6 Tax Strategies for High-Income Earners to Help Reduce Your Tax Bill

There are many benefits to earning a high income, but one clear downside rolls around every year: tax season. If your taxable income exceeds $201,775 in 2026, your federal tax bracket as a single filer is 32%. If your taxable income climbs above $256,225, that rate jumps to 35%. While the top rate of 37% applies only above $640,600, all three top tax brackets can take a bite out of your take-home pay.

Notably, the bill doesn’t stop at income taxes. If your modified adjusted gross income (MAGI) exceeds $200,000 as a single filer, you’ll owe an additional 3.8% Net Investment Income Tax (NIIT) on your investment income. A separate 0.9% Additional Medicare Tax applies to wages and self-employment income above the same $200,000 threshold. Neither of these surtaxes is adjusted for inflation, so more households cross the threshold each year.

At these rates, every $10,000 of income you can defer, shelter, or offset is worth thousands of dollars in federal taxes alone. That’s why tax planning for high-income earners works best when it’s proactive. 

To help you optimize your tax bill, here we look at six tax planning strategies, from maximizing retirement account contributions, leveraging Health Savings Accounts (HSAs), and using tax-loss harvesting and asset location to charitable giving, Roth conversions, and both business and real estate strategies. Of course, these are just generalized guidelines. If you’re looking for personalized guidance, talk to a Wealth Enhancement advisor about your specific situation. 

1. Maximize Retirement Account Contributions

401(k), 403(b), and 457 Plan Limits for 2026

One of the most direct ways to reduce taxable income is to maximize your retirement plan contributions. Pre-tax contributions to a 401(k), 403(b), or governmental 457(b) plan are excluded from taxable wages in the year you make them, and the money grows tax-deferred until withdrawal. 

The real question for high earners is whether to make these contributions on a pre-tax or Roth basis. Pre-tax deferrals lower your taxable income now but are taxed on withdrawal, when you’re ideally in a lower tax bracket. Roth contributions are made after-tax, but allow for tax-free qualified withdrawals in retirement, which makes sense if you expect your retirement income to remain high.

Either way, as of 2026, if you earned more than $150,000 in FICA wages from your employer in the prior year, you’ll need to make all your catch-up contributions to that employer’s plan on a Roth basis.

IRA Contributions and the Backdoor Roth Strategy

While anyone with earned income can contribute to a traditional IRA, if you or your spouse is covered by a workplace retirement plan, your ability to deduct that contribution phases out as your income rises. Additionally, single filers with MAGI above $168,000 in 2026 cannot contribute to a Roth IRA at all. A backdoor Roth strategy lets you work around the Roth income limit by making a non-deductible traditional IRA contribution before converting it to a Roth IRA. 

Here’s how a backdoor Roth generally works:

1. Make a non-deductible contribution to a traditional IRA. For 2026, the IRA limit is $7,500, or $8,600 if you’re 50 or older. 
2. Convert the balance to a Roth IRA. Many people convert soon after contributing so there’s little or no growth to tax.

Keep in mind that, under the pro-rata rule, the IRS looks at the combined balances of all your traditional, SEP, and SIMPLE IRA accounts as of December 31 of the conversion year, not just the account you converted. If you have pre-tax money in any of those accounts, part of your conversion will be taxable. To work around that, you could roll your pre-tax IRA balance into your workplace plan before doing a backdoor Roth conversion, but only if your 401(k) plan accepts rollovers.

If your workplace plan allows it, a mega backdoor Roth may also enable you to increase your tax-free savings by making after-tax 401(k) contributions and converting them to a Roth account. Because the $72,000 limit for 2026 includes your own deferrals and any employer contributions, the amount you can put in after-tax and convert is whatever room remains under that cap. 

2. Leverage Health Savings Accounts (HSAs)

HSA Contribution Limits and Triple Tax Advantage

If you’re eligible to enroll, a Health Savings Account (HSA) offers a triple tax advantage: tax-deductible contributions in the year you make them, tax-free growth, and tax-free withdrawals at any age for qualified medical expenses. 

After age 65, you can even make penalty-free HSA withdrawals for non-medical purposes, although they’ll be taxed as ordinary income. This feature can be of particular benefit to high-income earners who can pay medical expenses out of pocket while allowing their HSA funds to grow tax-free over time. Once you enroll in Medicare, though, you can no longer contribute to an HSA.

HSA Eligibility Changes Under the One Big Beautiful Bill Act

While HSA eligibility has traditionally been confined to those enrolled in a high-deductible health plan (HDHP), the One Big Beautiful Bill Act (OBBBA) expanded who can contribute:

• Bronze and catastrophic plans purchased in the individual market, on or off an exchange, now count as HSA-eligible coverage. Employer group plans must still meet the traditional HDHP rules.
• Telehealth coverage no longer affects eligibility. 
• Starting in 2026, direct primary care arrangements are allowed if the fees total $150 per month or less ($300 if the arrangement covers more than one person). 

If you’re not sure whether an HSA or Health Flexible Spending Account (FSA) is right for you, read FSA vs. HSA: How to Choose the Right Health Account.

