This post was originally published on December 17, 2021, and extensively updated on January 6, 2026

When you earn a high income, you tend to pay a higher percentage of taxes than average earners. If you're a high earner, you might think you have no choice—that you must resign yourself to bearing a high tax burden. But is that really the case?

The short answer is NO.

At CMP, we spend a lot of time with our clients, including those with sizable incomes, discussing and implementing proactive tax planning. In fact, one of the most common questions we hear is this:

What’s the best way to reduce taxable income?

The best ways to reduce taxable income include maximizing contributions to pre-tax retirement and health savings accounts, strategically using available deductions, and planning income and investments to minimize taxable income. For high earners, coordinated tax planning is often more effective than relying on any single strategy.

Or you may be wondering...

How to reduce taxable income?

Don't worry. We will cover all that and more in this blog post.

The more money you make, the more complicated your taxes are going to be. So, if you have a higher income than most people, it’s important to work with a skilled accountant to figure out how to reduce the amount of income taxes you pay. In addition to taking your standard deduction and other deductions, there are many things you can do to lower the amount you pay.

Overview of Tax Rules for High-Income Earners

If you are reading this post, you are likely looking for practical ways to reduce taxable income as a high-income earner. Before getting into specific strategies, it helps to understand the tax rules that most often affect higher earners, especially those tied to retirement accounts, income thresholds, and inflation-adjusted limits.

Here is an overview of the tax rules and limits that matter most for high-income earners in 2026.

• Required Minimum Distributions (RMDs): The RMD age is 73 for individuals who turned 72 after December 31, 2022, and before January 1, 2033. The RMD age is scheduled to increase to 75 beginning in 2033. This allows many high-income earners to keep funds in tax-deferred retirement accounts for longer.
  
  
• 401(k) and 403(b) contribution limits: For 2026, the employee contribution limit for 401(k) and 403(b) plans is $24,500. Individuals age 50 and older may contribute an additional $8,000 as a catch-up contribution. A higher catch-up contribution of $11,250 applies to participants ages 60 through 63, if their plan allows it.
  
  
• IRA contribution limits: The 2026 IRA contribution limit is $7,500. Individuals age 50 and older may make an additional catch-up contribution of $1,100.
  
  
• SIMPLE IRA contribution limits: The standard SIMPLE IRA contribution limit for 2026 is $17,000. Certain SIMPLE plans allow a higher contribution limit of $18,100. Individuals age 50 and older may make a catch-up contribution of $4,000.
  
  
• Roth IRA income phase-out ranges: Roth IRA contributions are subject to income limits. For 2026, the phase-out range is $153,000 to $168,000 for single filers and heads of household. For married couples filing jointly, the phase-out range is $242,000 to $252,000.
  
  
• Social Security wage base: For 2026, earnings up to $184,500 are subject to Social Security tax. Income above this amount is not subject to Social Security tax, although Medicare taxes may still apply.
  
  
• Long-term care insurance deduction limits: The IRS limits the amount of long-term care insurance premiums that may be treated as deductible medical expenses. For 2026, the deductible limit is $4,960 for individuals ages 61 to 70 and $6,200 for individuals age 71 and older. Self-employed individuals may be able to deduct eligible premiums as an adjustment to income, subject to specific rules.
  
  
• Potential tax law changes affecting high-income earners: Recent IRS inflation-adjustment guidance for 2026 reflects amendments made by the One Big Beautiful Bill Act. For high-income earners, the practical takeaway is that some core rules were extended or made permanent (including the seven-bracket rate structure), and the IRS also flags that later legislation could still change rules after the guidance date. This is why many high-income earners focus on tax planning strategies that stay useful across different rate and deduction environments.

These changes are significant because they allow high-income earners to make additional contributions to a retirement plan during the tax year. Later in this post, we will review potential changes that may affect high earners.

2026 Federal Income Tax Brackets

For 2026, there are seven income tax brackets. Here’s how they break down.

IRS Definition of High-Income Earners

For tax purposes, the IRS defines high-income earners as anyone who earns enough income to be in the top three tax brackets, as outlined above.

That means if you earn more than $201,776 of taxable income as a single person, a married person filing separately, or a head of household, or more than $403,551 of taxable income as a married person filing jointly, you are typically treated as a high-income earner for tax planning purposes.

Learn how the Big Beautiful Bill could reshape taxes for high-income earners in 2025 and beyond.

Tax Saving Strategies for High-Income Earners: Change the Character of Your Income

One way to reduce your tax burden is to change the character of your income. If you're wondering why you should do so, here are some of the ways it can help you lower your tax bill.

