3 Smart Ways Entrepreneurs Can Make Tax-Efficient Investment Decisions Examining your entire financial situation and incorporating sound tax and wealth advisory can help entrepreneurs achieve more.

Smart entrepreneurs should be equally interested in the financial performance of their businesses as with the performance of their personal finances. You want your business to succeed, but owners also want to generate and protect personal wealth—to help accomplish life goals and have something to pass along to the next generation.

Incorporating tax efficiency into your personal finance strategy can help entrepreneurs improve that performance. Considering the tax implications of investments can add plenty of value, and entrepreneurs have several investment options, accounts, and strategies to choose from. However, consulting with a trusted financial advisor with tax experience before considering tax-efficient strategies offers financial advantages and peace of mind.

Entrepreneurs can greatly benefit from taking a holistic view of their financial situation and seeking advice from tax and wealth advisors such as CLA (CliftonLarsonAllen LLP). By doing so, they can engage in more strategic financial planning and align all aspects of their finances toward achieving their goals.

Here are three tax-efficient investment strategies that can set the foundation for long-term personal financial success, allowing you to focus on running your business.

1. Tax-efficient investing.

Tax-efficient investing helps entrepreneurs improve financial outcomes within complex tax scenarios. Clayton Bland, Chief Wealth Advisory Officer at CLA—which offers wealth advisory, digital, audit, tax, outsourcing, and consulting services—suggests something called tax loss harvesting as a key strategy.

"Tax loss harvesting allows investors to use losses to offset capital gains realized throughout the year." Bland explains, "Additionally, it enables investors to rebalance their portfolios by reallocating funds from underperforming assets to potentially higher-performing ones." He emphasizes the importance of timing, particularly at year-end, to boost tax benefits.

When implementing tax loss harvesting, it's important to consider your entire asset portfolio, including non-traditional investments. Tax loss harvesting can be used for general investments but not on tax-deferred accounts, such as individual retirement accounts (IRAs) and 401(k)s. Coordinating tax loss harvesting with overall financial goals, considering investment objectives, and liquidity needs is crucial.

Bland also advises aligning financial strategies with philanthropic giving. For example, donating appreciated securities (profits from shares of common stock) to a donor-advised fund can be more advantageous than cash donations. This allows donors to avoid capital gains tax while claiming a charitable gift exemption.

Donor-advised funds also offer flexibility in donation timing, facilitating strategic charitable giving. As CLA Chief Tax Officer Jill Bosco points out, "The flexibility of donor-advised funds for phased charitable giving allows for tax deductions upfront while distributing donations over time."

2. Cash-flow analysis.

Cash-flow management is about keeping track of the money that comes in and goes out. It's important to know where your money comes from, how you spend it, and how to keep enough on hand to avoid problems and meet your financial goals.

Entrepreneurs are now turning to money market funds and U.S. Treasuries for liquidity and attractive returns amid interest rate volatility. Bland says, "When you can effectively earn more than 5% for a risk-free investment, it allows for both liquidity and a fairly attractive rate of return." This perspective is reshaping how CLA approaches the concept of financial safety nets.

The core of cash flow management lies in aligning your income with spending while not losing sight of tax efficiency. "Identify necessary spending needs, wants, and wishes and align them with income in a tax-efficient manner," Bosco emphasizes. It's a strategy that focuses on the importance of managing and enhancing your cash flow so every dollar is serving a purpose.

Bosco underscores the need for entrepreneurs to take an active role in these discussions. "An entrepreneur being an active participant in conversations around tax planning and how that will impact their cash flow is critical," she says.

3. Risk management.

Risk management, especially in succession planning, requires a proactive approach involving wealth advisors and tax professionals. Succession planning—identifying who will assume the most important roles within your business—typically begins three to five years in advance of retirement. This process involves business and personal financials but also addresses the emotional aspects of handing over control.

To navigate this effectively, engaging wealth advisors and tax advisors early on is essential because there is no one-size-fits-all approach. This is something that CLA, with its experience advising more than 75,000 privately held businesses across various industries, knows well. Bosco emphasizes the importance of having the right people, such as wealth advisors and tax professionals, involved in these critical conversations.

For entrepreneurs, tax-efficient investing can offer significant benefits. However, it's challenging to navigate alone. CLA integrates wealth and tax advisors to provide a more comprehensive investment experience. With skilled guidance, entrepreneurs can confidently manage their finances and create strategies to help achieve their personal financial goals.

Click here to learn more about how tax-efficient investing and working with a wealth advisor like CLA can help you accomplish your biggest financial goals.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CLA) to the reader. For more information, visit claconnect.com.

CLA exists to create opportunities for our clients, our people, and our communities through our industry-focused wealth advisory, digital, audit, tax, consulting, and outsourcing services. CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See claglobal.com/disclaimer. Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.