Tax Strategies for High Income Earners

If you’re a high income earner, then you’re probably keenly aware how much tax you pay.

The current top marginal tax rate in the US is 37%.  Which is crazy.

And things are about to get worse, if President Biden gets his way.

That’s especially true if you earn more than $400,000 as an individual or $500,000 as a couple.

If you’re one of those high income earners, the proposed increase will see your tax bracket rise to as much as 49%!

Of course, you don’t have to take it lying down.  There’s plenty you can do.

In this article I’ll share with you 5 tax saving strategies for high-income earners.

But before I do, a special note…

You’ll want to pay special attention to the last strategy.  

That’s because it has the potential to legally take your tax obligation to zero.  And even make your income legally non-reportable to the IRS. 

Strategy #1 – Contribute More to This Savings Account

As you probably know, a health savings account allows you to save money – tax-free – for future health spending.

Your contributions today are tax deductible.  Your earnings inside the account grow tax-free.  And your future withdrawals are tax-free so long as they are for qualified medical expenses.

You’re allowed to contribute $3,600 each year as an individual.  That increases to $7,200 for a family.

And if you haven’t maxed out your contributions in the past, you can contribute an extra $1,000 a year until you catch up.

This is a fantastic strategy if you plan to remain in the U.S.  After all, according to Fidelity, the average retired couple in 2021 will need at least $300,000 just to cover medical expenses.

If you’re a very high income earner, this won’t save you a ton on taxes.  But it’s one of the simplest tax strategies to employ if you’re not currently maxing out on it.

Strategy #2 – Defer Taxes on Realized Gains

If you’re looking for another way to avoid paying higher taxes now, then it might make sense to defer taxes on realized gains.

This is a good strategy if you think your future income will be drastically lowered.  

How do you defer taxes today on unrealized gains?

If you own property, one way is through a 1031 exchange.

Let’s say you own a vacation home and you’re looking to upgrade.  If you sell your vacation home outright, you’ll owe taxes on any gains you’ve made while you owned the property.

Instead, you can roll those gains into a new real estate using a 1031 exchange.  When you do, you defer taxes until you sell the new vacation home.  

That is, unless you roll those gains into another 1031 exchange.

Using this tax saving strategy, you could defer gains on vacation or rental property indefinitely. 

Strategy #3 – Optimize Your Charitable Deductions

Giving money to your favorite charities has always been a great tax deduction.

But if all you’re doing is stroking a check, then you’re probably leaving some savings on the table. So, how is optimizing charitable deductions one of the best tax strategies for high income earners?

For instance, you can donate appreciated stock instead.  

Here’s how it works…

With cash donations, you can deduct up to 50% of your adjusted gross income.  

When donating stock, however, you’re limited to just 30%.

When you donate stock, though, you’re also getting relief on a second form of taxation – capital gains.

That’s assuming the stock you donate has increased in value.

Donating appreciated stock is like double-dipping.

And if you use this strategy with stock you own in the company you work for, you can, in-effect, triple-dip.

Strategy #4 – Consider this Conversion

Here’s another way to reduce taxes today in anticipation of being in a lower tax bracket down the road.

That’s through a Roth conversion.

Regular IRA withdrawals are taxed as ordinary income.  Which means you’ll pay tax on them at the highest rate possible.

But qualified Roth IRA withdrawals are typically tax-free after you turn 59 and a half – so long as you’ve owned the Roth for at least 5 years 

You can convert as much money from your regular IRA to a Roth as you wish.  But the amount you’ll convert will be taxed as ordinary income.  So you might consider spreading the conversion out over a number of years.

Or you might choose to take the full hit now if you’re eager to employ the the last on our list of best tax strategies for high income earners.

Strategy #5 – Make Some Of Your Income and Gains Both Non-Reportable and Tax-Free

As I said upfront, of all the tax strategies for high income earners, I saved the best one for last.

Most high income earners don’t realize it, but it’s possible – and legal – to make your wealth tax-free, using cryptocurrency.  And if you do it right, you can also make it legally non-reportable to Uncle Sam.

This involves setting up a corporation in a crypto-friendly jurisdiction such as Costa Rica or the British Virgin Islands.  And moving some of your wealth from your Roth IRA to that corporation. It has to be done in a very specific way in order to achieve the benefit.

The exact process goes beyond the scope of this article.  And it depends on both your personal financial circumstances and on your goals.

But for the right high income earner, the process is simple, ethical, and 100% legal.

Interested in legally reducing or eliminating your taxes using cryptocurrency?  

Book a free consultation with one of our strategists today.


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