3. Use Tax-Loss Harvesting and Asset Location

How Tax-Loss Harvesting Works

Tax-loss harvesting involves selling investments that have dropped in value to realize a loss you can use to offset capital gains. If your losses exceed your gains, you can deduct up to $3,000 of the net loss against your ordinary income each year. Plus, you can carry forward any remaining losses indefinitely.

Losses are applied in a set order. Short-term losses offset short-term gains first, and long-term losses offset long-term gains first. Any excess then offsets the other type. Because short-term gains are taxed at your ordinary income tax rate, harvesting losses against short-term gains can be particularly valuable.

The main limit is the wash-sale rule. If you sell a security at a loss and buy the same or a “substantially identical” security during the 30 days before or 30 days after the sale, you can’t claim the loss. It’s a complicated rule with a range of hidden triggers, so be sure to get advice before using tax-loss harvesting.

Strategic Asset Location

Different investments are taxed in different ways. Asset location enhances tax planning by identifying the optimal accounts to hold each type of investment. At a high level and subject to your overall goals, you would:

• Place tax-inefficient assets, like corporate bonds and REITs, in tax-deferred accounts such as a 401(k) or traditional IRA. 
• Hold tax-efficient assets, such as broad-market index funds, in taxable brokerage accounts.
• Consider municipal bonds for taxable fixed income, as interest on most municipal bonds is federally tax-free and is often state tax-free when the bonds are issued by your home state.

4. Deploy Charitable Giving Strategies

If you already give to charity, you can potentially increase the tax value of your gift by donating appreciated stock instead of cash, timing gifts so you itemize in some years, or giving directly from an IRA after age 70½. Here’s how:

Donor-Advised Funds (DAFs)

A donor-advised fund (DAF) is a type of investment account held by a sponsoring charity. When you contribute to a DAF, you get an immediate tax deduction and your funds can grow tax-free. When you’re ready to distribute the funds, you can recommend grants to specific charities over time.

DAFs work especially well with long-term appreciated stock. If you sold the stock and donated the cash, you would trigger capital gains tax. By donating the shares in-kind instead, you can generally deduct their fair market value and avoid capital gains tax on the appreciation. A DAF makes this simple: you can contribute shares once, take the deduction now, and support multiple charities later, including those that can’t accept stock directly. However, you can only deduct up to 30% of your adjusted gross income (AGI) for gifts of appreciated property, compared with 60% for cash gifts. 

Using a “bunching” strategy, you can also front-load multiple years of charitable contributions to exceed the standard deduction threshold and then itemize your deductions to substantially lower your taxable income. This strategy became even more valuable in 2026, when OBBBA introduced a new deduction floor. Under this rule, you can no longer deduct the first 0.5% of your AGI that you give to charity each year. Bunching several years of gifts into one year means you absorb that floor once rather than every year. In addition, for taxpayers in the 37% bracket, OBBBA caps the tax benefit of itemized deductions at 35%. 

Qualified Charitable Distributions (QCDs)

Once you reach RMD age (73 for most people today, and 75 for those born in 1960 or later), you need to withdraw a required minimum distribution (RMD) from your retirement accounts each year. For high earners, this often results in paying taxes on retirement income you don’t need. A qualified charitable distribution (QCD) lets you send money directly from your IRA to the qualified charities of your choice, and it counts toward your RMD without adding to your income. You can make QCDs starting at age 70½. 

For 2026, you can transfer up to $111,000 through QCDs. Because a QCD keeps the money out of your AGI entirely, it isn’t affected by the 0.5% deduction floor. Keeping your income lower may also help you avoid a higher tax bracket and keep your MAGI below the thresholds that trigger higher Medicare premiums. 

On the flip side, you get no tax deduction for QCD donations, and QCDs can’t go to a donor-advised fund or private foundation.

Charitable Remainder Trusts (CRTs)

A charitable remainder trust (CRT) is an irrevocable trust that pays you, or other beneficiaries, an income stream for life or for a term of up to 20 years, then passes the remainder to charity. It can be especially useful if you hold a large position in a highly appreciated asset, such as company stock or real estate. 

The idea is to transfer the appreciated asset to the CRT and have the trust sell it. As a tax-exempt entity, the CRT pays no capital gains tax at the time of the sale and can reinvest the full proceeds to generate a stream of income. The gain is then taxed to you gradually as part of the payments you receive, which spreads out and defers the tax rather than eliminating it. When you fund the trust, you get an immediate partial charitable deduction. To qualify as a CRT, however, the present value of the remainder passing to charity must be at least 10% of the initial value of the assets you put into it.

5. Explore Roth Conversions During Lower-Income Years

A Roth conversion involves moving money from your traditional IRA into a Roth IRA. In addition to growing tax-free, money in a Roth IRA is not subject to RMDs during your lifetime, and earnings can be withdrawn tax-free after age 59½, provided you’ve had a Roth IRA for at least five years. However, in the year you make the conversion, you pay ordinary income tax on the converted amount. Given this tradeoff, it’s important to time Roth conversions right.

