7 Tax Saving Strategies for High-Income Earners

Earning a higher income can mean paying more in taxes at both the federal and state levels. Graduated tax rates at the federal level, and sometimes even the local level, take a larger chunk of your income the more you make. By familiarizing yourself with the rules, you can optimize your tax strategy to save more of your cash.

Similarly, a financial advisor with tax planning expertise can help optimize your financial plan to mitigate your taxes.

What Counts as High Income?

The IRS defines a high-income earner as any taxpayer who reports $200,000 in adjusted gross income (AGI) or $250,000 in total positive income (TPI) on their tax return. Total positive income is the sum of all positive amounts shown for different courses of income reported on an individual tax return.

That said, high income doesn’t typically have a single definition. For tax purposes, it generally refers to earners whose income places them in the top federal tax brackets or exposes them to additional surtaxes. For many households, this means adjusted gross income high enough to trigger the 32%, 35% or 37% tax brackets, which typically applies to those earning several hundred thousand dollars or more. These taxpayers may also face the 3.8% net investment income tax (NIIT), phaseouts of certain deductions and limits on tax-advantaged contributions.

What counts as “high income” can also vary based on location, lifestyle and financial goals. In areas with elevated living costs, households earning well into six figures may still feel financially stretched, even though they fall into higher tax categories. What ultimately matters for tax planning is how your income interacts with the tax code, whether through investments, business ownership, equity compensation or income streams.

Federal Income Tax

Your federal tax bracket represents the percentage of tax you owe to the IRS based on specific ranges of your taxable income. Your taxable income is your AGI, less the standard deduction or any itemized deductions you claim. 

For the 2026 tax year, the highest federal income tax rate is 37%. This top bracket applies to taxable income over $640,600 for single filers and over $768,700 for married couples filing jointly.

Additional Taxes High-Income Earners May Owe

A large income can trigger federal taxes that do not affect many other taxpayers. Investment earnings are one area to watch. Depending on filing status and income, some taxpayers may owe the 3.8% NIIT on income from sources like interest, dividends, capital gains, rental property and certain passive activities. For 2026, the relevant income levels remain $200,000 for single and head-of-household filers, $250,000 for married couples filing jointly and $125,000 for married taxpayers filing separately. Taxpayers who have modified adjusted gross incomes over these thresholds will pay the NIIT.

Earned income can create another tax consideration. The Additional Medicare tax adds 0.9% to wages, compensation and self-employment income above the applicable limit. Those limits are $200,000 for single and head-of-household filers, $250,000 for joint filers and $125,000 for married taxpayers filing separately. Because these thresholds do not rise automatically with inflation, more taxpayers can become subject to these taxes as their income increases over time.

Tax Saving Strategies for High-Income Earners

Reducing your tax bill when you earn a higher income generally doesn’t come down to just one approach. There are multiple tactics you can use to try to trim your bill. Some of these you can do yourself, while others might require the help of your financial advisor to execute.

Here are some of the best ways to reduce taxes for high-income earners.

1. Fully Fund Tax-Advantaged Accounts

Maxing out tax-advantaged accounts can help to reduce your taxable income for the year. The less taxable income you have to report, the easier it might be to move down a tax bracket or even two. Some of the accounts you may consider maxing out include:

• Traditional 401(k) or similar workplace plan
• Traditional IRA
• SEP IRA
• Health savings account (HSA) and flexible spending account (FSA)

For 2026, the employee contribution limit for 401(k), 403(b) and most governmental 457 plans is $24,500. The IRA contribution limit is $7,500. Eligible HSA contributors can contribute up to $4,400 for self-only coverage or $8,750 for family coverage. SEP contributions can reach $72,000 in 2026, subject to applicable compensation and contribution limits.

Remember that if you’re 50 or older, you can also make catch-up contributions to workplace plans and IRAs. Catch-up contributions are allowed for HSAs beginning at age 55. Additionally, keep in mind that the amount of traditional IRA contributions you can deduct will depend on whether you (and your spouse) are also covered by a retirement plan at work.

In 2026, the general catch-up limit for most 401(k), 403(b) and governmental 457 plans is $8,000, while participants ages 60 through 63 can have a higher $11,250 catch-up limit. The IRA catch-up limit is $1,100. Also beginning in 2026, certain workers whose prior-year wages from the employer sponsoring the plan exceeded $150,000 must make catch-up contributions on a Roth basis when their plan is subject to the rule.

2. Consider a Roth Conversion

Roth IRAs allow for 100% tax-free qualified distributions in retirement. If you’re a high-income earner, you might not be able to make a contribution to a Roth IRA if you earn above a certain amount. You can, however, convert traditional IRA assets to a Roth IRA.

If you do this, you would need to pay tax on the conversion on that year’s tax return. But going forward, you’d be able to make qualified withdrawals from your Roth account without paying income tax on those distributions. Roth IRA owners also do not have to take required minimum distributions (RMDs) during their lifetimes.

