As the saying goes, “With great income comes great tax responsibility.” High-income earners often find themselves facing substantial tax burdens, but with careful planning and strategic maneuvers, it’s possible to minimize tax liabilities and retain more of your hard-earned money. Here are a few effective tax strategies tailored for those in the upper income tax brackets.

1. Contribute to Retirement Accounts
One of the most powerful tax strategies available to high-income earners is maximizing contributions to retirement accounts such as 401(k)s, IRAs, or Roth IRAs. Not only do 401(k) and IRA contributions reduce current taxable income, but they also allow investments to grow tax-deferred.* Roth IRA contributions also grow tax-free and can be withdrawn tax-free. For those in high tax brackets, this can lead to significant long-term savings.
Bonus points if you’re a business owner – there are even higher contribution rates. Your Verde Advisor can help determine the maximum amount allowed based on your business.

2. Harness the Power of Health Savings Accounts (HSAs)
Health Savings Accounts (HSAs) offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals are tax-free when used for qualified medical expenses. High-income earners can benefit from contributing to HSAs, especially if they have high medical expenses or anticipate them in the future. HSAs provide an additional avenue for tax-efficient savings.

3. Implement Tax-Loss Harvesting
Tax-loss harvesting involves selling investments at a loss to offset capital gains and potentially reduce taxable income. High-income earners can strategically employ this technique to rebalance their portfolios while minimizing tax implications. By strategically realizing losses, individuals can optimize their tax position and enhance after-tax returns.

4. Leverage Charitable Giving
Charitable giving not only benefits worthy causes but can also yield significant tax advantages for high-income earners. Donating appreciated assets, such as stocks or real estate, allows individuals to receive charitable deductions while potentially avoiding capital gains taxes. Moreover, establishing donor-advised funds or charitable trusts can provide additional flexibility and tax benefits.

5. Consider Business Ownership
For high-income individuals with entrepreneurial aspirations, establishing a business entity can unlock numerous tax benefits. S-corporations and limited liability companies (LLCs) offer opportunities to deduct business expenses, optimize income distribution, and potentially benefit from lower tax rates on business income. Proper structuring and ongoing tax planning are essential to maximize these advantages.

6. Engage Professional Guidance
Navigating the complex landscape of tax planning requires expertise and specialized knowledge. High-income earners can benefit from working closely with a Verde Advisor, qualified tax professionals, and estate planners to develop tailored strategies aligned with their financial objectives. These professionals can provide valuable insights, ensure compliance with tax laws, and optimize tax efficiency.
In conclusion, high-income earners have a range of sophisticated tax strategies at their disposal to minimize tax liabilities and preserve wealth. By proactively implementing these strategies and staying abreast of changes in tax laws, individuals can maximize their after-tax income and achieve their long-term financial goals. Remember, effective tax planning is not just about minimizing taxes today but also about building a solid foundation for future financial success.

*Note, IRA contributions and their possible reduction of taxable income are based on several factors, including your modified adjusted gross income (MAGI) and whether you (and/or your spouse) are covered by an employer sponsored retirement plan. Talk to your Verde Advisor and/or a tax professional to learn more.

Verde Capital Management is a registered investment adviser. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Readers of the information contained in this email should be aware that any action taken by the viewer/reader based on this information is taken at their own risk. This information does not address individual situations and should not be construed or viewed as any type of individual or group recommendation. Be sure to first consult with a qualified financial adviser, tax professional, and/or legal counsel before implementing any securities, investments, or investment strategies discussed.