A strong income year feels like progress. But what are you really keeping after taxes?
For high-net-worth business owners and entrepreneurs in Atlanta, gross returns and net returns can look very different. Taxes don’t just take a percentage of what you earn in a given year; they can reduce the capital available to compound, year after year. The gap, called tax drag, can significantly impact your wealth without ever showing up on a portfolio statement.
The Structural Challenge Many Entrepreneurs Overlook
Most small business owners are so focused on running and growing their company that personal wealth planning becomes an afterthought. A Fidelity study found that 83% of small business owners acknowledge they should be saving more for retirement, yet 59% admit they don’t know how to maximize their savings.
Unlike a corporate executive with automatic 401(k) contributions and an HR team handling benefits, entrepreneurs carry the full weight of their own financial planning. Every decision about how to structure income, when to realize gains, or how to invest excess cash falls on them. Add in Georgia’s state income tax and the 3.8% federal net investment income tax on top of federal rates, and a meaningful portion of every return goes to the government before it has a chance to compound.
What Tax Drag Costs You
When you pay taxes on realized gains, you reduce the capital available to keep compounding. If you start a year with $1 million, earn a 10% return, and pay 23.8% in combined federal capital gains and net investment income taxes on those gains, you’re reinvesting roughly $1,076,000 rather than $1.1 million. That $24,000 gap doesn’t sound dramatic in year one, but compounded over 10 or 20 years, the difference can become substantial.
Money you pay to the IRS today can’t compound tomorrow. The real cost isn’t the tax bill itself, but the future growth those dollars would have generated if they had stayed invested.
Taking an Intentional Approach to After-Tax Wealth
Consistently growing wealth after taxes can require the deliberate management of investment timing, location, and structure.
- Asset Location: The type of account where you hold an investment can be as important as the investment itself. High-income-generating assets like bonds and dividend stocks belong in tax-deferred accounts, while growth-oriented equities, where you control the timing of gain realization, belong in taxable accounts where a long-term hold strategy works in your favor.
- Year-Round Tax-Loss Harvesting: Selling positions at a loss to offset realized gains elsewhere reduces taxable income without changing your overall investment thesis. For entrepreneurs with volatile income, doing so can create the flexibility necessary to manage tax exposure in high-earning years.
- Compounding Holding Periods: Short-term capital gains are taxed as ordinary income, which for high earners means federal rates up to 37%. Long-term gains top out at 20% federally. A disciplined holding strategy is one of the simplest, most direct ways to reduce tax drag without increasing market risk.
- Qualified Retirement Plans for Business Owners: A Solo 401(k) or SEP IRA lets you shelter significantly more than a standard employee plan. For 2026, total contributions to a Solo 401(k) can reach $72,000 for those under 50. Every pre-tax dollar you contribute is a dollar that compounds without immediate tax friction.
- Charitable Giving. Donating appreciated securities directly to a charity lets you avoid recognizing the embedded gain while still taking a deduction for the full fair market value.
Your Business Isn’t a Retirement Plan
Entrepreneurs often mentally earmark the eventual sale of their business as their retirement funding, but it’s important to keep in mind that markets shift, buyer appetite changes, and sale timelines rarely go exactly as planned.
Wealth built outside the business, across tax-advantaged accounts and a diversified investment portfolio, can give you real optionality. The business sale, if and when it happens, would then become a windfall rather than a necessity.
Building a parallel track can require intentional planning well before a sale is on the horizon. The tax structure of how you exit, how you receive proceeds, and how you invest them can make a significant difference depending on how the deal is designed.
The Atlanta Entrepreneur’s Advantage
We work with entrepreneurs in Atlanta to coordinate retirement plan contributions, investment account structure, charitable strategy, and income timing, helping to reduce tax drag as an ongoing practice rather than a once-a-year scramble.
If you’re a business owner in Atlanta and haven’t had a thorough conversation about after-tax wealth planning, let’s change that. Connect with SignatureFD to speak with an advisor who works specifically with entrepreneurs.
