Stop Treating Taxes Like a Sunk Cost. Your Peers Don’t.

*This article appears in the first quarter 2026 issue of Bank Director magazine.

The “aha” moment hit me like a sack of bricks. I remember exactly where I was and what we were discussing when it happened — the moment I realized taxes can actually be interesting.

I was with my colleague Bill Hoving, a CPA and former bank audit partner, meeting with the chief financial officer of a community bank. The CFO, a past client of Bill’s, greeted us with a grin and a disclaimer: He probably wasn’t buying whatever we were selling because it likely wouldn’t “move the needle.” The bank had just completed a large acquisition with more on the horizon and had little time or bandwidth to explore esoteric tax strategies.

So, we asked the only logical follow-up question: “How much would it take to move the needle?” For context, this was a more than $10 billion community bank in a high tax state that paid $40 million in income taxes the prior year. Bill’s goal was simple: Help the bank reduce its effective tax rate (ETR) by 10% annually. That’s a $4 million boost to earnings. 

Every year.

In preparing for the meeting, I asked Bill for some background on the bank, “You know, JD,” Bill said, “they’ve got about 50 branches in total with a dedicated facilities director to manage the branches’ expenses.” 

Then he asked, “Know how big the facilities expense line is? It’s $10 million. They’ve got an entire team to manage a $10 million expense line.” Without breaking stride, he followed that with, “Guess how many people they have solely dedicated to managing taxes?”

“It’s zero, JD. None. Not a tax director or even a junior tax manager. No one.”

And then he hit me with the money question: “Any idea what they’d have to do to save $4 million in facilities costs?” Cue the “aha” moment. Probably the most rhetorical of all his rhetorical questions since there was only one possible answer. They would need to cut branches. Lots of branches. Nearly 40% in this case. That’s 20 branches and over 100 jobs. It’s also hundreds of small businesses not receiving loans, local economies losing support and Little League teams without sponsors. Not a particularly appealing alternative.

But saving $4 million through tax management? That’s a different story. No layoffs. No shuttered branches. Just some thoughtful planning.

And yet this scenario is common. For most community banks, taxes are their second-largest expense behind salaries and wages. But institutions routinely invest in managing expenses a fraction of their tax obligations. They have procurement teams to negotiate vendor contracts, facilities managers to optimize branch operations and tech teams to squeeze efficiency out of every software license. 

But taxes are treated like a sunk cost — something to be simply accepted, not managed. Except taxes don’t have to be a sunk cost. They’re a strategic lever hiding in plain sight.

And banks with consistently low ETRs treat them that way. They invest in tax credit strategies and form investment subsidiaries. They analyze state apportionment. They think about timing. They plan. And they do it year after year.

Meanwhile, many community banks — the backbone of local economies — leave millions on the table. And in today’s competitive landscape, that’s unsustainable. National and regional banks have been managing taxes for decades. They have entire departments dedicated to it. Credit unions don’t even pay federal income taxes. 

While it’s not realistic for all community banks to justify hiring a tax director, those over $5 billion in assets can likely realize a significant return when hiring one. For the others, it comes down to hiring strategic partners who can help them evaluate, implement and manage tax strategies. 

Here’s the irony: Managing tax expenses is often easier than finding savings elsewhere. You can trim budgets, freeze hiring and still not move earnings per share. But if a bank can lower its ETR by even a couple of points, that’s a direct and recurring lift to earnings and market capitalization.

Deliberate tax management doesn’t need to be exotic. It means putting the same level of structure, accountability and creativity into taxes that banks already apply to credit risk or liquidity management. 

So remember, when you see a peer bank reporting a 14% to 19% ETR year after year, it’s not luck, and it’s not an accounting fluke. It’s a strategy.

And for everyone else? The IRS will happily accept an extra $4 million from anyone willing to give it to them.