Tax Planning for High Earners: What's Left After the Easy Stuff

By Tom, CPA · Updated October 27, 2026

Part of: Tax Planning

TL;DR: Once the 401(k) is maxed, high earners have a few reliable moves left: HSA and dependent care FSA, backdoor and mega backdoor Roth, appreciated-stock giving and a tax-efficient taxable account. Real estate and business strategies can add more, but they come with tight rules, recapture and audit risk.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

The tax code is roughly 4 million words long, and a high earner who has already done the easy stuff needs maybe 400 of them. The problem is finding the right 400. Once the 401(k) is maxed and the HSA is funded, the advice gets weird fast: buy a vineyard, start a podcast that is secretly a tax shelter, or hire your golden retriever as head of security.

This pillar guide sorts what is left after the basics into three piles: moves that are boring and reliable, moves that are real but need specific facts, and moves that mostly generate fees and audit letters. Figures are 2026 amounts as of October 27, 2026. The IRS had not yet published the general 2027 inflation adjustments or 2027 401(k) and IRA limits when this was written, so 2027 numbers are marked as not yet announced.

A quick definition. "High earner" here means a household in the 24% bracket or above: for 2026 that starts at taxable income over $211,400 married filing jointly or $105,700 single. It also means someone who has started bumping into the phaseouts, surtaxes and caps the code saves for people like you.

CPA Warning Label: Any strategy that needs a promoter, a secret or a fee based on your tax savings is a red flag. The boring moves usually save more than the exotic ones.

Maxed accounts: the boring base layer

Before anything clever, check that the base layer is actually full. A surprising number of high earners skip it, then go shopping for exotic shelters.

Two high-earner wrinkles. First, starting in 2026, if your prior-year FICA wages from the employer were above $150,000, your catch-up contributions to that employer's plan must be Roth. That does not take away the catch-up; it just moves it to after-tax money. See the Roth catch-up rule. Second, payroll HSA and FSA contributions through a cafeteria plan skip FICA as well as income tax, which makes them slightly better than an HSA contribution you deduct on your return.

The traditional versus Roth question matters more than most people admit. At the 32% and 35% brackets, deferring income usually wins if you expect to retire into a lower bracket. A household that plans to retire early and live on taxable account withdrawals for a decade is a strong candidate for traditional contributions now and Roth conversions later. The contrarian case against the 401(k) is worth reading before you assume every dollar belongs there, though.

Backdoor and mega backdoor Roth

Direct Roth IRA contributions phase out between $242,000 and $252,000 of modified AGI for joint filers and $153,000 to $168,000 for single filers in 2026. Above that, the front door is locked. The tax code then politely points to a side door it built on purpose.

Backdoor Roth IRA

You contribute up to $7,500 to a traditional IRA without taking a deduction, then convert it to Roth. If you have no other pre-tax IRA money, the conversion is nearly tax-free. If you do have pre-tax IRA balances (old rollovers, SEP-IRAs, SIMPLE IRAs), the pro-rata rule makes part of the conversion taxable. The common fix is rolling pre-tax IRA money into a current 401(k) before year end, if the plan accepts roll-ins. File Form 8606 every year you do this. Details are in the backdoor Roth guide and the pro-rata rule explainer.

Mega backdoor Roth

If your 401(k) allows after-tax (non-Roth) contributions and either in-plan Roth conversions or in-service withdrawals, you can fill the gap between your deferrals plus employer money and the $72,000 415(c) limit. For a 45-year-old deferring $24,500 with a $12,000 employer match, that gap is $35,500 a year of new Roth space. Only some plans allow it, so read the summary plan description. The mega backdoor Roth guide walks through the mechanics.

Neither move lowers this year's tax bill. They are about converting future growth into tax-free growth, which matters a lot for high earners because the taxable alternative leaks dividends and, above certain thresholds, the 3.8% net investment income tax every year.

Charitable giving and donor-advised funds

Charitable planning changed for 2026, and high earners got the short end of two new sticks.

• 0.5% floor. Itemizers can deduct charitable gifts only to the extent they exceed 0.5% of AGI. At $400,000 of AGI, the first $2,000 of giving produces no deduction.
• 35% cap on itemized deductions in the top bracket. Section 68 now reduces itemized deductions by 2/37 of the lesser of your itemized deductions or your taxable income above where the 37% bracket starts ($768,700 joint, $640,600 single for 2026). In plain English, a dollar of itemized deduction saves about 35 cents instead of 37 for top-bracket filers.
• Non-itemizers can now deduct up to $1,000 ($2,000 joint) of cash gifts to operating charities, but not gifts to donor-advised funds.

