7 Tax-Wise Strategies to Strengthen Your Finances, Whether or Not You’re Going Through Divorce
As your income grows, so does the amount the IRS expects from you each year. Without a deliberate plan, earners can end up sending tens—or even hundreds—of thousands of dollars more than necessary to the government over time.
The upside? The tax code includes many powerful opportunities aimed at professionals, executives, and business owners. With thoughtful planning, you can legally reduce your tax bill, grow more of your wealth on a tax-advantaged basis, and keep more of what you earn working toward your own goals instead of Washington’s.
Below are 7 practical tax strategies every income earner should consider.
1. Make Full Use of Tax-Advantaged Retirement Accounts
The first step is usually to squeeze as much value as possible out of retirement plans:
401(k)/403(b): Aim to contribute the maximum allowed each year.
Catch-up contributions (age 50+): Once you reach 50, you can add extra contributions on top of the regular limits.
Cash balance & defined benefit plans: These can allow six-figure annual contributions for certain business owners and professionals.
SEP IRAs & Solo 401(k)s: Strong options for high-income self-employed individuals.
Every pre-tax dollar you contribute lowers your taxable income today while building a future retirement nest egg.
2. Use Backdoor and Mega Backdoor Roth Techniques
When your income exceeds IRS limits, you may no longer qualify to contribute directly to a Roth IRA. However, two advanced strategies can still open the door:
Backdoor Roth IRA: Make a nondeductible contribution to a traditional IRA, then convert that amount to a Roth IRA.
Mega Backdoor Roth: Through certain employer plans, you may be able to move up to $69,000 (2024) into Roth “space.”
Roth accounts can be especially attractive for high-income earners because they offer tax-free growth, tax-free qualified withdrawals, and no required minimum distributions (RMDs).
3. Improve Tax Efficiency in Taxable Investment Accounts
Regular brokerage accounts can create a steady stream of taxable income and gains unless they’re designed carefully. To reduce the drag:
Harvest tax losses to offset realized gains where appropriate.
Use ETFs instead of mutual funds when possible to help minimize unwanted capital gain distributions.
Consider municipal bonds for potentially tax-free interest income.
Apply “asset location” by placing tax-heavier investments (like high-turnover funds or taxable bonds) inside tax-advantaged accounts when possible.
Even small improvements in tax efficiency can compound significantly when you look over many years or decades.
4. Make Charitable Giving More Tax-Efficient
If you’re charitably inclined, there are ways to support causes you care about while also improving your tax picture:
Donor-Advised Funds (DAFs): Contribute appreciated investments, take a deduction (if eligible) now, and recommend grants to charities over time.
Charitable Remainder Trusts (CRTs): Potentially reduce capital gains, receive income for life or a term of years, and have the remaining assets go to charity later.
Charitable “bunching”: Combine several years’ worth of giving into a single year to exceed the standard deduction and maximize itemized deductions.
Done correctly, your giving can create meaningful impact and long-term tax benefits at the same time.
5. Take Advantage of Real Estate Tax Benefits
Real estate offers some of the most favorable tax rules in the code when used properly:
Depreciation can help offset rental income.
Cost segregation studies can accelerate depreciation on certain components of a property.
1031 exchanges allow you to defer capital gains when you trade one investment property for another that qualifies.
Short-term rental strategies (when structured correctly) may provide opportunities to use losses more flexibly rather than being limited by passive-loss rules.
With the right structure, rental income can be significantly reduced—or in some cases nearly eliminated—from a tax standpoint.
6. Fine-Tune Business Structures and Pass-Through Deductions
If you own a business, you have additional levers to pull for tax planning:
Section 199A / Qualified Business Income (QBI) deduction: May allow up to a 20% deduction on qualifying business income, subject to various rules and limits.
S-corporation election: In some cases, electing S-corp status can help reduce self-employment taxes by balancing reasonable wages and profit distributions.
Owner benefits and fringe plans: Think retirement accounts, Health Savings Accounts (HSAs), accountable plans for reimbursements, and other allowable benefits.
Income shifting within the family: When appropriate and legitimate, paying family members for real work performed can move some income into lower tax brackets.
The right business structure and strategy can result in substantial annual tax savings for high-income owners.
7. Fully Fund Health Savings Accounts (HSAs): A Triple-Tax Benefit
For those enrolled in a high-deductible health plan, HSAs can be an incredibly powerful tool:
Contributions may be tax-deductible.
Investments inside the HSA can grow tax-free.
Withdrawals for qualified medical expenses are tax-free.
Many high earners treat HSAs like a “stealth IRA,” investing the balance for long-term growth while paying current medical costs out of pocket when they can.
High-income households may face some of the steepest tax bills—but they also have some of the best tools available to manage them. By coordinating retirement plans, Roth strategies, tax-efficient investing, charitable planning, real estate, business structures, and HSAs, you can potentially reduce your lifetime tax burden in a meaningful way and keep more of your money working toward your own financial goals.
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Disclosures: FMD Wealth Advisors LLC (“FMD Wealth Advisors”) is a Registered Investment Adviser.
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