Advanced Tax Strategies for High Earners

Navigate the AMT, Net Investment Income Tax, and credit phase-outs with strategies designed for six-figure and seven-figure incomes.

High-income earners face a uniquely complex tax landscape. Beyond higher marginal rates, you contend with the Alternative Minimum Tax, the 3.8% Net Investment Income Tax, the 0.9% Additional Medicare Tax, and phase-outs that reduce or eliminate common deductions and credits.

Strategic tax planning is especially valuable when your income pushes you into the top brackets. The difference between the 24% and 37% brackets can mean tens of thousands of dollars in additional tax. Techniques like maximizing retirement contributions, timing income recognition, charitable giving strategies, and investment tax management can significantly reduce your effective rate.

Working with a qualified tax advisor is strongly recommended for high-income earners. The complexity of interactions between AMT, NIIT, state taxes, and various phase-outs means that tax planning decisions are interconnected. A strategy that saves federal taxes may increase state taxes or trigger AMT. Comprehensive planning considers all these factors together.

Key Deductions & Credits

Maximized Retirement Contributions

$5,000 - $20,000

Contribute the maximum to 401(k) ($23,500 plus $7,500 catch-up if 50+), plus employer plans, defined benefit plans, or mega backdoor Roth strategies.

Charitable Giving Strategies

$3,000 - $50,000+

Donate appreciated stock to avoid capital gains, use a Donor-Advised Fund to bunch multiple years of giving, or consider a Charitable Remainder Trust for large amounts.

Qualified Business Income Deduction

$5,000 - $50,000+

If you have pass-through business income, the QBI deduction can reduce taxable business income by up to 20%, subject to income limitations and business type.

State & Local Tax Optimization

$2,000 - $30,000

The $10,000 SALT cap limits deductions, but strategies like forming an S-Corp or partnership to pay state taxes at the entity level (PTET) can work around this cap in many states.

Backdoor Roth IRA

Long-term compounding benefit

High earners above the Roth income limits can contribute to a nondeductible traditional IRA and convert to a Roth. This strategy provides tax-free growth and no RMDs.

Forms You May Need

Form 6251 — Alternative Minimum Tax - Individuals

Form 8960 — Net Investment Income Tax

Form 8959 — Additional Medicare Tax

Schedule A (Form 1040) — Itemized Deductions

Form 8606 — Nondeductible IRAs (backdoor Roth)

Form 8283 — Noncash Charitable Contributions

Filing Tips

Calculate your AMT liability each year. Tax planning moves like exercising incentive stock options can trigger significant AMT.
Consider bunching charitable deductions using a Donor-Advised Fund. Contribute several years' worth in one year to exceed the standard deduction, then use the DAF to distribute gifts over time.
Donate appreciated long-term capital gains stock instead of cash. You get a deduction for the full market value and avoid paying capital gains tax.
Maximize all available retirement plan contributions before year-end, including catch-up contributions if you are 50 or older.
Review your portfolio for tax-loss harvesting opportunities, especially in volatile markets. High earners benefit most from offsetting gains taxed at high marginal rates.
If you are subject to AMT, certain strategies like prepaying state taxes or exercising ISOs in a single year should be carefully timed.

Common Mistakes to Avoid

Not planning for the Alternative Minimum Tax, especially when exercising incentive stock options or claiming large SALT deductions.
Ignoring the 3.8% Net Investment Income Tax on capital gains, dividends, and rental income when MAGI exceeds $200,000 (single) or $250,000 (joint).
Failing to explore pass-through entity tax elections that allow state taxes to bypass the $10,000 SALT deduction cap.
Making direct Roth IRA contributions when income exceeds the eligibility limits instead of using the backdoor Roth strategy.
Not considering the impact of capital gains on Medicare premium surcharges (IRMAA), which can increase Part B and D premiums.

Recommended Software

TurboTax Premier handles complex investment income, AMT calculations, and multi-state returns. For the most complex situations, TurboTax Live connects you with a CPA or EA for real-time review.

Review TurboTax

FAQ

What is the Alternative Minimum Tax?

The AMT is a parallel tax system that adds back certain deductions and applies a flat 26-28% rate. For 2025, the AMT exemption is $88,100 (single) or $137,000 (joint). It commonly affects high earners with large state tax deductions, incentive stock option exercises, or significant miscellaneous deductions.

How does the Net Investment Income Tax work?

The NIIT adds 3.8% to investment income including capital gains, dividends, interest, rents, and royalties when your MAGI exceeds $200,000 (single) or $250,000 (joint). It applies to the lesser of your net investment income or the amount by which MAGI exceeds the threshold.

What is a backdoor Roth IRA?

It is a legal strategy for high earners who exceed Roth IRA income limits. You contribute to a nondeductible traditional IRA and then convert it to a Roth IRA. If you have no other traditional IRA balances, the conversion is mostly or entirely tax-free. Consult a tax advisor about the pro-rata rule.

Can I still contribute to a 529 plan?

Yes. There are no income limits for 529 plan contributions. High earners can contribute up to the annual gift tax exclusion ($19,000 per person in 2025) without filing a gift tax return, or use 5-year gift tax averaging to front-load up to $95,000 per beneficiary.