How to Reduce Taxes for High Income Earners: A Simple Guide

After estate tax, federal income tax represents the most progressive part of the U.S. tax code. While low earners pay a smaller percentage of their income taxes, high-income earners contribute a significant share. In fact, IRS data indicated that high earners pay approximately 70% of total federal income taxes. Fortunately, tax strategies for high-income earners can help reduce taxable income and manage their tax burden.

Tax Planning Strategies for High-Income Earners

Tax planning is a critical component of financial well-being for those in higher tax brackets. While many common tax breaks are phased out for high earners, there are still ways to reduce your taxes. The key is to use legal, strategic opportunities to lower taxable income while aligning with long-term financial goals.

Ways to Reduce Income Tax Liability

Understanding available tax deductions for high-income earners is important to managing tax liability. Here are some of the most effective strategies:

Retirement Account Contributions

Contributing to tax-advantaged retirement accounts is one of the ways to reduce taxes as a high-income earner. Contributions to 401(k) plans, SEP-IRAs, and other retirement accounts may be tax-deductible, reducing taxable income. Business owners, in particular, can benefit by making contributions as their own employer and writing them off as business expenses.

Utilize Health Savings Accounts (HSAs)

For those with a high-deductible health plan, an HAS offers a triple tax advantage:

• Contributions are tax-deductible
• Growth is tax-free
• Withdrawals for qualified medical expenses are also tax-free.

These advantages make an HSA an excellent strategy for tax-efficient savings.

Explore Real Estate Benefits

Real estate investments offer several tax advantages, such as depreciation deductions and 1031 exchanges. The mortgage interest deduction is another high-income earners’ tax break that remains available, although it is capped at $750,000 for new mortgages. These strategies can provide savings for investors.

Leverage Charitable Donations

Charitable giving is another tax strategy. High-income earners can donate to qualified organizations and deduct up to 60% of their adjusted gross income (AGI). Donor-advised funds allow for immediate deductions while distributing charitable gifts over time, maximizing both tax benefits and philanthropic impact.

Consider Long-Term Capital Gains

Tax-efficient investing can reduce tax liability. Holding investments for over a year allows taxpayers to benefit from long-term capital gains tax rates, which are lower than short-term rates. Additionally, tax-loss harvesting—offsetting gains with losses—can be a valuable strategy for minimizing taxable income.

Consider Advanced Tax Strategies

For those with complex financial situations, advanced tax strategies such as setting up trusts, donor-advised funds, or family limited partnerships can provide further tax efficiency. Consulting with a trusted financial professional will be essential to ensuring compliance.

What Is the Most Overlooked Tax Deduction?

One of the more commonly overlooked deductions is state sales tax. Taxpayers in states without an income tax can deduct state and local sales tax instead, which may provide substantial savings. Additionally, deductions for medical expenses exceeding 7.5% of AGI and unreimbursed business expenses are also commonly missed.

How Do High-Income Earners Pay No Tax?

While completely avoiding taxes is not realistic, some wealthy individuals reduce taxable income through tax-effective strategies such as increasing deductions, utilizing business expenses, and leveraging tax credits. The goal is not tax avoidance but strategic planning to minimize liability within all legal guidelines.

How To Save Taxes with a $100k Salary?

Even individuals earning around $100k can benefit from tax planning strategies. Increasing contributions to retirement accounts, utilizing your HSAs, and itemizing deductions wherever possible can help reduce taxable income and increase overall tax efficiency.

Take Control of Your Tax Planning

Effective tax planning is a tool to preserving your wealth and achieving long-term financial goals. Dechtman Wealth Management specializes in helping high-income earners navigate complicated tax strategies to optimize their financial future. Contact us today for a free assessment and discover how our personalized planning can help you reduce your tax burden while growing your wealth.