Tax strategies for high-income earners
Sequence matters more than size. Work down this list in order.
Strategies for those in the highest tax brackets. These are the 4 moves that usually matter first, what each one requires, and the questions to settle before you file.
Where to start
Ordered by how often each one matters for this group, not by the size of the deduction. Some can be put in place during the year. Some need an account or an entity opened before money moves. Some only work if the documentation exists before the deduction is claimed.
1. Real estate professional status
Real Estate Professional Status is an IRS designation that allows qualifying taxpayers to deduct rental real estate losses against their ordinary income without passive activity loss limitations. This can result in significant tax savings for high-income earners who materially participate in their real estate activities.
| Potential savings | Unlimited passive losses against W-2 income |
| Best fit | Those who spend 750+ hours annually in real estate activities |
| Level | advanced |
| Typical cost | Included in tax preparation, but requires detailed time tracking |
2. Opportunity zone investing
Qualified Opportunity Zones allow investors to defer capital gains taxes by reinvesting gains into designated low-income communities. Hold for 10+ years and pay zero tax on appreciation of the Opportunity Zone investment itself.
| Potential savings | 100% exclusion on OZ gains after 10 years |
| Best fit | Long-term investors with significant capital gains to reinvest |
| Level | advanced |
| Typical cost | Fund fees vary; direct investment requires significant capital |
3. Cost segregation
Cost segregation is a tax strategy that allows real estate investors to accelerate depreciation deductions by reclassifying components of a building into shorter depreciation periods. Instead of depreciating the entire property over 27.5 or 39 years, certain components like carpeting, appliances, and landscaping can be depreciated over 5, 7, or 15 years.
| Potential savings | $20,000 - $100,000+ in year one |
| Best fit | Properties worth $500K+ purchased or renovated recently |
| Level | advanced |
| Typical cost | $5,000 - $15,000 for a study |
4. Mega backdoor Roth
Uses after-tax 401(k) contributions and in-plan conversion to add Roth dollars above the deferral limit.
| Level | advanced |
Common questions
How can high-income earners reduce their tax burden?
The usable moves are a backdoor or mega backdoor Roth for tax-free growth above the income limits, a donor-advised fund for a deduction in a high-income year, and opportunity zone investments to defer capital gains.
What is the top marginal rate for high earners?
The top federal income tax rate is 37%. Add the 3.8% net investment income tax and a state income tax and the combined marginal rate passes 50% in the highest-tax states.
Sources to check
Check primary guidance and your own records before you treat any page as a final answer.
- Current IRS forms, instructions, and publications for the relevant tax year
- Your actual account statements, payroll reports, entity records, and advisor memos
Do this next
- Read the guide for the first strategy on the list above.
- Check the qualification test against your own facts before you plan around it.
- Write down the records you would need, and start keeping them now.
- Take the one open question to a CPA rather than the whole list.
Other situations
Each page sequences the strategies for one kind of earner.
- W-2 employees. Tax strategies for salaried workers looking to reduce their tax burden.
- Self-employed and freelancers. Maximize deductions and retirement savings for independent workers.
- Real estate investors. Advanced strategies for rental property owners and flippers.
- Airbnb and short-term rental hosts. Specific tax benefits for short-term rental operators.
- Business owners. Tax optimization for entrepreneurs and company owners.
Educational content only. It is not individual tax, legal, or investment advice.