Even sophisticated taxpayers can miss opportunities. Here are a few of the most common
A higher income can provide you more opportunities to build wealth, but it also exposes more of your wealth to taxes. Investment income, equity compensation, business profits, bonuses and retirement distributions can all trigger additional taxes or even push deductions and credits out of reach.
Effective tax planning for high-income earners entails coordinating income, investments, retirement accounts, charitable giving and estate planning before year-end, while there’s still time to act.
The following 10 strategies can help high earners spot potential tax savings and make more informed year-end decisions.
Why Is Tax Planning Important for High Earners?
One Federal tax brackets adjust for inflation, but many other thresholds do not. For example, the 3.8% net investment income tax (NIIT) may apply when modified adjusted gross income (MAGI) exceeds $200,000 for single filers or $250,000 for married couples filing jointly. Those thresholds have remained unchanged since the tax took effect in 2013.
Higher-income taxpayers may also lose access to Roth IRA contributions, traditional IRA deductions, education tax benefits and other income-based tax breaks. At the same time, capital gains, bonuses, stock compensation and pass-through business income can make the final tax bill harder to predict.
These factors make advance tax planning a nonnegotiable. The goal is to reduce your current year’s taxable income while managing taxes across multiple years and keeping investment, retirement and estate goals in mind.
1. Maximize Tax-Advantaged Retirement Contributions
Maximizing pretax retirement contributions is one of the most direct ways for high-wage earners to reduce current taxable income dollar for dollar.
For 2026, employees can contribute up to $24,500 to a 401(k), 403(b), most 457 plans or the federal Thrift Savings Plan. The general catch-up contribution is $8,000 for participants age 50 or older. Employees ages 60 through 63 may be eligible for a higher $11,250 catch-up contribution instead.
The 2026 IRA contribution limit is $7,500. If you’re 50 or older, you may make a $1,100 catch-up contribution. Traditional IRA contributions and direct Roth IRA eligibility phase out at higher income levels, starting at a MAGI of $153,000 for single filers and $242,000 for married filing jointly.
High earners may also want to determine whether their workplace plan supports:
-
-
After-tax contributions and in-plan Roth conversions for a mega backdoor Roth strategy
-
A backdoor Roth IRA contribution
-
Employer profit-sharing contributions
-
A cash balance or defined benefit plan for eligible business owners
-
These strategies have detailed eligibility and reporting requirements. Backdoor Roth contributions can also be affected by the pro rata rule when a taxpayer holds pretax IRA assets.
2. Invest in an HSA
If you’re eligible to contribute to a health savings account because you have a high-deductible health plan, invest. HSAs offer three federal tax advantages:
-
-
Deductible or pretax contributions
-
Tax-deferred growth
-
Tax-free withdrawals for qualified medical expenses
-
For 2026, the HSA contribution limit is $4,400 for individuals and $8,750 for families. Eligible individuals age 55 or older can contribute an additional $1,000.
-
High-income earners who can pay current medical costs with other funds may want to consider investing their HSA balance. Keep receipts for qualified expenses. This allows the account to grow over time while creating supplemental retirement savings and tax-efficient access to future funds.
3. Review Capital Gains Before Selling
Evaluate your investment sales based on their after-tax results, not gains alone. For instance, long-term capital gains generally receive more favorable federal rates at 0%, 15% or 20%. On the other hand, short-term capital gains are taxed at your ordinary income tax rate.
Before selling an appreciated asset, you’ll want to verify:
-
-
Whether the position has been held for more than one year
-
Your expected capital gains rate
-
Available capital losses
-
Potential exposure to the 3.8% NIIT
-
State income taxes
-
Whether the sale can be divided between tax years
-
Pro Tip: Holding an asset a little longer may qualify the gain for long-term treatment. Deferring part of a sale may also prevent a gain from increasing your income in a single year. Always weigh tax savings against market risk and the investment’s role in your portfolio.
4. Take Advantage of Tax-Loss Harvesting
Tax-loss harvesting entails selling investments that have declined in value to offset realized capital gains. If losses exceed gains, you may offset up to $3,000 of net capital losses against ordinary income. You may also carry forward any unused losses to the following year.
This strategy can be useful after selling a concentrated stock position, business interest, real estate investment or other appreciated asset.
