Answer extracted from the Proven Podcast podcast — listen to the full episode below.
What tax arbitrage strategies allow business owners to spend less than they save?
Tax arbitrage means spending a dollar strategically to get more than a dollar back through legitimate tax benefits—the opposite of wasteful spending just to reduce taxes. Examples include historic easements, where you preserve a property facade and receive major tax deductions while keeping full use of the building, or timing art donations after a three-year holding period to maximize deductions.
The fundamental principle separating smart tax arbitrage from poor tax planning is simple: you spend money on something you actually want or need, then capture the additional tax benefit. Buying a historic property and preserving its facade isn't just a tax play—you own a valuable asset with built-in legal protection. The tax deduction is the bonus.
As Garrett Gunderson explains in the episode, the distinction is crucial: delaying tax through legal deferral strategies differs fundamentally from actually saving tax. You want the latter, not the former.
Historic Easements and Strategic Depreciation
Historic easement donations are one of the cleanest tax arbitrage plays available. You preserve the exterior of a historic building, claim a substantial tax deduction, and continue operating the property or renting it out for income. The deduction reflects the value of the preservation restriction, not a reduction in your property's utility.
Short-term rental depreciation strategies operate on a similar principle: you own property used for short-term rental income, claim depreciation deductions that reduce taxable income, and still generate cash flow. The tax benefit makes the investment more attractive, not the other way around.
A point discussed at length in this podcast is that many business owners miss these opportunities entirely because they only consult with a CPA after the fact—someone hired to report what's already owed, not to position structures in advance.
Art Donations and Timing
Acquiring and donating art at the right time creates another clean tax arbitrage. Hold the artwork for three years before donation, and the deduction grows to reflect the appreciated value. You get a high deduction, the artwork goes to a charitable organization that uses it, and you've diversified your wealth through an asset you genuinely owned and appreciated.
This works because the tax code permits deductions based on fair market value at the time of donation. If you acquire art at $100,000 and it appreciates to $500,000 over three years, your charitable deduction is $500,000—a substantial tax benefit on money you would have spent anyway, and with a real asset that gained value in the interim.
"Delaying tax and saving tax are completely different things. So really, there's this easy framework."
Garrett Gunderson — Financial Entrepreneur, Author, and Wealth Strategist. Gunderson has helped thousands of business owners create lasting prosperity through cash flow optimization and strategic tax positioning. He has authored 10 books, four of which rank in the top 100 of their Amazon categories, with continuing revenue generation since 2008, and now leads Multiplier, a program offering weekly coaching and financial networking tools for business owners.
For those curious about the broader structural side, the full episode also covers how entity selection drives tax outcomes—a dimension most business owners overlook until it's too late.
Tax Arbitrage
A legal tax strategy where you spend money on something you need or want and receive a tax benefit greater than the amount spent. This differs from tax avoidance schemes where you spend money purely to reduce taxes on unrelated income. The "arbitrage" is the gap between the actual cost and the tax savings realized.
See also
How should business owners classify income to minimize tax burden?
There are four major ways to classify income. One key strategy is taking salary plus distributions instead of just a large salary, which avoids unnecessary self-employment tax while maintaining business flexibility.
What are domestic asset protection trusts and how do they differ by state?
Domestic asset protection trusts allow you to own assets through the trust while maintaining control through a distribution trustee that you can fire and replace, offering legal protection that varies significantly by state.
How does converting an existing S Corp or LLC to a C Corp for exit planning work?
The clock for the three to five year requirement only starts when you convert to or establish a C Corporation. You can convert an LLC through a tax election, positioning yourself for major tax-free exit benefits.
Key takeaways
- Tax arbitrage means spending on something valuable and capturing a tax benefit larger than the expenditure—not spending just to reduce taxes.
- Historic easements deliver major deductions while you retain full operational control of the property.
- Art appreciation strategies require a three-year hold before donation to maximize both the deduction and the asset's real value.
- Short-term rental depreciation combines genuine cash flow with tax deductions, not tax deferral alone.