The donor-advised fund (DAF) is still the workhorse. You contribute cash or appreciated stock, take the deduction in the year you contribute, and recommend grants to charities later. Two reasons high earners use one:

1. Giving appreciated shares. Donating long-term appreciated stock generally lets you deduct fair market value and never pay the capital gains tax (up to 20% plus 3.8% NIIT). Deductions for appreciated property to public charities are generally limited to 30% of AGI, with a five-year carryforward.
2. Bunching around a high-income year. A bonus year, a liquidity event or a big RSU vest is a good time to prefund several years of giving.

One honest note: bunching matters less for many high earners than blogs suggest, because the $40,400 SALT cap plus mortgage interest already puts them over the $32,200 joint standard deduction. If you itemize every year anyway, the main win is giving stock instead of cash, not timing. Retirees 70½ and older have a different tool, the qualified charitable distribution, up to $111,000 per person in 2026 straight from an IRA. See charitable giving in early retirement.

SALT, itemizing and the surtaxes

The state and local tax deduction cap is $40,400 for 2026 ($20,200 married filing separately), up from the old $10,000. It shrinks for modified AGI above $505,000 and cannot fall below $10,000. That creates an odd zone just above $505,000 where each extra dollar of income also costs you some SALT deduction, so your effective marginal rate is higher than the bracket chart says. If your income hovers near that line, a bigger 401(k) deferral or a well-timed deduction can be worth more than you would expect.

Many states also offer a pass-through entity tax (PTET) election, which lets a partnership or S corporation pay state income tax at the entity level and deduct it federally, outside the individual cap. It only helps business owners, rules vary by state, and the federal treatment of these elections has been the subject of IRS guidance. Check your state's revenue department before relying on it.

Then the surtaxes:

• Additional Medicare tax: 0.9% on wages and self-employment income above $250,000 joint or $200,000 single. Employers withhold it on wages over $200,000 regardless of filing status, so two-earner couples often get a surprise at filing time.
• Net investment income tax: 3.8% on the lesser of net investment income or MAGI above $250,000 joint or $200,000 single. These thresholds are not indexed for inflation, so more households cross them every year. The NIIT guide covers what counts.

Strategies that move investment income into Roth accounts, municipal bonds or tax-efficient index funds attack the NIIT directly. Strategies that only cut wages, like a bigger 401(k), reduce MAGI and can pull you under the NIIT threshold, but they do not shrink net investment income itself.

Real estate: real benefits, real fine print

Rental property is where high-earner tax planning gets loud. The benefits are genuine, but the rules are tight and the internet tends to skip the fine print.

• Depreciation lets you deduct the building over 27.5 years for residential rentals, which often makes a cash-flowing rental show a tax loss. See the depreciation guide.
• Passive loss rules usually stop that loss from offsetting wages. The $25,000 allowance for active participants phases out between $100,000 and $150,000 of modified AGI, so most high earners get nothing from it. Suspended losses carry forward and are released when you sell. See passive activity loss rules.
• Real estate professional status (750 hours and more than half your working time in real property trades) can unlock those losses, but it is almost impossible for someone with a full-time W-2 job. It works more often for a household where one spouse qualifies.
• The short-term rental route can treat a rental with an average stay of seven days or less as non-passive if you materially participate, often through the 100-hour test. It is legitimate and heavily audited. See the short-term rental loophole guide.
• Cost segregation and bonus depreciation. As of October 2026, 100% bonus depreciation is available for qualifying property acquired after January 19, 2025. A cost segregation study can reclassify part of a building into 5-, 7- and 15-year property that qualifies. The deduction is front-loaded, and so is the recapture: when you sell, much of it comes back as ordinary income. See cost segregation explained.

The CPA view: real estate works for high earners who want to own real estate. It works badly as a tax product bought by people who would not otherwise want tenants. A loss you cannot use, or a deduction you must repay at sale, is worth much less than its headline.

Business options: QBI, retirement plans and entity choice

Side businesses and consulting income open a separate toolbox.

The QBI deduction

The 20% qualified business income deduction under section 199A was made permanent in 2025. For 2026 the income threshold is $403,500 joint and $201,750 for other filers, with phase-in ranges ending at $553,500 and $276,750. Below the threshold, most businesses get the deduction without wage or property limits. Above it, specified service businesses (law, health, consulting, financial services, accounting and similar fields) lose the deduction through the phase-in range, and other businesses become subject to W-2 wage and property limits. High earners in service fields are usually phased out on their consulting income. Engineers, architects and many trades are not service businesses under the statute, which surprises people.

