High-income earners face increasingly steep tax brackets, making it crucial to understand how to minimize taxable income for wealth optimization.
Consider that, as of 2025, the U.S. federal tax system applies rates of up to 37% on incomes over $626,350 for single filers or $751,600 for married couples filing jointly. That doesn’t include state taxes, the 3.8% Net Investment Income Tax for those earning more than $200,000 (single) or $250,000 (joint), or the Medicare tax of 0.9% for the same income thresholds.
For professionals, executives, business owners, and investors earning six or seven figures a year, every dollar reduced from taxable income can result in substantial tax savings—potentially tens of thousands annually.
This article examines proven tax strategies for high-income earners based on IRS guidelines and expert advice. We’ll discuss effective high-income tax strategies, including maximizing retirement accounts, utilizing health savings accounts, making charitable contributions, and investing in a tax-efficient manner.
If you are a high earner who is ready to reduce your taxable income, please consider calling ARQ Wealth at (480) 214-9572 to speak with a tax planning professional.
Maximize Contributions to Retirement Accounts
One of the most straightforward ways for high earners to lower taxes is by maximizing contributions to qualified retirement plans like 401(k)s, 403(b)s, and IRAs.
In 2025, the contribution limit for 401(k) plans is $23,500, with an additional $7,500 catch-up contribution for those aged 50 and older, allowing pre-tax contributions that reduce your taxable income.
High earners can gain significant advantages by contributing the maximum amount, especially if their employer offers matching funds, which is essentially free money that grows tax-deferred. For self-employed individuals, SEP IRAs or Solo 401(k)s allow even higher limits, up to 25% of compensation or $69,000 in 2025. This not only helps lower current taxes but also builds wealth for the future.
Consider a high earner making $300,000 a year; maxing out a 401(k) can lower taxable income by over $30,000, potentially lowering their tax bracket. However, phase-outs apply for traditional IRA deductions if you’re covered by a workplace plan and earn above certain thresholds ($79,000-$89,000 for singles in 2025). Tax-efficient investing in these accounts means focusing on growth-oriented funds to minimize the tax impact of future withdrawals. It’s essential to align this with your overall retirement goals to prevent over-allocating in tax-deferred accounts.
Defined Benefit (Pension) Plans
While 401(k)s, 403(b)s, and IRAs have contribution limits, defined benefit plans—also known as pension plans—do not have a contribution limit. Instead, they are based on an actuarial calculation that determines the maximum annual benefit payable in retirement. In 2025, this maximum is $280,000 per year.
This potentially allows business owners to put six figures away, in addition to 401(k) contributions.
Leverage Health Savings Accounts (HSAs)
HSAs offer a trifecta of tax benefits, making them a popular choice for high-income earners seeking tax savings. Contributions are tax-deductible, growth is tax-free, and qualified medical expense withdrawals are also tax-free. In 2025, individuals can contribute up to $4,300, families up to $8,550, with a $1,000 catch-up contribution for those aged 50 and older.
To qualify for tax benefits, HSAs must be combined with high-deductible health plans (HDHPs) with a minimum deductible of $1,650 for individual plans and $3,300 for family plans. The maximum out-of-pocket costs of the plan may not exceed $8,300 for individuals and $16,600 for families.
Unlike FSAs, HSAs roll over indefinitely, making them stealth retirement accounts. You can invest contributions in stocks, bonds, or funds for growth, with many providers like Fidelity offering brokerage options. You can then withdraw funds tax-free for medical costs at any time, or after 65 for any purpose (taxed as income, like a traditional IRA, but with no penalty).
Contributing the maximum to an HSA while in the 37% tax bracket results in an immediate tax saving of over $3,000 for a family. Later, you can reimburse medical costs tax-free or allow the funds to grow for retirement healthcare. Be careful about eligibility—you need an HDHP and no disqualifying coverage.
High earners often forget to reimburse past expenses. Keep receipts for out-of-pocket medical costs, so you can reimburse yourself years later when the account has grown. This turns HSAs into a tax-free investment vehicle.
Integrating HSAs with other high-income tax strategies amplifies savings. For example, pair with a 401(k) for broader deferral. Overall, HSAs provide unmatched tax efficiency for healthcare planning.
Engage in Charitable Giving
Charitable giving isn’t just altruistic—it’s a potent tax-saving move for high-income earners. By donating to qualified 501(c)(3) organizations, you can deduct up to 60% of AGI for cash donations (30% for appreciated assets), which can significantly lower your taxable income.
In 2025, itemizers can deduct cash donations up to 60% AGI, but non-itemizers get no standard deduction boost for charity (unlike pandemic-era rules). High earners, who often itemize due to mortgages or state taxes, benefit most.
However, starting in 2026 under the One Big Beautiful Bill Act, there is an above-the-line deduction for non-itemizers. You can claim up to $1,000 (single) or $2,000 (joint) for cash donations to qualifying public charities (not DAFs).
High earners should consider donor-advised funds (DAFs), where you donate assets, get an immediate tax deduction, and distribute grants later. This approach works well for bunching deductions—donating several years’ worth in one year to exceed the standard deduction ($15,000 for singles, $30,000 for couples in 2025).
Donating appreciated securities helps avoid capital gains taxes and provides a deduction at fair market value. For example, a $500,000 earner donating $50,000 in stock could save $18,500 in taxes at a 37% rate. Combining this with qualified charitable distributions (QCDs) from IRAs for those over 70½ can also lower required minimum distributions (RMDs). This strategy not only reduces taxes but also supports philanthropic goals, making it a meaningful way to save on taxes.
