For high-income earners, tax planning is essential to minimize liabilities, protect wealth, and maximize after-tax income. With potential tax law changes on the horizon and the scheduled expiration of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025, now is the time to take proactive steps to optimize your tax strategy.
Maximize Retirement Contributions for Tax Savings
A key tax-saving opportunity lies in maximizing contributions to tax-advantaged retirement accounts. For 2025, the contribution limits for 401(k) and 403(b) plans have increased to $23,000 ($30,500 for those 50 and older). Also, IRAs now allow up to $7,000 in contributions ($8,000 for those 50 and older).
If self-employed, taking advantage of a SEP IRA or Solo 401(k) can significantly boost retirement savings while reducing taxable income. The SEP IRA contribution limit is up to $69,000, making it a valuable tool for business owners looking for larger tax-deferred savings.
Leverage the 20% Qualified Business Income (QBI) Deduction
For business owners and self-employed individuals, the Qualified Business Income (QBI) deduction remains a powerful tax tool. Those with pass-through entities such as LLCs, S Corps, or sole proprietorships may qualify for a 20% deduction on their business income, as long as taxable income stays below the $232,100 threshold for single filers or $464,200 for married couples.
Strategic income management can help maximize this deduction. This may include adjusting business expenses, deferring income, or restructuring your business entity for greater tax efficiency.
Use Tax-Efficient Investing Strategies
High earners benefit significantly from tax-efficient investing strategies. Holding investments for over one year qualifies them for the lower long-term capital gains tax rate, which is much more favorable than short-term capital gains rates.
Utilizing tax-loss harvesting—selling underperforming investments to offset capital gains—can further minimize tax exposure. Those subject to the 3.8% Net Investment Income Tax (NIIT) should consider shifting investments to tax-advantaged accounts like Roth IRAs or municipal bonds, which are generally exempt from federal taxes.
Take Advantage of Health Savings Accounts (HSAs)
Health-related tax savings should not be overlooked. Health Savings Accounts (HSAs) offer triple tax benefits—contributions are tax-deductible, earnings grow tax-free, and withdrawals for medical expenses are also tax-free.
The 2025 HSA contribution limits have increased to $4,150 for individuals and $8,300 for families, making it an excellent long-term savings tool. Unlike Flexible Spending Accounts (FSAs), HSA funds roll over indefinitely, making them useful for future medical expenses or even as a supplemental retirement account.
Optimize Charitable Giving for Tax Deductions
For those who make significant charitable contributions, tax-efficient giving strategies can enhance deductions. Contributing to donor-advised funds (DAFs) allows high-income earners to bunch multiple years of charitable donations into one tax year, maximizing deductions.
Donating appreciated stock instead of cash helps avoid capital gains taxes while still providing a full deduction for the stock’s market value. Additionally, those over age 70½ can donate directly from an IRA using Qualified Charitable Distributions (QCDs), which allows up to $100,000 per year to be donated tax-free.
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Utilize S Corporation Election for Business Tax Savings
Self-employed individuals and business owners should consider S Corporation election to reduce self-employment taxes. Instead of paying self-employment tax on all business income, S Corp owners can pay themselves a reasonable salary and take the rest as distributions, which are not subject to self-employment tax.
Proper structuring and compliance with IRS guidelines are crucial to avoid tax penalties. Working with a CPA ensures that salary allocations remain reasonable while maximizing tax savings.
Plan for Estate and Gift Tax Changes
Estate planning should not be ignored, especially with potential changes to the estate tax exemption in 2026. Currently set at $13.61 million per person, the exemption is expected to drop significantly unless Congress acts.
High-net-worth individuals should take advantage of gifting strategies, trusts, and wealth transfers before the exemption decreases. The annual gift tax exclusion allows individuals to give up to $18,000 per recipient in 2025without triggering gift tax reporting.
Prepare for 2026 Tax Changes Now
With tax laws set to change in 2026, high-income earners should begin preparing now. Accelerating income into 2025 while tax rates remain favorable and deferring deductions until 2026 could be beneficial if rates increase.
Reviewing current estate planning, business structures, and investment strategies before tax laws shift ensures that wealth is protected and optimized. Those expecting higher tax rates should consider Roth IRA conversions or other strategies that minimize taxable income under the current tax code.
Take Action Now to Lower Your 2025 Tax Bill
High-income earners face unique tax challenges, but with ProActive tax planning, it’s possible to reduce tax burdens and protect wealth. At Whittaker CPAs, we specialize in helping business owners, executives, and high-net-worth individuals develop tailored tax strategies.
Schedule a consultation to discuss how to optimize your 2025 tax plan.
