Earning a high income has advantages, but it can also put you in a higher tax bracket. This means the government takes more of the money you worked hard for. Thus, it is essential to look into deductions and other tax-saving strategies to minimize your tax burden and keep more of your cash. 

The IRS classifies you as a high-income earner if your yearly income exceeds $200,000. With this level of income, they could tax you at a rate between 32% to 37%. In 2022, slightly over 11% of Americans had household earnings reaching this threshold. In this blog post, we’ll explore seven smart tax strategies specifically designed to reduce taxes for high-income earners.

1. Maximize Contributions to Retirement Accounts

Fully funding your retirement account can offer significant benefits, as it directly lowers your taxable income. When you contribute to accounts like 401(K) or traditional IRAs, you cut the amount of your income subject to taxes. This means paying less in taxes upfront. In addition, these accounts offer tax-deferred advantages. This means that you can grow your savings over time tax-free. You only pay taxes when you withdraw your money in retirement. 

2. Take Advantage of Health Savings Accounts (HSAs)

Contributing to these accounts helps you save money for healthcare expenses. It also lets you save on taxes. The amount you contribute to your HSA will be deducted from your gross income, lowering the taxes you pay. Plus, any interest you earn or withdrawals you make are tax-free. But, only if you use them for qualified medical expenses. 

3. Explore Retirement Account Conversions

Converting to a Roth IRA can be strategic. It involves converting funds from a traditional IRA to a Roth IRA. You’ll have to pay taxes on the converted amount in the year of conversion. But, you’ll let your money grow tax-free for the future. And, you can withdraw it without paying income tax on the distribution. 

Additionally, Roth IRAs don’t require you to take required minimum distributions. This means you can keep your money for as long as you want. You won’t have to make any withdrawals until you’re ready.

4. Smart Charitable Giving

Charitable contributions can reduce your tax burden.  If you itemize deductions, you can deduct qualified donations up to a certain percentage of your adjusted gross income. You can maximize your donation in a few ways. You can donate appreciated assets or “bunch” your donation. 

Donating stocks, bonds, or other assets that have gone up in value lets you avoid capital gains taxes. You also get a tax deduction for the full value of the donation.

If you don’t consistently donate throughout the year, consider “bunching” your donations. This means making a larger donation every other year. It lets you itemize deductions and reach a higher tax bracket.

5. Consider Tax-Efficient Investments

The investments you choose impact your tax bill. For instance, municipal bonds let you earn interest without paying federal income tax. They also often avoid state and local taxes. Exchange-traded funds are also great options. They usually have less turnover and fewer capital gains, which can cut taxes for high earners.

6. Strategize with Capital Gains and Losses

You can sell your investments to “harvest” capital losses if they lose value. This means you can use these losses to cancel out capital gains and lower your tax bill. Just remember, there’s a limit on how much loss you can deduct each year. You can carry forward any extra losses to use in future years.

7. Explore Business Deductions

Running your business from home offers some tax advantages. You can deduct a part of your home office expenses, such as rent and internet bills, from your taxes. Additionally,  business trips and meal expenses qualify for deduction as long as they’re ordinary and necessary. You can also write off certain items over time through depreciation. This helps spread out the tax you owe on these items over their useful life. 

Tax laws can be confusing, and they often change. What saved you money last year might not work this year. That’s why it’s important to talk to a qualified tax professional. They’ll ensure you’re using the best tax strategies to pay as little tax as possible. Don’t wait until tax season to get started. Contact us today at help@TaxSamaritan.com or give us a call at 775-305-1040 to set up a free consultation. Let’s discuss your situation and create a personalized plan to help preserve your wealth and reduce taxes.