11 Tax Minimization Strategies for High-Income Earners
When you’re in a high tax bracket, every dollar you earn is subject to an elevated tax rate—which can take a substantial bite out of your income. Fortunately, high-income earners can strategically reduce their taxable income and potentially lower their overall tax liability. Below are 11 income tax minimization strategies to consider if you’re aiming to keep more of what you earn.
1. Max Out Your Retirement Contributions
Employer-sponsored retirement plans such as 401(k)s and 403(b)s allow you to contribute pre-tax dollars, reducing your current taxable income. In 2025, the annual contribution limit for 401(k) and 403(b) plans is projected to reach $23,500, plus a catch-up of $7,500 for those aged 50 and older. For SIMPLE IRAs, the maximum is $16,500, with an additional catch-up contribution available.
2. Consider Roth IRA Conversions
A Roth IRA is funded with after-tax dollars, meaning you won’t pay taxes on qualified withdrawals in retirement. Converting a traditional IRA or 401(k) to a Roth IRA can be advantageous if you expect your tax rate to be higher in the future—or if you have a year where your income dips, placing you temporarily in a lower bracket.
3. Invest in Municipal Bonds
Municipal bonds (munis) are generally exempt from federal income tax—and often from state and local taxes if you purchase bonds issued in your state of residence. While muni bond yields may be lower than corporate bonds, the tax-equivalent yield can be attractive for high earners.
4. Sell Inherited Real Estate Strategically
Inherited real estate enjoys a stepped-up basis, meaning the asset’s tax basis is adjusted to its fair market value at the time of inheritance. Selling soon after inheriting can minimize or even eliminate capital gains if the property’s value hasn’t increased further.
5. Set Up a Donor-Advised Fund
A donor-advised fund (DAF) allows you to donate several years’ worth of charitable contributions at once, taking the full tax deduction in the year of funding. You then decide how much and to which charities to distribute in subsequent years.
6. Utilize a Health Savings Account (HSA)
If you have a high-deductible health plan (HDHP), contributing to an HSA can reduce your taxable income while letting you pay for qualified medical expenses tax-free. For 2024, HSA contribution limits are $4,300 for individuals and $8,550 for families. (Individuals 55 or older can add $1,000 more.)
7. Invest in Companies That Pay Qualified Dividends
High-income earners generally face the highest marginal rates, but qualified dividends are taxed at favorable long-term capital gains rates (0%, 15%, or 20%). This rate is often lower than your ordinary income tax bracket, making qualified dividend strategies appealing.
8. Consider Tax Residency Planning
If you own property in more than one state—or you’re willing to relocate—living in a state with no income tax or lower income taxes can yield significant savings. Nine states currently do not impose personal income tax.
9. Prepay Property Taxes (When It Makes Sense)
Property tax deductions are capped at $10,000 under current federal SALT (State and Local Taxes) rules. If you haven’t hit that cap yet, prepaying property taxes can help you itemize and maximize your tax deductions in a specific year.
10. Fund 529 College Savings Plans
While 529 contributions aren’t deductible at the federal level, many states offer state-level tax deductions or credits. Moreover, investment growth is tax-deferred, and withdrawals used for qualified education expenses are tax-free.
11. Invest in Opportunity Zones
Created by the 2017 Tax Cuts and Jobs Act, Opportunity Zones encourage investment in distressed communities. You can defer capital gains taxes by rolling gains into a Qualified Opportunity Fund (QOF). After 10 years, further appreciation in your QOF investment can be tax-free.
Keeping Up with Tax Changes
2025 Federal Tax Brackets
The IRS periodically adjusts tax brackets for inflation. In 2025, there are expected to be seven brackets, ranging from 10% to 37% for individuals, heads of household, and married couples (filing separately or jointly). If your income pushes you into one of the higher brackets (generally 32% or above), you may be considered a high-income earner for tax-planning purposes.
Retirement Contribution & RMD Updates
Required Minimum Distributions (RMDs) now generally begin at age 73 for individuals who turned 72 after Dec. 31, 2022, and will increase to age 75 for those turning 74 after Dec. 31, 2033.
401(k) Contribution Limits: In 2025, the cap climbs to $23,500, with additional catch-up contributions for those 50+.
SIMPLE IRAs: The limit rises to $16,500, plus additional catch-up contributions.
IRA Contributions: Remaining at $7,000 in 2025, with a $1,000 catch-up if you’re 50 or older (though inflation adjustments may change future amounts).
Get Started Today
Even if you’re in a top tax bracket, you have options for lowering your taxable income—from maximizing retirement contributions to strategically investing in municipal bonds or Opportunity Zones. By combining multiple strategies, you could see substantial savings over the course of your career and into retirement.
Ready to discuss how these income tax minimization strategies fit into your financial plan?
Contact Falcon Wealth Planning today for a personalized consultation.