7 Tax Strategies for High-Income Earners

Once your income crosses roughly $200,000, the marginal federal tax rate is 32%. Above $578,125 (single) or $693,750 (married filing jointly) in 2024, it is 37%. Add state income taxes — which can run 9–13% in California, New York, and New Jersey — and high earners can face effective tax rates above 50% on their top dollars.

The good news is that the tax code contains a substantial number of legal strategies that disproportionately benefit high earners who plan proactively. None of these are loopholes or aggressive positions. They are ordinary provisions of the Internal Revenue Code that most high earners are either not using or not using optimally.

1. Backdoor Roth IRA

Direct contributions to a Roth IRA are phased out above $146,000 (single) or $230,000 (married) in 2024. But the "backdoor" strategy remains available: contribute to a traditional IRA (non-deductible at high income levels) and immediately convert it to a Roth IRA. You pay tax on any gains between contribution and conversion — typically zero if done immediately — and the money then grows tax-free forever.

The one complication is the pro-rata rule: if you have other pre-tax traditional IRA balances, the conversion is partially taxable based on the ratio of after-tax to total IRA assets. Work with a CPA to model this before executing.

2. Mega Backdoor Roth

If your employer's 401(k) plan allows after-tax contributions (separate from your regular pre-tax contributions), you can contribute up to $69,000 total (the 2024 combined employer + employee limit) into the plan and then convert the after-tax portion to Roth — either within the plan or by rolling it out to a Roth IRA. The result is dramatically larger Roth balances than the standard contribution limits would allow.

Not all 401(k) plans support this — ask your HR department or plan administrator directly.

3. Donor-Advised Fund (DAF)

A Donor-Advised Fund lets you make a large charitable contribution in a high-income year, take the full deduction immediately, and then grant money to actual charities over time at your own pace.

Example: In the year you sell your business, you contribute $50,000 to a DAF and deduct the full amount against a year of unusually high income. Over the next 5 years, you grant $10,000 per year to your chosen charities. You have both maximized the tax benefit (by timing the deduction to a high-income year) and preserved flexibility in how the funds are ultimately distributed.

You can contribute cash, appreciated stock (particularly powerful — you avoid the capital gains tax on appreciation and still deduct the full fair market value), or other assets.

4. Qualified Opportunity Zone (QOZ) Funds

If you have capital gains from any source (stock sales, real estate, business sale), you can defer and partially exclude those gains by investing them in a Qualified Opportunity Zone Fund within 180 days of the sale.

The key benefit: gains on the QOZ investment itself are excluded from tax entirely if held for 10+ years. This is one of the few provisions in the tax code that allows permanent exclusion of capital gains.

5. S-Corporation Election

If you are self-employed or own a pass-through business, an S-Corp election can reduce your self-employment (SE) tax meaningfully. In an S-Corp, you pay yourself a "reasonable salary" (subject to payroll taxes) and take additional profits as distributions (not subject to SE tax). The SE tax rate is 15.3% on the first $168,600 of net self-employment income and 2.9% above that — so the savings can be significant on high business income.

The tradeoff is administrative complexity: S-Corps require separate payroll, additional tax filings, and stricter compliance requirements. Run the numbers with your CPA to determine at what income level the savings justify the costs.

6. Health Savings Account (HSA)

Often called the "triple tax advantage" account: contributions are deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. In 2024, the contribution limit is $4,150 (individual) or $8,300 (family) with an extra $1,000 catch-up for those 55 and older.

For high earners in good health, the optimal strategy is to contribute the maximum every year, pay current medical expenses out of pocket, and let the HSA compound for decades. At retirement, the HSA can supplement Medicare costs or be withdrawn for any purpose (subject to ordinary income tax, like a traditional IRA).

7. Cost Segregation for Real Estate

If you own commercial or investment real estate, a cost segregation study reclassifies certain building components from 27.5 or 39 year depreciation lives to 5, 7, or 15 year lives — dramatically front-loading depreciation deductions in the early years of ownership.

Combined with bonus depreciation (which allows 60% immediate expensing of qualifying property in 2024), a cost segregation study on a $1M commercial property can generate $100,000–$200,000 of accelerated depreciation deductions in year one. For real estate professionals (IRS definition) or high earners with passive income to offset, this can be transformational.