For 2026, eligibility to contribute directly to a Roth IRA phases out at modified AGI between $153,000 and $168,000 for single and head-of-household filers and between $242,000 and $252,000 for married couples filing jointly. Those income limits do not prevent a taxpayer from converting eligible traditional IRA assets to a Roth IRA.

Want to preview how a Roth conversion might change your taxes this year? Try our income tax calculator.

3. Add Money to a 529 Account

A 529 college savings account is a tax-advantaged vehicle that’s designed to help you pay for education expenses. The money you deposit isn’t deductible at the federal level, though some states may offer a tax break for 529 contributions. But the money in the account grows tax-deferred, and withdrawals are tax-free when used for eligible educational expenses.

Contributing to a 529 may not affect your current federal income tax situation. However, it can be useful for gift and estate planning. The annual federal gift tax exclusion is $19,000 per recipient in 2026. A special five-year election generally allows an individual to contribute as much as $95,000 to a beneficiary’s 529 plan at once and treat the contribution as though it were made evenly over five years for gift tax purposes. Additional gifts to the same beneficiary and the contributor’s death during the five-year period can affect the tax treatment.

4. Donate More to Charity

One of the most popular tax-saving strategies for high-income earners involves charitable contributions. Beginning in 2026, taxpayers who itemize can generally deduct charitable contributions only to the extent their contributions exceed 0.5% of adjusted gross income. Other percentage limits also apply depending on the type of contribution and the organization receiving it. Taxpayers who do not itemize may deduct up to $1,000 of qualifying cash contributions, or $2,000 for married couples filing jointly, subject to applicable rules.

There are several ways to take advantage of charitable deductions, including:

• Making a cash donation directly to an eligible charity
• Donating appreciated non-cash assets, such as stocks, which could allow you to avoid the capital gains tax
• Establishing a charitable remainder or charitable lead trust
• Setting up a donor-advised fund
• Taking a qualified charitable distribution (QCD) from an IRA

The last option is something you might consider once you’re at least age 70 ½. In 2026, an eligible IRA owner can exclude up to $111,000 in QCDs from gross income. A QCD can count toward a required minimum distribution when applicable. However, you cannot also claim the excluded QCD as a charitable contribution deduction.

5. Review and Adjust Your Asset Allocation

Some investments may be more tax-efficient than others. As such, it’s important to ensure you’re allocating assets in the right places. For example, it generally makes sense to keep more tax-efficient mutual funds and exchange-traded funds (ETFs) in a taxable account while reserving higher tax-impact funds for your 401(k) or IRA.

You might also consider investing in tax-exempt municipal bonds as a means of reducing taxes. Interest income from these bonds is excluded from Medicare surtax calculations and isn’t subject to federal income tax either. Muni bond income may also be free of state income tax.

Also, remember that tax-loss harvesting can be your friend. Harvesting losses means selling off investments at a loss to offset the capital gains in your portfolio. You can also deduct up to $3,000 ¹ in net losses against your regular income. Any losses you don’t harvest in the current tax year can be carried forward to future years.

6. Consider Alternative Investments

Certain investments can help you to defer taxes when you earn a higher income. For example, cash-value life insurance generally allows cash value to grow on a tax-deferred basis. Policyholders may be able to access cash value through withdrawals or policy loans without immediately recognizing taxable income, depending on the policy, the amount withdrawn and whether the contract remains in force. Modified endowment contract rules, policy lapses and other circumstances can change the tax treatment.

Annuities may be another part of your tax management strategy. With a deferred annuity, for example, you purchase the contract with payments scheduled to begin at some future date. Meanwhile, the value of the annuity grows tax-deferred. You’ll pay income tax on withdrawals later, but this strategy could pay off if you expect to be in a lower tax bracket by the time you retire.

7. Maximize Other Deductions

If you own a home with a mortgage, you may be able to deduct qualifying mortgage interest if you itemize, subject to federal limits. State and local income or sales taxes and property taxes may also qualify for an itemized deduction. For 2026, the combined federal SALT deduction is generally capped at $40,000, or $20,000 for married taxpayers filing separately. The allowable deduction can be reduced for taxpayers whose modified AGI exceeds the applicable threshold.

You can also deduct medical expenses in excess of 7.5% ² of your adjusted gross income if you itemize. That could be a valuable deduction if you had significant medical expenses to pay for yourself or a member of your household during the year.

Bottom Line

High-income earners face unique tax challenges, but they also have powerful opportunities to reduce what they owe with smart planning. Understanding where your income places you within the tax system, and and how investments, business activity and deductions interact with your overall financial picture, is the first step toward building an efficient strategy.

Tips for Financial Planning

• Consider talking to your financial advisor about the best ways to minimize your tax liability as a high-income earner. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• One more tax planning strategy you can try involves deferring part of your income. For example, if you’re scheduled to get a big year-end bonus, you could ask your employer to hold off on paying it out to you until January. Just keep in mind that deferring income to future years could rebound if it ends up pushing you into a higher tax bracket later.

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