• Convert your SIMPLE, SEP, or traditional IRA to a Roth IRA. If you are over the age of 59 1/2 and you meet the five-year rule, qualified Roth distributions are generally tax-free. Because qualified Roth distributions are not included in taxable income, they do not increase your modified adjusted gross income (MAGI), which is used to calculate the 3.8% Net Investment Income Tax.
  
  
• Review your business entity structure. If you own a business, you may want to consider its structure, particularly if you operate as a sole proprietor, an LLC, or an S corporation. C corporations are subject to a flat corporate tax rate, while many pass-through entities may qualify for the 20% qualified business income deduction. If you hire your children in a family-owned sole proprietorship, certain payroll taxes may not apply. You should work with a qualified accountant to determine whether restructuring your business makes sense for your situation.
  
  
• Invest in tax-exempt bonds. Interest earned from municipal bonds is generally exempt from federal income tax and is not included in Net Investment Income Tax calculations. In addition, municipal bond interest from bonds issued in your state of residence is often exempt from state income tax.
  
  
• Use tax-efficient investment vehicles. Index mutual funds and exchange-traded funds are typically more tax-efficient than actively managed funds because they generate fewer taxable distributions. These investments can help diversify the taxation of your income both before and after retirement.
  
  
• Use a Health Savings Account strategically. If you qualify for a Health Savings Account, you may choose to invest the funds rather than spend them immediately on medical expenses. Contributions are generally tax-deductible, earnings grow tax-free, and distributions used for qualified medical expenses are tax-free. This makes HSAs one of the most tax-efficient tools available to high-income earners.

The overall benefit of changing the character of your income is that it can reduce your MAGI in a given tax year and, in some cases, help you avoid higher tax brackets, surtaxes, or income-based phase-outs.

The good news is that with a combination of tax deductions, tax credits, and contribution strategies, you can reduce your tax bill by reducing your taxable income. Here are 11 ways to accomplish your goal and lower your tax bill.

1. Max Out Your Retirement Contributions

Let’s start with retirement accounts. Employer-based accounts such as 401(k) and 403(b) plans let you easily reduce your taxable income. That’s because every dollar you put into these accounts is not taxed until you withdraw the money from your account—and that reduces your tax burden each year you contribute.

The benefit here is that if you wait until you have retired to withdraw money from your 401(k), your income will be lower because you will no longer be drawing a salary. The result? You’ll be in a lower tax bracket. This means that the money you withdraw will be taxed at a much lower rate than it would have been if you had to pay taxes when you earned it.

To take full advantage of these tax-reducing benefits, contribute the maximum amount. For 2026, the maximum contribution for 401(k) and 403(b) plans is $24,500. The catch-up contribution limit for individuals age 50 and older is $8,000, bringing the total contribution limit to $32,500 for eligible participants. For participants ages 60 to 63, a higher catch-up contribution of $11,250 may apply, depending on the plan.

For SIMPLE IRAs, the contribution limit is $17,000. However, for certain SIMPLE plans, the limit is $18,100. If you are age 50 or older, you can make catch-up contributions of $4,000, depending on the type of SIMPLE IRA. For participants ages 60 to 63, a higher catch-up contribution may apply for eligible SIMPLE plans.

Additionally, the IRA contribution limit for 2026 is $7,500, with a catch-up contribution of $1,100 for individuals aged 50 and over.

2. Roth IRA Conversions

Roth IRAs are tax-free retirement accounts that can help you reduce your tax burden and save money on your taxes, even if you’re in one of the top brackets. Unlike a traditional IRA, Roth IRA contributions are made from post-tax income. That means you’ll pay taxes before you contribute, but not when you withdraw.

That might not seem like an advantage at first, but it can be. Earnings on money held in a Roth IRA grow tax-free, and qualified distributions are not included in taxable income. You can also convert funds from a traditional IRA or certain employer-sponsored plans, such as a 401(k), into a Roth IRA and potentially benefit from tax-free growth going forward.

While high-income earners may not be eligible to make direct Roth IRA contributions due to income limits, Roth IRA conversions are not subject to income phase-out restrictions. For 2026, direct Roth IRA contributions begin to phase out at $153,000 to $168,000 for single filers and heads of household, and at $242,000 to $252,000 for married couples filing jointly.

