Securing extra income is never a bad thing, but it can feel like you’ve made a mistake when the tax bill arrives. As a high-net-worth individual in the thick of your top-earning years, you’re steering important decisions, capitalizing on opportunities, and winning big. But that success can come at a steep price without careful tax planning.
If you’ve ever been shocked to see what you owe Uncle Sam, you’re not alone. And if you’ve been surprised to find that there’s no quick, easy fix to this, you’re in good company. I regularly meet with successful business owners who are not only taken aback but deeply frustrated by how much they owe, especially after a strong year or unexpected income event.
The reality is that effective tax planning takes years of strategic, proactive positioning and attentive execution to get it right. Working with a knowledgeable advisor who understands your unique situation can make a considerable difference, helping you keep more of what you’ve worked so hard to earn.
Tax Alpha as the Foundation
Before diving into the importance of strategic tax planning, it helps to zoom out and revisit a concept I’ve written about before: tax alpha.
In that article, I explained that tax alpha is the value created by managing investments with taxes in mind—not by chasing performance, but by narrowing the gap between what your portfolio earns before taxes and what you actually keep after them. Strategies like smart retirement contributions, deliberate asset location, tax-loss harvesting, and charitable planning all work together over time to improve after-tax results.
The takeaway is that two investors can earn the same market returns and walk away with very different outcomes depending on how tax-aware their portfolios are. And the framework is intentionally broad and ongoing, focusing on improving efficiency year after year as your portfolio grows.
Long-term tax planning, however, takes that idea a step further. Instead of asking, “How do I make my portfolio more tax-efficient this year?” it asks, “What do I expect, given multiple possible scenarios, and how do I prepare for it now?”
When a future taxable event is on the horizon, such as a business sale, a partnership exit, or the eventual sale of highly appreciated stock, your planning window opens well before the transaction occurs. This is where multi-year strategies become powerful. By harvesting losses in advance, using tax-aware long/short strategies, and structuring portfolios with future gains in mind, you can stay invested while building a reservoir of tax offsets.
In short, tax alpha improves outcomes over time. Proactive tax planning shapes the outcome of major financial moments, often years before they happen.
When You Know a Taxable Event Is Coming
It’s common for clients to hold back on sharing news about potential additional income with their advisor. Maybe you’re not sure it’ll come through, don’t want to get ahead of yourself, or simply aren’t used to talking about financial windfalls until they’re real. But when you have a trusted relationship with your advisor, it’s worth mentioning these possibilities early, even if they feel uncertain. It gives you more room to plan thoughtfully and avoid surprises later.
A taxable event is any financial action that creates a tax obligation, such as selling an asset at a profit, earning income, receiving dividends or interest, or taking distributions from retirement accounts. For business owners and high earners, the most impactful taxable events are often capital gains tied to a future sale or liquidity event—something you’ve likely been anticipating for some time. [1]
The key is recognizing these triggers early. Even if timing isn’t certain, planning for possibilities opens the door to smarter strategies, like harvesting losses in advance or positioning investments more thoughtfully. You don’t need perfect clarity to plan well. You just need openness, foresight, and time on your side.
Capital Gains and the Power of Planning Ahead
For many business owners and high earners, capital gains taxes are the single largest cost tied to success. A capital gain occurs when you sell an asset, such as a business, partnership interest, or stock, for more than you paid for it. Long-term capital gains are taxed at preferential federal rates (0%, 15%, or 20%), but they’re often layered with the 3.8% net investment income tax and state taxes. When you add it all up, the bite can be a big one, particularly in a large liquidity event. [2]
Research from the Brookings Institution and the Tax Foundation highlights why this matters so much for entrepreneurs. In essence, capital gains taxes influence how and when owners sell, how deals are structured, and how much they ultimately keep. The challenge is that by the time a sale is imminent, many of the best planning opportunities are already behind you. [3, 4]
That’s where planning ahead changes the equation. If you expect to sell a business or unwind a highly appreciated position in the future, even if timing isn’t certain, you can start preparing years in advance. One of the most effective tools is tax-loss harvesting, which involves intentionally realizing losses to offset future gains. Harvested losses can be carried forward indefinitely, creating a valuable reservoir to apply against future capital gains. [5, 6]
Let’s take a look at how this could work.
