Tax avoidance is a strategy that you can use to lower your tax bill. A lower tax bill means more money for you! Over the next few weeks, as you gather your tax documents and send them to your tax preparer (human, software, or AI agent), here are some tips on how to send less to the IRS.
Lower Your Bill
Although 2025 is over, there are still some steps you can take before April 15th for a lower tax bill.
Do you have any of the following?
- Advisory income
- Board of directors fees
- 1099 consulting income
- Angel investing fees
Use any of these four income streams to fund a self employed 401(k) and help with tax avoidance. You can put away as much as $72,000 in a self employed 401(k) for tax year 2025. That’s a really nice number to reduce your taxes! Plus, this money will be invested and grow for your future retirement.
You would need to have your 401(k) already established to do this. If you don’t, there’s not a better time than now. Set one up for tax year 2026.
Tax Avoidance Strategy Set Up
There are other structural moves that you can put in place so you are not scrambling next tax season. There are so many exciting things that you can do to help yourself. Some tax avoidance techniques are:
10b5-1 Plans
Rule 10b5-1 trading plans are for company executives to pre-schedule stock sales.
As an exec you usually get large RSU vests and have to deal with a lot of issues:
- Stuck in a blackout window
- Own a lot of concentrated stock
- Exposed to company earnings volatility
- Managing public interpretation of your stock sales
- Avoid “timing the market” accusations
A 10b5-1 plan is not a panacea, but it will help you manage large positions in your company stock and lower your taxes. Talk with your company to see if you can enroll in the plan or set one up.
Tax Bracket Management
This is an approach for capital gains. Let’s say you are sitting on $100k capital gain in your company stock. You can sell it all at once, but you will probably have to pay 20% long term capital gains taxes instead of 15% long term capital gains taxes. The increased gains from the sale can bump you into a higher tax bracket (35% to 37%).
Additionally, you may also have to pay the 3.8% Net Investment Income Tax (NIIT) because you are in a higher income bracket.
To avoid both of these additional taxes (20% long term capital gains and 3.8% NIIT) do the following:
- Sell a smaller amount of shares in the vest year to cover taxes
- Defer stock sales to a lower-income year
- Spread stock sales across several calendar years
A little bit of patience can go a long way, but remember to pay attention to stock price fluctuations.
83(b) Elections
The 83(b) election is a tax avoidance strategy for when you receive restricted stock or stock options (early-stage founder or startup equity). You can elect to pay the tax when you receive the stock instead of when it vests.
The alternative is to pay ordinary income tax at a later date on the stock’s appreciation.
Here’s our scenario:
- Get 1,000,000 shares
- Pay $0.001/share
- Current value = $0.001/share
- 4-year vest
No 83(b) election:
- At each vest date, the stock is worth $5/share
- Each year – 250,000 shares × $5 = $1,250,000 taxable ordinary income
- Pay 37% federal tax + state tax on $5M total over time
83(b) election:
- File within 30 days of grant
- Elect to be taxed now
- Value today = $0.001/share
- Taxable income = $1,000
Future value
- Future appreciation ($0.001 → $5)
- Taxed at capital gains when sold → 15% or 20% federal tax rate + state tax
- No ordinary income at vest → already paid with 83(b) election
When you elect the 83(b), you pay ordinary tax on a very low value and convert future share price growth into capital gains. The tax savings can be enormous! However, it can backfire if the company value doesn’t increase or it goes to zero.
AMT Strategy
AMT is a tricky beast. For example, you exercise deep in-the-money ISOs and have $700k of AMT income based on the spread between the ISO exercise price and the current market value of the stock.
Even though you didn’t sell any shares, you will have a large tax bill. Instead, you can use the following strategies:
- Exercise a smaller number of ISOs to stay under the AMT crossover
- Build a model to determine AMT exemption phaseout
- Exercise ISOs gradually over several years
AMT is one of the trickiest parts of tax avoidance and financial planning, so it would be fantastic if you can work with a professional on this challenge…and all of your tax reducing tasks.
These are only a few of many strategies that you can use. There are countless others to help you in your tax journey – this year, next year, and over many decades. It would be great to chat with you about tax avoidance!