Top 10 Tax Planning Strategies for High Earners

We all know the amount of money we have to pay when it comes to giving out the tax. People with high earnings need to pay more taxes than those who earn less. At the end of the year, when people get their tax report, it can almost give them a heart attack because the amount of tax seems outrageous.

However, in this article, we will help you find a balance between paying the right amount of taxes so that you can start saving your money. Here, we have mentioned ten tax planning strategies perfect for high-income earners to reduce their tax amount.

10 Tax Planning Strategies for People with High Income:

When you put in your hard work and can earn a high income, you want to keep the money in your pockets; this is why we have compiled some tips and tricks to help you reduce the tax and save more money.

1. Defer Your Income:

The first thing you can do to help lower your tax income is defer the income; this means that you wait for the income so that you take it out when you find yourself in a lower tax bracket. When you have more income in your bank, you'll have to pay more tax to the IRS. But if you defer some money from your salary, you can save some money and then take that money when you have not made a lot of wages.

It is only sometimes the most straightforward solution because there are some risks related to it. There is a chance that the money you have deferred will not be paid to you if your company goes out of business; this is why you must ensure your business will work longer if you want to go with this step.

2. Split Your Income:

Another common tax-lowering strategy is spending your money; this can be done in various ways. If you have a family, you can make a properly structured plan and start giving your income to family trusts or partnerships; this means you will move your income to family members with lower tax rates. You can do this with the help of annual gift exclusions and even with the help of loans.

3. Hiring Your Kids:

If you are a business owner, then hiring your kids for work is another strategy that you can use to lower the tax income. If your children are of legal age to work, you can appoint them as workers. Parents should not pay Social Security and Medicare taxes if their children are under 18.

So when you appoint them and start giving them the salary, you shift the tax burden to someone with a lower tax rate; this is an intelligent way through which your children can also earn some money, and you can lower your rates.

4. Maximize the Retirement Contributions:

If you start contributing to retirement plans, this will also help you lower your taxes. There are different kinds of retirement plans that you can start investing in, and when you make withdrawals from them in the future, the tax on them will be less.

Half of your income will be gone in the retirement plans, which will allow you to pay less tax in the present, and during the retirement years, it is seen that the tax rate automatically decreases.

5. Make Health Savings Account:

A Health Savings Account is another way to reduce the tax on your salary. It would help if you started adding money to these accounts, and your annual income would automatically be less; hence, the tax rates would be low. Another significant benefit of having HSA is that these accounts are tax-free. So whenever you make withdrawals for medical expenses, you won't have to pay any taxes.

6. Benefit from Non-Taxable Income:

There are some kinds of income you don't have to pay taxes; this is a fantastic way to earn and not spend half the money on these taxes. Some options for these types of income are income in a Roth IRA, life insurance contract income, income from renting your home for less than 14 days, and other options.

7. Use Real Estate to Reduce Tax:

There are a few ways through which you can reduce your tax when it comes to real estate. If you sell your house after staying in it for more than two years, you can exclude a considerable amount from the profit before paying the tax. You can do the 1031 exchange for a tax deferral if there is a rental property.

8. Make Donations:

Another way to reduce taxes is by making donations to charities. High-income earners mostly do charity for the sake of their image, but it also positively affects taxes as it lowers the rates. If you donate valuable assets like properties and bonds, then you can make a much more significant reduction in taxes.

9. Buying Municipal Bonds:

These are the kinds of bonds that might not be the best when it comes to investment. However, they are suitable for reducing your tax rates. When you get these bonds, you will lend money to the issuers and get a set amount of interest payments; however, these interest are low. But the good thing is that you can be exempt from income taxes with the help of these bonds.

10. Selling Inherited Properties:

The inherited properties can also be one of the primary reasons you pay such high taxes; this is why if you have such properties, it is always suggested that you sell them when you get reasonable rates to lower the tax rates on your annual income.

Final Words:

Earning a high income can be fun and challenging, but the pain can be indescribable when you have to pay a high tax on the hard-earned money. There are different tax strategies that you can apply in your life to lower the tax rates even if you are a high-income earner. Hence, this article was beneficial for you in learning how to lower your tax rates in 2023.