Be careful of the wash-sale rule. A loss may be disallowed if you purchase the same or a substantially identical security within 30 days before or after the sale. Wash sales can also occur across multiple brokerage accounts, IRAs or accounts owned by a spouse.
Pro Tip: Tax-loss harvesting should support your investment plan, not drive it. A replacement investment can help keep the desired market exposure without undermining your tax benefit.
5. Improve Asset Location Across Your Accounts
Asset allocation refers to deciding which investments to hold in taxable, tax-deferred and tax-free accounts.
Tax-inefficient investments, such as taxable bonds, high-turnover funds or investments generating ordinary income, may be better suited to tax-deferred accounts. Tax-efficient stock funds and municipal bonds may be more appropriate for taxable accounts, depending on your investment goals and tax bracket.
Municipal-bond interest is generally exempt from federal income tax. It may also be exempt from state and local taxes when the bonds are issued in the investor’s home state, although the rules vary. Certain municipal-bond income can affect the alternative minimum tax.
Thoughtful asset location is an important part of tax-efficient investing, especially if your household is managing several account types.
6. Consider Roth Conversions During Lower-Income Years
A Roth conversion moves pretax retirement assets from a traditional IRA or 401(k) into a Roth IRA account. While the converted amount is treated as taxable income for that year, it grows tax-free and future qualified withdrawals are completely tax-free.
A conversion does not reduce current-year taxes, but it can be a valuable strategy to reduce lifetime taxes when completed during a temporarily lower-income year, such as:
-
-
Between retirement and the start of required minimum distributions
-
During a business loss or unusually low bonus year
-
After a market decline
-
Before future tax rates or income are expected to rise
-
Partial conversions can help fill a targeted tax bracket without unnecessarily raising income. Taxpayers should also consider the effect on NIIT, Medicare premiums, charitable deductions and other income-based provisions.
An additional benefit of a Roth conversion is that once funds are in the Roth account, you are not required to take minimum distributions (RMDs) as you would with a traditional IRA.
7. Coordinate Charitable Giving
Charitable planning can support worthy causes while helping manage appreciated assets and itemized deductions.
One option is to donate publicly traded securities held for more than one year directly to a qualified charity or donor-advised fund. You may generally deduct the asset’s fair market value, subject to applicable limits, and avoid the capital gain that would have resulted from selling it first.
Other strategies include:
-
-
Bunching several years of donations into one tax year
-
Using a donor-advised fund to separate the tax deduction from the timing of grants
-
Coordinating gifts with a high-income or high-capital-gain year
-
Checking whether taking itemized deductions outweighs the standard deduction
-
For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly. New rules also impose a 0.5% of AGI floor on itemized charitable deductions and limit the value of itemized deductions for taxpayers in the 37% bracket. Non-itemizers may deduct up to $1,000 in qualifying cash contributions, or $2,000 for joint filers.
Taxpayers aged 70½ or older may also be able to make a qualified charitable distribution (QCD) directly from an IRA. The 2026 QCD limit is $111,000 per eligible individual. A QCD is not deductible, but it can exclude qualifying distributions from taxable income and may satisfy part or all of a required minimum distribution.
8. Revisit the Timing of Income and Deductions
If you control when income is received, or expenses are paid, shifting an item between tax years could improve the overall result.
Possible planning opportunities include:
-
-
Deferring a bonus, consulting payment or invoice
-
Accelerating deductible business expenses
-
Exercising stock options the next tax year
-
A business sale or investment gain
-
Increasing withholding before year-end
-
Making a fourth quarter estimated tax payment
-
Pro Tip: Income deferral is not always the best choice. If tax rates or income are expected to rise next year, accelerating income may be more beneficial. Compare both years rather than focusing only on the immediate deduction.
9. Review New and Expanded Deductions, and Their Phaseouts
OBBBA tax-law changes created or expanded several deductions, but higher-income taxpayers may receive a reduced benefit.
For example, the federal state and local tax deduction (SALT) limit increased temporarily, but the larger deduction begins to phase down for taxpayers with MAGI above $500,000. High earners should model the potential deduction instead of assuming all property, state income and local taxes will be deductible.
