The tax rate increases the more you earn. This can be bad news for high earners, who can find themselves paying as much as 37% on their taxable income (and that is only federal income tax and may only increase in the future).
Luckily, there are some ways that doctors, lawyers and other high earners can reduce their taxable income to save money. We’ll discuss a few techniques below.
Strategies for lowering taxable income
Here are a few ways to reduce your tax burden if you’re a high-income earner:
- Max out your retirement contributions — There are limits on the amount you can contribute to retirement accounts, but you can enjoy at least $20,500 (as of 2022) of tax-deferred savings into a 401(k) or 403(b) before you hit your limit. Any money contributed to a traditional IRA or employer-sponsored retirement account such as a 401(k) is untaxed in the year you contribute it (you pay taxes on it later when you withdraw it).
- Sell any real estate you inherited — Often, inherited real estate can carry an enormous property tax burden. If the property is rapidly gaining value, so will the property taxes, and you’ll be on the hook to pay them. In this case, it could be your best interest to sell the property to relieve yourself of a potentially growing tax liability.
- Invest in a health savings account — If you qualify for an HSA, you can lower your taxable burden by maxing out your contributions. As a high earner looking to reduce your taxable income, you can either use your contributions toward qualified medical expenses or let your investments grow in your account and pay taxes on them in a future year, after they’ve accumulated interest.
- Meet with a financial advisor — A wealth manager can help you identify tax-saving strategies that work for your particular situation. High earners looking to lower their tax burden may benefit from professional expertise.
Talk to a ProVise CFP® professional about lowering your taxable income
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about your tax liability? Contact ProVise today to schedule a complimentary consultation.