Some of the best times to do a Roth IRA conversion are when you have a year with a temporarily lower income, such as after retirement but before Social Security benefits or Required Minimum Distributions begin. Because RMDs currently begin at age 73, Roth conversions completed before that age can help reduce future RMD obligations. This strategy can be effective if you expect to be in a higher tax bracket later and can manage the upfront tax cost of the conversion.

3. Buy Municipal Bonds

Municipal bonds might not be the most glamorous investment, but they can be a good option for high-income earners. When you buy a municipal bond, you lend money to the issuer in exchange for set interest payments throughout the bond. At the end of the period, the bond matures, and the original investment is returned to the buyer.

The income from tax-exempt bonds is generally exempt from federal income tax and is not included in Net Investment Income Tax calculations. In many cases, municipal bond interest is also exempt from state and local income taxes when the bond is issued in the investor’s state of residence.

Of course, municipal bonds typically earn less income than other taxable bonds, but they can still be a worthwhile strategy for reducing your tax burden. You can decide whether they are worth it by calculating the bond’s tax-equivalent yield.

4. Sell Inherited Real Estate

If you have inherited real estate from a parent or someone else, you may not realize that you can reduce potential capital gains taxes by selling the property relatively soon after inheriting it.

Here’s why:

Let’s say your parents bought a home for $200,000, and it is now worth $900,000. If they had sold it while they were alive, they would have paid capital gains tax on $700,000. When you inherit the property, however, you typically receive a stepped-up tax basis equal to the property’s fair market value at the time of death, which in this example would be $900,000.

If you sell the property shortly after inheriting it, you may owe little to no capital gains tax, assuming the value has not changed significantly.

This strategy works because the stepped-up basis resets the property’s taxable capital gain, not because the sale qualifies for special reinvestment treatment. Selling inherited property can be an effective way to reduce or eliminate capital gains tax exposure while simplifying your financial situation.

5. Set Up a Donor-Advised Fund

You already know that donating money to charity can offer a tax deduction in the year the donation is made. What you may not know is that you can get a deduction this year for several years’ worth of contributions if you set up a donor-advised fund.

A donor-advised fund is a charitable fund you can set up that allows you to decide how and when to allocate funds to individual charities. You can make contributions this year and take the full tax deductions this year on your tax return, thus reducing your tax bill. Going forward, you can decide how much to donate each year and where to donate it. In short, you receive the tax deduction when you fund the donor-advised fund.

We often recommend this strategy to our high-income clients, especially if they have a year of higher-than-normal income from an inheritance or windfall. It’s a clever way to use charitable deductions to your advantage.

6. Use a Health Savings Account

You may also choose to contribute some income to a Health Savings Account (HSA) to save on your taxes. You may contribute only if you have selected a high-deductible insurance plan. For 2026, the maximum contributions are:

•  $4,400 for individuals
•  $8,750 for families

You may contribute an additional $1,000 if you are 55 or older. HSA contribution limits are tied to inflation, even though medical costs typically rise faster than inflation each year.

You can use the money in your HSA for medical and dental expenses, as well as related costs, such as over-the-counter medications and first aid supplies. If you withdraw money and use it for non-qualified expenses, then you will pay tax and a 20% penalty on your withdrawals.

You should know that the money in your HSA is yours forever, unlike the money you contribute to a Flexible Spending Account, which must be spent during the tax year. For that reason, you may want to consider an HSA. You will need to weigh the risks of having a higher deductible against your potential savings.

7. Invest in Companies that Pay Dividends

The income that you earn from your job is taxed at ordinary income rates, and the result is that you pay a high tax rate if you’re a high earner. You may know that capital gains are taxed at a lower rate, meaning there are tax benefits to earning capital gains.

One way to do that is by investing in companies that pay qualified dividends. It’s important to understand that ordinary dividends are taxed as ordinary income. To reap the tax advantages of dividend income, you’ll need to invest in companies that pay qualified dividends, which must be issued by a United States company or a qualifying foreign company. You can find information about which companies are not considered to be qualified on page 20 of IRS Publication 550.

If you have invested in companies that pay dividends, those dividends are reported on Form 1099-DIV. Qualified dividend payments appear in Box 1b, while ordinary dividends appear in Box 1a. The maximum federal tax rate for qualified dividends is 20%, although high-income earners may also be subject to the 3.8% Net Investment Income Tax on those dividends.

8. Tax Residency Planning

One tax-planning strategy to consider if you own properties in multiple states is tax-residency planning. This strategy requires careful planning and attention to detail and is best done with an experienced tax accountant.