Taxpayers age 65 or older may qualify for an additional $6,000 senior bonus deduction through 2028, but it also phases out based on income. The 2026 income phaseout begins at $75,000 for single filers and $150,000 for married filing jointly.
High earners should additionally review whether their income limits access to:
-
-
Direct Roth IRA contributions
-
Deductible traditional IRA contributions
-
Education deductions and credits
-
The qualified business income deduction
-
The increased SALT deduction
-
The additional senior deduction
-
10. Estate and Lifetime-Gifting Strategies
Income tax planning and estate planning should work in tandem for maximum benefits. Lifetime gifts can help reduce the size of a taxable estate and transfer future appreciation while providing financial support to family members.
The federal estate and lifetime gift tax exemption is $15 million per individual and $30 million for married couples for 2026. The annual gift-tax exclusion remains $19,000 per recipient in 2026. Married couples may combine their exclusions to transfer $38,000 per recipient as long as all requirements are met. This means you can gift this amount to as many people as you want without paying taxes or reporting the gift to the IRS. Gifts above the annual exclusion are not necessarily taxable, but they may require a gift-tax return and use part of the lifetime exemption.
Households below the lifetime exemption amount will want to review the following factors:
-
-
Beneficiary designations
-
529 plan contributions
-
Direct payments for qualifying tuition or medical expenses
-
Trust provisions
-
Concentrated or rapidly appreciating assets
-
State estate and inheritance taxes
-
Income tax basis consequences for gifted and inherited property
-
Advanced trusts, including SLATs, IDGTs and generation-skipping strategies, require legal and tax advice. Learn more about integrating wealth transfers into an estate tax planning strategy.
Additional Opportunities for Business Owners & Real Estate Investors
Business owners typically have more control over the timing and type of income claimed than W-2 employees. Depending on your circumstances, small business year-end planning may include retirement-plan contributions, accountable-plan reimbursements, office equipment purchases, pass-through entity tax elections and entity-structure reviews.
Real estate investors may also have access to depreciation and activity-specific deductions. For example, qualifying short-term rental losses may offset other income when the property meets the applicable average-stay rules, and the taxpayer materially participates. This is a fact-specific strategy, not an automatic “loophole.” See our guide to short-term rental tax strategies.
Common Tax-Planning Mistakes High Earners Make
Even sophisticated taxpayers can miss opportunities. Here are a few of the most common tax-planning mistakes to avoid:
-
-
Waiting until tax-filing season to begin planning
-
Looking for deductions without considering your total income
-
Ignoring NIIT, alternative minimum tax or Additional Medicare Tax
-
Selling appreciated assets before meeting long-term holding periods
-
Ignoring multiple accounts and triggering the wash-sale rule
-
Completing Roth or backdoor Roth transactions without considering other IRA balances
-
Making investment decisions solely for tax reasons
-
Underpaying estimated taxes after a bonus, stock sale or business distribution
-
Failing to coordinate tax, investment and estate-planning professionals
-
High-Income Tax Strategy Checklist
Use the checklist below as a starting point to assess where you stand and identify your highest-priority planning opportunities. Work through it with your tax advisor to ensure nothing falls through the cracks.
-
-
Calculate projected income, deductions, capital gains and estimated taxes.
-
Maximize retirement and HSA contributions.
-
Compare realized gains and available losses.
-
Evaluate asset location optimization opportunities.
-
Model a partial Roth conversion.
-
Finalize charitable gifts and QCDs.
-
Revisit the timing of income and expenses.
-
Review deductions and income-based phaseouts.
-
Coordinate business or real estate strategies.
-
Update gifting and estate plans.
-
Start Building Your Year-End Tax Plan
There’s no single “best” tax strategy for high-income earners. The right plan depends on your income mix, life stage, estate goals, charitable intent and risk appetite. What works well for one household may be entirely wrong for another.
A year-end projection can show how these pieces interact before a decision becomes irreversible. LTax Consulting helps individuals and families develop coordinated tax-planning strategies for high-net-worth individuals designed to reduce unnecessary tax exposure while supporting overall financial goals.
Ready to make your year-end tax strategy more effective? Contact an LTax team member to identify opportunities and build a plan customized to your financial goals.
LEGAL OR TAX: The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