Why the Conversion Window Matters

The value of a Roth conversion depends on the tax rate you pay now compared to the rate you expect to pay later. For many high earners, that means converting in years when income is temporarily lower, or before you expect your tax bracket to rise. For instance, if you anticipate receiving a significant raise or your restricted stock units (RSUs) are about to vest, converting beforehand could lock in a lower rate. Similarly, the years between stopping work and receiving Social Security benefits and/or RMDs tend to be lower-earning years. 

Key Considerations Before Converting

There are certain things to consider before completing a Roth conversion:

• Current versus projected future tax bracket. A conversion makes most sense when today’s tax rate is lower than the one you expect to pay on withdrawals during retirement.
• The five-year rule. If you’re under 59½ and withdraw converted principal within five years, a 10% penalty may apply.
• Medicare premiums. Medicare Part B and Part D premiums are based on your income from two years earlier, so a large conversion in one year can raise your premiums two years later.

For more tips, get answers to your top Roth conversion tax questions.

6. Optimize Business and Real Estate Tax Strategies

S Corporation Election

If you’re self-employed, your entire net profit is generally subject to self-employment tax, which includes both a Social Security and Medicare component. By electing to be taxed as an S corporation, you would only pay payroll (FICA) taxes on the salary you pay yourself. The remaining profit could be paid as a distribution, which isn’t subject to Social Security or Medicare tax. Keep in mind that the Social Security portion of the tax stops at the wage base ($184,500 in 2026), so for owners whose profits are well above that level, the savings come mostly from the 2.9% Medicare portion.

That said, an S corp election requires you to pay yourself “reasonable compensation” for the work you perform, based on factors like the time and effort you devote to the business, the company’s revenue and profitability, and what similar businesses pay for comparable roles. An S corp also requires you to run payroll, pay any state fees, and file a separate tax return, so it makes the most sense when your net profits comfortably exceed a reasonable salary.

Real Estate Tax Advantages

High earners often face heavy tax burdens because traditional investments offer limited ways to offset W-2 or active business income. Three real estate strategies may help reduce or defer those taxes:

• Short-term rentals. If your property’s average guest stay is seven days or less, it isn’t treated as a passive “rental activity” under the tax rules. If you also materially participate in running it, you may be able to use losses from the property to offset your salary income.
• Cost segregation studies. Residential rental properties are normally depreciated over 27.5 years, while commercial buildings depreciate over 39 years. With a cost segregation study, engineers identify parts of the property (such as furniture, appliances, and land improvements) that can be depreciated over 5, 7, or 15 years instead. Combined with bonus depreciation, which OBBBA restored to 100% for property acquired after January 19, 2025, this can result in a large first-year deduction.
• 1031 exchanges. When you sell an investment property and reinvest the proceeds in like-kind real estate, you can defer the capital gains indefinitely. However, strict timelines apply.

Not surprisingly, each of these strategies poses risks for the unwary, so getting advice is critical.

How to Choose the Right Tax Strategy for Your Situation

Choosing the right tax strategy takes careful planning and depends heavily on your personal situation. However, this quick summary can help you see how the strategies reviewed compare side by side. 

These strategies affect one another, so it’s important to develop a comprehensive plan rather than implementing them in isolation. For instance, a Roth conversion raises your AGI, which increases the 0.5% floor on charitable deductions, can push you over the NIIT threshold, and can result in higher Medicare premiums. Similarly, to avoid the pro-rata rule, many people roll pre-tax IRA money into a 401(k) before completing a backdoor Roth, which could leave less IRA money available for QCDs later.

What’s more, the analysis changes annually as tax rules and limits are updated. A fiduciary financial advisor, who is required to act in your best interests, can help you model these strategies to support an informed choice.

Frequently Asked Questions About Tax Planning

How much can high-income earners save with these strategies?

Each dollar you deduct or defer saves roughly your top marginal rate: about $3,500 per $10,000 in the 35% bracket, plus any state tax.

Can W-2 employees use real estate strategies to reduce taxes?

Potentially, but generally only through a short-term rental in which you materially participate, or if you qualify as a real estate professional. Cost segregation can increase the size of the deduction, but it doesn’t change whether the loss is passive.

What’s the difference between tax avoidance and tax evasion?

Tax avoidance involves reducing your taxes using legal tax code rules. Tax evasion involves the illegal concealment of income and is a federal felony subject to fines and imprisonment. 

When should I start tax planning for the current year?

Ideally in January, then review quarterly with your advisor.

Does Wealth Enhancement offer tax planning services?

Yes. Our financial advisors are backed by our Roundtable™ team of specialists who work together to craft tax strategies geared toward your personal needs.

Putting Your Tax Strategy into Practice

Proactive tax planning can meaningfully lower your effective tax rate, but the biggest gains come from a coordinated approach. If you’d like help building a tax-smart financial plan, schedule a no-cost consultation with a Wealth Enhancement advisor today. 

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. Investing involves risk, including possible loss of principal.

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