Self-employed retirement plans

A solo 401(k) gives you an employee deferral (but you share the single $24,500 deferral limit with any day-job 401(k)) plus an employer contribution of up to 20% of net self-employment earnings, within the $72,000 415(c) limit for that plan. Because the 415(c) limit applies per unrelated employer, a high earner with a maxed day-job 401(k) can still shelter a meaningful amount of side income through the employer contribution. See solo 401(k) and SEP-IRA vs solo 401(k). For larger, stable profits, a cash balance plan can allow far bigger deductible contributions, at the cost of required funding and actuarial fees.

S corporations

An S corporation can cut self-employment tax by splitting profit into reasonable salary and distributions. For high earners whose wages already exceed the $184,500 Social Security wage base, the savings are mostly the 2.9% Medicare tax, and they can be smaller than the payroll, bookkeeping and state costs. Reasonable salary is an audit focus. Run the numbers before forming one.

Illustration: what a high-earning couple can actually move

Illustration: a married couple filing jointly, ages 41 and 43, earn $460,000 in combined wages in 2026. They have two kids in daycare, a family high-deductible health plan, and itemized deductions of $65,400: SALT capped at $40,400, mortgage interest of $15,000 and $10,000 of charity. Assume the charity floor is already netted into that charity figure to keep the arithmetic readable.

Before planning: taxable income is $460,000 minus $65,400, or $394,600. Using the 2026 joint brackets, tax is $35,932 on the first $211,400 plus 24% of the remaining $183,200, which is $43,968. Total federal income tax: $79,900.

After the boring moves:

• Both spouses defer $24,500 to their 401(k)s: minus $49,000.
• Family HSA through payroll: minus $8,750.
• Dependent care FSA for actual daycare costs: minus $7,500.

Taxable income drops by $65,250 to $329,350. Tax becomes $35,932 plus 24% of $117,950, or $28,308, for a total of $64,240. That is $15,660 less federal income tax, plus some payroll tax saved on the HSA and FSA amounts. Nothing fancy was involved. If they also do two backdoor Roth IRAs ($15,000), today's tax does not change, but $15,000 a year starts growing tax-free.

What the fancy stuff would add: a rental property with a paper loss would add nothing this year, because at $394,750 of AGI the $25,000 passive allowance is fully phased out. The loss would be suspended until they sell or have passive income. That is the gap between what a sales pitch promises and what the return shows.

Assumptions: 2026 federal brackets from Rev. Proc. 2025-32, no state tax modeled, no credits modeled. The dependent care FSA assumes eligible expenses of at least $7,500, and using it reduces expenses available for the dependent care credit. This is an illustration, not a projection of anyone's return.

Limits, traps and things that are not strategies

A few rules exist mostly to stop high earners from having too much fun.

• Excess business loss limit. For 2026, net business losses above $256,000 single or $512,000 joint cannot offset wages or investment income in the current year. The excess becomes a net operating loss carryforward. Large bonus depreciation losses from short-term rentals can run into this.
• AMT. The 2026 exemption is $140,200 joint ($90,100 single), phasing out starting at $1,000,000 joint ($500,000 single). Fewer people owe AMT than before 2018, but incentive stock option exercises are still the classic trigger. See ISOs vs NSOs.
• The Augusta Rule (renting your home to your own business for up to 14 days tax-free) is real, but the rent must be at market rates, the business must have a real reason to rent, and you need records. It does not turn your birthday party into a board meeting.
• Things that are not strategies: conservation easement syndications and similar promoted shelters the IRS has targeted, "pay your kids $50,000 for social media help" when the kids are four, and any plan where the fee is a percentage of the "tax savings."

A useful filter: if a strategy needs you to be secretive, buy a product, or skip documentation, it is probably not a strategy.

What to expect for 2027

As of October 27, 2026, the IRS had not released the general 2027 inflation adjustments or the 2027 retirement plan limits. The 2027 HSA limits are published: $4,500 self-only and $9,000 family. The 2027 Social Security wage base is $192,300. We will update this guide when the rest is out. The 2027 IRS limits tracker has the running list.

A planning order that works

1. Fill the employer plan to $24,500 (plus catch-up if eligible), Roth or traditional based on your expected retirement bracket.
2. Fund the HSA through payroll if you have an eligible plan, and invest it if you can pay current medical costs from cash.
3. Use the dependent care FSA if you have qualifying care costs.
4. Backdoor Roth IRAs for both spouses, after checking pro-rata exposure.
5. Mega backdoor Roth if the plan allows it.
6. Give appreciated shares instead of cash, through a DAF if it helps timing.
7. Make the taxable account tax-efficient: broad index funds, tax-loss harvesting, munis if your bracket justifies them. See capital gains tax planning.
8. Only then look at real estate, business structures and the aggressive tier, with documentation and professional review.

Then review every year, especially in a bonus, vesting or job-change year. The tax planning guide is the hub for the rest of this series.