Tax-Efficient Investing for High Earners
Tax-efficient investing for high earners focuses on minimizing taxes on investment income, thereby reducing overall taxable income. Since dividends, interest, and gains are taxed at 0-20% (plus NIIT), strategic asset allocation and harvesting are crucial.
Asset location: Hold tax-inefficient assets (bonds, REITs) in tax-deferred accounts like IRAs, where interest isn’t taxed annually. Place tax-efficient ones (stocks, ETFs) in taxable accounts for lower qualified dividend/capital gains rates.
Tax-Exempt Bond: Municipal bonds provide tax-free interest, making them ideal for high-income brackets. Yields around 4-5% translate to 7-8% taxable equivalents for those in the 37% bracket. It’s smart to focus on your state’s municipal bonds for state tax exemption.
Index funds and ETFs minimize turnover, reducing capital gains distributions compared to active funds. Hold for over a year for long-term gains rates (0-20%).
Tax-Loss Harvesting
Tax-loss harvesting is an advanced, tax-efficient investment strategy that can turn market downturns into tax benefits for high-income individuals with diversified investment portfolios. It involves selling securities at a loss to offset capital gains and reduce taxable income by up to $3,000 per year against ordinary income, with any remaining losses carried forward.
In volatile markets, high earners can realize losses without disrupting their long-term plans by immediately repurchasing similar (but not identical) assets to avoid IRS wash-sale rules. For example, one could sell a losing tech stock and buy a tech ETF.
A portfolio with $100,000 in gains and $50,000 in losses can offset capital gains taxes through harvesting. For those in higher tax brackets, this also helps reduce the 3.8% net investment income tax.
Utilize 529 College Savings Plans
For high earners with education expenses, 529 plans are an excellent way to lower taxes. Contributions aren’t deductible at the federal level but grow tax-free, and qualified withdrawals for education are also tax-free. Many states allow deductions of over $10,000 per beneficiary.
High earners can “superfund” the account by front-loading five years’ worth of gifts ($95,000 per person or $190,000 per couple in 2025) without triggering a gift tax. This not only accelerates growth but also reduces the amount of money in your estate while retaining control over how the funds are used. You can use a 529 for tuition, books, or even K-12 expenses, up to $10,000 annually.
Capitalize on Real Estate Depreciation
Real estate investments offer significant high-income tax benefits through depreciation deductions, even when property values increase. Residential properties depreciate over 27.5 years, while commercial properties do so over 39 years, which helps lower taxable rental income.
High earners can leverage cost segregation to accelerate depreciation on components like fixtures. A $1 million property could produce $200,000 in first-year deductions using this approach.
Use 1031 exchanges to defer capital gains on sales. For those earning over $200,000, passive loss rules can limit deductions, although real estate professionals can offset ordinary income. This strategy helps build wealth while lowering your tax burden.
Deduct Business Expenses for Self-Employed
Self-employed high earners can take advantage of various deductions to save on taxes, including home office expenses, accounting fees, advertising costs, mileage (67 cents/mile in 2025), and equipment under Section 179 (up to $1.25 million).
It’s essential to track business expenses carefully. Software like QuickBooks can help. Health insurance premiums are fully deductible, and retirement plans like SEP IRAs can reduce taxable income while boosting savings.
A consultant earning $400,000 might deduct $100,000 in expenses, significantly lowering taxable income. The QBI deduction (up to 20% of business income) further boosts this benefit for pass-through entities. Keep detailed records to avoid audits, as high earners tend to face more scrutiny. This can transform everyday expenses into tax advantages.
Explore Deferred Compensation Plans
Deferred compensation arrangements between an employer and a business executive allow high earners to delay income through non-qualified plans, postponing taxes until they receive it—ideally during lower-tax years like retirement.
Executives often use 457(b) or 409A plans to defer bonuses or salaries with no limits on contribution amounts. A person earning $500,000 who defers $100,000 can save $37,000 in current taxes.
Possible risks include employer bankruptcy, so it’s essential to thoroughly vet plans. A deferred comp arrangement can also be helpful in estate planning. This strategy promotes tax-efficient investing by timing income recognition optimally.
Consider Roth Conversions and Backdoor Roths
For long-term tax savings, high earners can convert a traditional IRA to a Roth IRA by paying taxes upfront, allowing for tax-free growth and withdrawals. In 2025, there will be no income limits for conversions.
Implementing a backdoor Roth IRA involves contributing to a non-deductible IRA and then converting it to a Roth, bypassing income limits (over $161,000 AGI for Roth contributions).
One strategy is to create a conversion ladder to prevent bracket creep. For example, one could convert $50,000 annually to stay within lower tax brackets. This approach safeguards against future tax increases and avoids RMD rules, which is vital for high earners.
Bottom Line
These ten strategies—from retirement maximization to Roth conversions—offer effective ways for high earners to reduce taxable income.
By utilizing tax-efficient investing and proactive planning, you can keep more of your earnings in order to grow and preserve your wealth.
However, tax laws change, and what works in one financial situation might not apply in another. It is essential to consult a well-qualified financial advisor today to discuss personalized tax-saving strategies. Your future self will thank you.
Our tax planning professionals at ARQ Wealth are fully equipped to offer customized planning solutions. We invite you to contact us for a no-obligation consultation.