Consider my client, Tom (name changed to maintain confidentiality). He knew he would be selling his business a few years down the line; at least that was the plan. So Tom began tax-loss harvesting in his brokerage account, ultimately three years before selling his company. Because he started making strategic moves well in advance, he was able to realize losses in down markets while staying invested, accumulating $400,000 in carried-forward losses.
When Tom eventually sold the business for a $2 million gain, those losses immediately offset $400,000 of taxable income. Tax-loss harvesting saved him roughly $95,000 in combined federal and state taxes. Without leveraging this multi-year approach, Tom would have faced the full tax bill with limited options. The planning didn’t happen overnight, but the payoff was substantial when it mattered most.
You don’t have to sit on the sidelines. With smart positioning, you can remain invested, participate in market growth, and quietly reduce the tax impact of a future sale. Capital gains may be unavoidable, but the size of the bill is often negotiable with time, planning, and the right strategy.
Using Tax-Aware Long/Short Strategies to Manage Future Capital Gains
Tax-aware long/short strategies are designed primarily to stay invested while being intentional about when gains are realized. Instead of relying solely on selling appreciated assets, which can trigger large capital gains taxes, the move is to separate market exposure from tax consequences.
At a high level, a long/short approach pairs long positions (investments you expect to grow) with short positions (stocks you believe will decrease in value), and sells borrowed shares to offset market risk. When implemented with tax awareness, the strategy seeks to realize losses during normal market volatility while deferring gains for as long as possible. Those realized losses can then be used to offset future capital gains, including gains tied to a business sale or the sale of concentrated company stock.
The benefit isn’t just tax reduction; it’s flexibility. You can remain invested, maintain diversified exposure, and gradually build a bank of losses that may be applied when a large taxable event occurs down the line. Over time, this approach can materially reduce the after-tax cost of success.
These strategies aren’t about avoiding taxes or making aggressive bets. They’re the result of thoughtful execution, disciplined risk management, and alignment of investment decisions with known or likely future tax outcomes. When used properly, tax-aware long/short strategies turn time into an advantage rather than a constraint.
Why Choosing the Right Financial Advisor Matters
Strategies like multi-year loss harvesting and tax-aware long/short investing only work when they’re executed correctly. Choosing the right advisor goes beyond assessing credentials alone. High earners and business owners should work with a financial professional who understands complexity and collaborates with other experts as needed. These strategies require disciplined trading, accurate reporting, and ongoing coordination across investment, tax, and planning teams.
The goal is to apply the right strategies at the right time, in the right way. If you know a major tax event may be ahead, now is the time to start the conversation. Planning early creates options and better outcomes. Reach out to discuss how proactive, coordinated tax planning could work for you.
Sources:
- https://www.investopedia.com/terms/t/taxableevent.asp
- https://www.brookings.edu/articles/what-are-capital-gains-taxes-and-how-could-they-be-reformed/
- https://www.investopedia.com/terms/c/capital_gains_tax.asp
- https://taxfoundation.org/blog/how-does-capital-gains-taxation-affect-entrepreneurial-activity/
- https://www.investopedia.com/terms/t/taxgainlossharvesting.asp
- https://www.morganstanley.com/articles/tax-loss-harvesting
Sean Gerlin, CFP®, CPWA®, ChFC®, CLU®, is the Founder and Principal of Envision Wealth Planners, a fee-only financial advisory firm serving clients across Central Florida, including Orlando, Winter Park, Maitland, and nearby communities. In 2025, he was honored with the Wealthtender Voice of the Client Award, recognizing his commitment to exceptional client experience and long-term relationship-focused planning. Sean specializes in helping high-income families, business owners, and commercial real estate executives align their wealth with their values through a comprehensive Financial Life Planning approach. Learn more about EWP at envisionplanners.com.
This material has been edited with the assistance of artificial intelligence tools. The information presented is based on sources believed to be reliable and accurate at the time of publication. This material is for educational purposes only and does not necessarily reflect the views of the author, presenter, or affiliated organizations. It should not be construed as investment, tax, legal, or other professional advice. Always consult a qualified professional regarding your specific situation before making any decisions.