Income tax rates vary from state to state. Some states have high rates, while others have no state income tax. The states with no state income tax include:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

If you own property in one of these states, you may consider establishing your primary residence there. However, be aware that some states aggressively pursue high earners if they maintain significant connections to the state or earn income sourced there. States such as California closely examine residency claims and apply detailed statutory tests to determine whether a taxpayer remains a resident for tax purposes.

You should also be aware that some states with low or no income tax charge higher rates on other goods and services. Working with a professional accountant to determine individual state residency requirements will help you decide if this is the right strategy for you.

9. Pay Your Property Taxes Early

From 2018 through 2025, the state and local tax (SALT) deduction was capped at $10,000 under the Tax Cuts and Jobs Act. During that period, paying property taxes early only helped if you had not already reached that limit.

Beginning in 2026, the SALT rules changed. The deduction limit increased, and new income-based phase-down rules were introduced, making income level an important factor when evaluating this strategy.

For 2026, state and local taxes, including property taxes, are deductible up to $40,000. For married individuals filing separately, the cap is $20,200. The deduction begins to phase down once the modified adjusted gross income (MAGI) exceeds $500,000.

Paying property taxes early may still be beneficial if you are below the applicable SALT limit and your income allows you to fully use the deduction. Property taxes must be paid during the tax year to be deductible, so timing matters. Because the rules are more complex than in prior years, it is best to consult an accountant before using this strategy.

10. Fund 529 Plans for Your Children

Paying for college is a significant expense, even if you’re a high earner. One of the best ways for high earners to reduce their taxable income is by funding 529 college savings accounts for each child. A 529 is a tax-advantaged savings account. You can’t deduct contributions at the federal level, but some states allow you to do so.

The money you contribute will grow on a tax-deferred basis, and withdrawals you use for eligible educational expenses are tax-free.

Contributing to a 529 won’t directly reduce your taxable income, but it is extremely useful for estate tax liability because you can contribute up to five times the annual exclusion for gifts at one time and thus remove those contributions from your estate.

11. Invest in an Opportunity Zone

If you have capital gains and want to reduce your tax burden for those gains, investing in an Opportunity Zone (OZ) can help you defer tax payments. Opportunity Zones were created as part of the Tax Cuts and Jobs Act of 2017.

According to the IRS, the purpose of Opportunity Zones is to “spur economic growth and job creation in low-income communities while providing tax benefits to investors.”

If you invest eligible capital gains in a qualified Opportunity Zone investment, you can defer paying capital gains tax until the earlier of the date the investment is sold or December 31, 2026. After that date, any deferred gain generally becomes taxable, even if the investment is still held.

Additionally, if the Opportunity Zone investment is held for at least 10 years, gains attributable to the investment may be eligible for exclusion from capital gains tax, provided the investment meets all qualification requirements.

Frequently Asked Questions About Reducing Taxable Income for High Earners

Below are answers to common questions high earners ask about legally reducing taxable income. 

What tax strategies lower taxes but do not reduce taxable income?

Some strategies lower the amount of tax owed without reducing taxable income. Examples include Roth IRA conversions, qualified dividend income, municipal bond interest, and Opportunity Zone investments. These strategies focus on changing how income is taxed, not reducing the income itself.

Are there income limits that prevent high-income earners from using certain tax strategies?

Yes. High-income earners may face income limits or phase-outs for strategies such as direct Roth IRA contributions, certain tax credits, and itemized deductions. However, some strategies, such as Roth IRA conversions and donor-advised funds, remain available regardless of income, making them important tools for higher earners.

How does reducing taxable income affect retirement and future taxes?

Reducing taxable income today can lower current tax liability, but it may also affect future taxes. For example, pre-tax retirement contributions reduce taxable income now but create taxable income later when funds are withdrawn. Effective tax planning balances current savings with future tax exposure, especially around Required Minimum Distributions and retirement income timing.

Will these tax strategies still work in 2026 if tax laws change?

Many core tax strategies are designed to remain effective even as tax laws evolve. While contribution limits, income thresholds, and deductions may change over time, principles such as tax diversification, timing income, and managing taxable versus tax-advantaged accounts remain applicable. That said, specific rules should always be reviewed in the context of current law.

Should high-income earners work with a CPA to reduce taxable income?

Yes. High-income earners typically face more complex tax situations, including multiple income sources, investment income, and phase-outs. A CPA can help identify which strategies actually reduce taxable income, ensure compliance with current tax law, and adjust planning as rules change from year to year.

Reduce High-Income Earners' Taxable Income with Smart Tax Planning