Taxes can be tricky for high-income earners who often don’t qualify for different deductions, various credits, and tax-advantaged accounts. Even though some deductions are not available, high-income earners can still use the following strategies to minimize their tax bills:
- Maximize your 401(K) – you can shield up to $18,000 ($24,000 if you are over 50) in annual income.
- Open an IRA account – you may be eligible to open, contribute, and deduct up to $5,500 ($,6,500 if you are over 50) through contributions to a traditional IRA.
- Consider opening a Roth IRA account; and consider a Roth IRA conversion.
- Don’t be afraid of Health Savings Accounts (HSA) – individuals can shield up to $3,400 in annual income through an HSA ($4,400 if you are over 55), and families can shield up to $6,750 ($7,750 if you are over 55). The contributions are generally tax-deductible, and you pay no tax on withdrawals for qualified medical expenses.
- Minimize required minimum distributions (RMDs) – RMDs kick in at age 70½. The larger your portfolio, the larger your RMDs which might kick you into a higher tax bracket. If you start withdrawing money at 59½, you can reduce the size of your portfolio and the size of your RMDs when you get to 70½.
- Own real estate if you can afford it.
- Donate things in addition to cash.
- Evaluate your stock.
- Look at your estate and consider employing estate-tax strategies.
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