As a Certified Financial Planner™ and Certified Private Wealth Advisor®, Will helps clients create their ideal life through values-based financial planning.
Navigating the US tax system can be complicated, especially if you’re a high-income earner who wants to reduce their tax bill.
As you earn more money, the amount of tax you need to pay will increase. Luckily, there are several ways to reduce your taxes with various tax saving strategies that can affect how you invest, move, or spend your money.
Keep in mind that this post is general in nature. Speak to a fiduciary financial advisor or accountant to get advice about your specific situation.
12 Tax Saving Strategies to Consider
1. Maximize Contributions to Tax-Advantaged Accounts
Tax-advantaged accounts combine investment and savings gains with tax breaks that may help lower your tax bill.
If you’re saving for medical expenses, retirement, or your children’s education, consider maximizing contributions to tax-advantaged accounts. Common types include 401(k) accounts, IRAs, Health Savings Accounts (HSAs) and 529 plans.
2. Consider Strategic Charitable Giving
Charitable contributions and donations may help you lower your taxable income, but to claim these, you must donate to an IRS-recognized charity.
In some cases, you can also donate stocks and other securities to reduce your capital gains taxes. Reach out to one of 360’s Senior Wealth Managers to discuss what options would make sense given your situation.
3. Use Capital Gains and Losses to Your Advantage
Using capital gains and losses strategically can help reduce your tax liability:
1) Hold Investments for Over a Year: Assets held for over a year qualify for the lower long-term capital gains tax rate. Timing sales for years when your income is lower, such as during retirement, can also reduce your tax rate.
2) Offset Gains with Losses (Tax-Loss Harvesting): Selling investments that have declined in value can create losses to offset gains in the same year. If losses exceed gains, you can use up to $3,000 to offset other income and carry any excess forward to future years.
3) Use Losses in High-Income Years: If you’re experiencing a high-income year, you can realize losses to offset gains, reducing taxable income.
4) Strategic Asset Location: Placing higher-yield investments in tax-advantaged accounts (like IRAs) and long-term assets in taxable accounts may allow you to benefit from lower capital gains tax rates.
5) Gifting Appreciated Assets: Gifts to family members in lower tax brackets or donations to charity can avoid capital gains tax on the appreciation. However, be aware that if you donate stock to individuals, they obtain your original cost basis.
6) Opportunity Zones: Investing capital gains into Qualified Opportunity Funds (QOFs) can defer and reduce capital gains tax if held long-term. It’s important to note that Opportunity Funds typically have long time periods where you can’t easily access your investment.
These strategies can add value to your tax plan. However, tax-planning strategies like these are complex. It would be wise to consult a financial advisor to get help tailoring tax strategies for your particular situation.
4. Utilize Tax Credits
Tax credits can be used to reduce the amount of tax you have to pay.
The US government currently provides tax credits as a financial benefit for parents, those who pay for higher education, and individuals who put money into retirement savings.
If you’re a high-earning taxpayer, you may be able to utilize tax credits to reduce your tax bill and even increase your tax refund in the long term.
5. Leverage Tax-Efficient Investments
One way to manage your investments better is by leveraging tax-efficient strategies to help minimize your tax burden.
This could include maximizing 401(k) contributions, holding dividend-paying stocks to tax-advantaged accounts, investing in municipal bonds, or even investing in foreign securities.
You should seek the advice of a fiduciary financial advisor if you wish to have a tax-efficient investment portfolio.
6. Contribute to a Health Savings Account (HSA)
A Health Savings Account (HSA) is a type of savings account that allows you to set money aside for you to use for various medical expenses, like dental care or over-the-counter medication.
Each dollar placed in your HSA comes with a tax reduction up to a certain limit. Plus, you won't need to pay tax on income moved to your HSA. When used correctly, these accounts have triple tax advantages!
7. Review and Optimize Interest Expenses
Some interest can be claimed as a deduction or credit, including mortgage interest, student loan interest, and investment interest.
Reviewing all your interest expenses can help you determine whether they qualify for reductions and potentially reduce your taxable income. However, credit card or installment expenses for personal use or interest relating to tax-exempt income are types of interest expenses that are non-deductible.
8. Exercise Non-qualified Stock Options (NQSOs) Strategically
If you are an employee of a company that offers NQSOs as compensation, you may be wondering how to maximize after-tax gains from NQSOs.
Depending on your vesting schedule, you may decide to exercise and sell immediately on the vesting date, exercise and sell at expiration, or exercise at vest and then hold to take advantage of long-term capital gains tax rates. The right strategy for you will depend on whether you expect to receive further options and whether you want to avoid both concentration and market risk.
Work with a financial advisor to time this to minimize tax. Financial advisors can help align your exercise strategy with your income expectations and overall tax plan, timing exercises in low-income years or balancing them with other deductions to minimize tax impact.
9. Consider a Roth Conversion Strategy
Roth IRAs are known as “post-tax” accounts, meaning that you won’t need to pay income tax on any withdrawals.
This makes moving retirement savings from a traditional IRA to a Roth IRA appealing. However, doing so can also come with tax complications. Common Roth conversion strategies to minimize these complications include only converting a portion of your funds to keep your current tax bracket (bracket-bumping conversion) and waiting for market downturns (market-timing conversion).
10. Understand the Impact of State Taxes
State and local taxes differ, which is why it’s important to understand how the taxes on the salary, investments, and assets of an individual are imposed by different states.
