
• What fee-only investment management costs
• Investment management

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