How High Earners Can Legally Reduce Taxes and Keep More of What They Earn

Introduction 

If you're earning six or seven figures, chances are you've felt the sting of an oversized tax bill. And while you may be maxing out your 401(k) and itemizing deductions, you're likely still leaving money on the table. As a CPA and MBA with experience supporting both ultra-wealthy individuals and corporate finance teams, I’ve seen firsthand how effective tax strategies can dramatically shift your financial outcome. This article covers several legal, IRS-compliant strategies to help high earners reduce tax drag and build lasting wealth.

1. Maximize Business Deductions Through Strategic Entity Structuring 

One of the most powerful ways to reduce your tax liability is to ensure you’re using the right business structure. Many high earners operate side businesses or consulting gigs without realizing the tax advantages of forming an S Corporation. An S Corp allows you to split income between salary (subject to self-employment tax) and distributions (which are not). This alone can save thousands in taxes annually.

Moreover, operating as a business opens the door to a wider array of deductions—think home office expenses, health insurance premiums, equipment, professional development, and even meals and travel related to your business.

2. Employ Your Children (Yes, Really) 

If you’re a business owner, consider hiring your kids. The IRS allows you to pay children under 18 who work in your business, and the wages are tax-deductible to the business. If structured properly, your child’s income may be tax-free up to the standard deduction limit. It’s a smart way to reduce your own taxable income while teaching your children financial responsibility and even funding their Roth IRA or college savings.

3. Leverage Retirement Contributions Beyond the 401(k) 

While the traditional 401(k) is great, it’s only the beginning. If you're self-employed, the Solo 401(k) or SEP IRA allows for much higher contribution limits. And if you're phased out of a Roth IRA due to income, you can consider a Backdoor Roth contribution strategy.

For high-income W-2 earners with no business, consider maxing out your HSA (Health Savings Account), one of the only triple-tax-advantaged accounts available: tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified expenses.

4. Use the Augusta Rule to Rent Your Home to Your Business 

The Augusta Rule (IRS Section 280A(g)) allows you to rent out your primary residence for up to 14 days per year without reporting the rental income. If you own a business, you can rent your home to your business for legitimate events—board meetings, client dinners, strategic retreats—and deduct the expense from the business, while receiving the rental income tax-free personally.

5. Invest for Tax Efficiency 

You may be investing, but are you investing tax-efficiently? Use tax-loss harvesting, qualified opportunity zones, or municipal bonds when appropriate. Consider asset location: placing high-growth assets in Roth accounts and income-producing assets in tax-deferred accounts.

Conclusion: Strategy Beats Scrambling 

Most high earners wait until tax season to think about taxes—but that’s too late. With strategic planning, you can legally reduce your tax burden and redirect those savings into building wealth.

Want to go deeper? Download my free guide: “7 Tax Strategies Every 6-Figure Earner Should Know.” Or book a complimentary strategy call to explore how these apply to your unique situation.

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