If you’re a high-income earner and you want a way to preserve the amount of taxes you have to pay, moving to states that offer tax benefits or a lower cost of living is an option. Each state also has different definitions of taxable income and income tax return filing requirements.
11. Ensure Your Estate Plan is Tax Efficient
If you want to protect your assets and ensure they are distributed correctly and in a tax-efficient way to your family and other loved ones, make sure your estate plan has been optimized to minimize tax.
Work with a financial advisor and estate attorney to create strategies that will help you reduce or even avoid estate tax without complications. This may include making charitable donations, gifting assets during your lifetime, and setting up trusts.
Not all states impose an estate tax, so it’s worth looking into the specific tax laws in your state before starting.
12. Do a Comprehensive Review of Your Tax Return with Your Financial Advisor
Implementing strategies to lower your tax bill can be complex if you are a high-income earner with significant assets and investments.
Financial advisors help you pursue your financial goals and provide dedicated guidance. They can provide advice about the specific tax advantages of various strategies and create a tax-efficient investment portfolio.
Common Questions about Tax Saving Strategies
Core Strategies to Lower Taxable Income and Tax Bill
What strategies can I use to lower my tax bill as a high-income earner?
High-income earners may be able to reduce their tax bill by maximizing contributions to retirement accounts like 401(k)s and IRAs, leveraging Health Savings Accounts (HSAs), making strategic charitable donations, and using capital gains planning.
Consulting with a financial advisor is wise as they may also help identify and implement tax-efficient investment options tailored to your financial situation.
How can I decrease my taxable income?
You may be able to decrease your taxable income by maximizing contributions to tax-advantaged accounts like 401(k)s, IRAs, and HSAs. You might consider utilizing tax deductions for things like mortgage interest or student loan interest.
How can I reduce my taxes if I make over $100,000?
If you earn over $100,000, consider using tax credits for retirement savings or education, strategically planning capital gains, and contributing to Health Savings Accounts. Charitable giving and maximizing tax-deductible expenses can also help lower your tax burden.
In addition, work with a financial advisor who will go over your tax return each year to ensure you are minimizing your tax burden.
How do high-income earners reduce taxes?
High-income earners often reduce taxes by maximizing contributions to tax-advantaged accounts, employing charitable giving, using tax credits, and consulting financial advisors to optimize investment portfolios for tax efficiency.
What’s the best way to reduce my tax burden if I live in a high-tax state?
To reduce your tax burden in a high-tax state, consider taking deductions for state and local taxes up to the federal cap, maximizing tax-advantaged retirement contributions, and exploring options to move income-producing assets to tax-friendly states.
Relocating to a lower-tax state may also be an option, especially for retirees or those with location flexibility.
Key Concepts: Adjusted Gross Income and Tax Brackets
How does adjusted gross income affect my federal income taxes?
Adjusted Gross Income (AGI) is a key factor in determining your federal income tax bracket and eligibility for certain deductions and credits. A lower AGI may qualify you for additional tax credits, help you stay in a lower tax bracket, and reduce your taxable income.
What is adjusted gross income?
Adjusted Gross Income (AGI) is your gross income minus adjustments like retirement contributions or student loan interest, affecting your tax bracket and eligibility for certain credits.
What is the top federal income tax bracket in 2025?
The top federal income tax bracket is 37% for high-income earners.
Deductions, Credits, and Tax-Advantaged Investments
What are the most effective tax deductions for high-income individuals in 2025?
Key deductions include mortgage interest, charitable donations, medical expenses (if they exceed a certain percentage of AGI), contributions to HSAs, and state and local taxes up to the SALT cap, which is set to expire in 2025.
Tax-advantaged retirement account contributions may also provide significant deductions for high-income earners.
What can I write off on my taxes?
Common deductions include mortgage interest, medical expenses, charitable donations, and certain state and local taxes, depending on your filing status and income.
Can state and local taxes be deducted to reduce taxable income?
Yes, state and local taxes (SALT) can be deducted up to a $10,000 limit for federal taxes if you itemize your deductions. This can reduce your taxable income, although the deduction limit affects high-income earners in high-tax states more significantly.
What is a qualified charitable distribution?
A qualified charitable distribution (QCD) is a donation made directly from an IRA to a qualified charity, often tax-free if certain conditions are met. This can help meet required minimum distributions without increasing taxable income.
Which investments use after-tax dollars?
Roth IRAs, individual brokerage accounts, and municipal bonds generally use after-tax dollars, allowing for potentially tax-free growth on certain types of accounts, like Roth IRAs
Which investments use before-tax dollars?
Traditional 401(k)s, traditional IRAs, and Health Savings Accounts (HSAs) typically use before-tax dollars, allowing immediate tax deductions and tax-deferred growth.
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About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
About the Author
William Grant
Will Grant enjoys empowering people to make informed decisions and seeing the positive impact his guidance can have on their lives.
Prior to joining 360, he spent seven years serving hundreds of clients at a boutique RIA focused on healthcare executives with equity compensation and then at a large, independent RIA. He earned a Bachelor of Science degree in Finance from Miami University and holds his Series 7 and 63 licenses through LPL Financial and his 65 license through 360 Financial.
Will lives in Minneapolis with his fiancée, Melissa. In his free time, he enjoys competing in triathlons, golfing and is an active member of the Minnesota Leadership Council for the Chick Evans Scholarship Foundation, of which he was a recipient.
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