When it comes to taxes, having a higher income may not always be the blessing it’s often thought to be. With a bigger income comes increased tax rates, as moving into a higher tax bracket means a larger portion of income will be taxed at a higher rate. Those earners with multiple streams of income — investment income, capital gains, bonuses and more — can further complicate their taxes.
These factors, paired with the possibility of losing out on certain deductions or credits due to their income, mean high-income earners are often on the lookout for ways to optimize their tax strategy and minimize their tax liabilities, or what they owe.
As financial and tax experts themselves, the members of Kiplinger Advisor Collective know the ins and outs of effective tax strategies. Here, they offer up six ways high-income earners can minimize their tax liabilities and keep more money in their pockets.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Maximize contributions to tax-advantaged accounts
“High-income earners can optimize their tax strategy by maximizing contributions to tax-advantaged accounts like 401(k)s, IRAs or health savings accounts (HSAs). This reduces taxable income, lowering their overall tax burden. It’s effective because it not only provides immediate tax savings, but it also allows wealth to grow tax-deferred, enhancing long-term financial planning and retirement savings.” — Stephen Nalley, Black Briar Advisors
Sell investments that have depreciated
“Selling investments that have depreciated since you bought them, also known as tax-loss harvesting, can help you lower your tax burden each year. These losses can also be deducted from your investment gains or other income, up to an annual limit set by the IRS. If your losses are greater than these limits, you can carry them over to the following year to reduce your taxes in future years.” — Justin Donald, Lifestyle Investor
Choose a fee-only CFP
“The development of software analysis tools that can provide an integrated and holistic view of your financial situation, including how your tax liabilities affect the rest of your financial life, has increased significantly. Choosing the right fee-only Certified Financial Planner (CFP®) who offers a cost-effective way to integrate sophisticated and holistic tax planning strategies with financial planning is critical.” — Deborah W. Ellis, Ellis Wealth Planning
Take a three-pronged approach
“There are three important areas to consider for tax efficiency. Deferring taxes: Utilize preferential accounts such as 401(k)s, IRAs and annuities. Managing existing investment income: Place tax-inefficient assets in tax-deferred accounts, harvest tax losses and manage gains and distributions. Reducing future taxes: Use Roth IRAs, health savings accounts, 529s and municipal bonds to limit future taxes.” — Stephen Kates, Annuity.org
Minimize portfolio turnover
“Maximizing tax-advantaged savings to your retirement plan or health savings accounts can reduce your taxable income. Take advantage of charitable contributions, and minimize turnover in your portfolio by investing in transparent, diversified and tax-efficient exchange-traded funds (ETFs).” — Marguerita Cheng, Blue Ocean Global Wealth
Consider your highest-income years
“Explore depreciation. Often, high-income earners get to participate in depreciation on assets bought with debt. Plan for this in your highest-income years to maximize the benefit.” — Justin Brock, Bobby Brock Insurance
Related Content
- Three Tips for Selling Your Business and Getting the Most Value
- Five Ways to Minimize a Higher Capital Gains Tax Rate
- How Tax-Loss Harvesting Helps to Lower Your Tax Bill
- The IRS is Ramping up Tax Audits
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
-
I'm want to give my 3 grandkids $5K each for Christmas.You're comfortably retired and want to give your grandkids a big Christmas check, but their parents are worried they might spend it all. We ask the pros for help.
-
If You're Not Doing Roth Conversions, You Need to Read ThisRoth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
-
Could Traditional Retirement Expectations Be Killing Us?A retirement psychologist makes the case: A fulfilling retirement begins with a blueprint for living, rather than simply the accumulation of a large nest egg.
-
I'm a Financial Planner: If You're Not Doing Roth Conversions, You Need to Read This
Roth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
-
I'm a Financial Planner for Millionaires: Here's How to Give Your Kids Cash Gifts Without Triggering IRS PaperworkMost people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse.
-
Don't Get Caught by the Medicare Tax Torpedo: A Retirement Expert's Tips to Steer ClearBetter beware, because if you go even $1 over an important income threshold, your Medicare premiums could rise exponentially due to IRMAA surcharges.
-
I'm a Tax Attorney: These Are the Year-End Tax Moves You Can't Afford to MissDon't miss out on this prime time to maximize contributions to your retirement accounts, do Roth conversions and capture investment gains.
-
I'm an Investment Adviser: This Is the Tax Diversification Strategy You Need for Your Retirement IncomeSpreading savings across three "tax buckets" — pretax, Roth and taxable — can help give retirees the flexibility to control when and how much taxes they pay.
-
I'm a Financial Pro: Older Taxpayers Really Won't Want to Miss Out on This Hefty (Temporary) Tax BreakIf you're age 65 or older, you can claim a "bonus" tax deduction of up to $6,000 through 2028 that can be stacked on top of other deductions.
-
5 RMD Mistakes That Could Cost You Big-Time: Even Seasoned Retirees Slip UpThe five biggest RMD mistakes retirees make show that tax-smart retirement planning should start well before you hit the age your first RMD is due.
-
A Retirement Triple Play: These 3 Tax Breaks Could Lower Your 2026 BillGood news for older taxpayers: Standard deductions are higher, there's a temporary "bonus deduction" for older folks, and income thresholds have been raised.
