Tax Tips for the High-Income Earner
Navigating the tax landscape as a high-income earner can be tricky. As your income rises, many deductions begin to phase out, leaving you with the short end of the stick and fewer opportunities to reduce your tax burden. It’s important to be aware of tax brackets and rates, understand the progressive nature of the tax system, and look for new opportunities as you move into higher tax brackets.
Luckily for you, I know a thing or two about how to get you there and practices you can start right now.
Taxable accounts (non-retirement accounts): These should be invested in tax-efficient strategies. Remember that realized capital gains, dividends, and interest income are all taxed the year they are earned in most brokerage accounts.
Leverage Tax-Advantaged Accounts: Embrace the power of 401(k)s, IRAs, and HSAs. Max out contributions to these vehicles, as they offer significant tax benefits. HSAs, in particular, are not just for medical expenses—they're a treasure trove of tax savings.
Claim Your Credits: Despite your high income, don't overlook tax credits. Child and dependent care credit still qualifies for high-income earners – up to $1050 with one child or up to $2100 with two or more children.
Explore Deduction Opportunities: Itemized deductions are your ally. Itemized deductions could be more than the standard deduction. Many high-income individuals have significant deductible expenses such as mortgage interest, charitable contributions, medical expenses, property taxes, or other state and local taxes. Here are a few less well-known deductible expenses:
▪ Medical expenses paid for others (spouse or dependents)
▪ Long term care insurance premiums
▪ Sales tax paid when purchasing a large item such as a car, trailer, boat, etc.
Embrace Tax Loss Harvesting: If there are losses in an account, take advantage of tax loss harvesting. This means selling investments that have incurred losses to offset any capital gains and possibly reduce tax liability.
Estate Planning: Estate tax planning is a consideration for high-income or high-net-worth individuals to save in taxes over the long term. An estate attorney can put certain strategies into place to protect you from estate taxes.
Charitable Giving for Tax Benefits: Charitable giving can save money on taxes over the long term. Certain subjects to explore are donor-advised funds and other charitable giving strategies.
I specialize in working with high-net-worth clients and would love to help you get organized and fit with the financial strategy that best serves your goal. I encourage you to schedule a free strategy session with me below.