How High Earners Can Reduce Taxable Income: The Revonary Guide

When you’re a high earner, your tax strategy shouldn’t just be about saving money—it should be about building your long-term wealth in the most tax-efficient way possible. 

A key part of that lies in capitalizing on the vast range of opportunities available to you. Equally important, however, is exercising discretion in how you pursue these opportunities. The tax tail shouldn’t wag the dog. What does that mean? In a nutshell, it means you shouldn’t pursue short-term tax-saving opportunities at the expense of your long-term wealth planning journey. 

Whether you’re a top executive or a successful entrepreneur, the U.S. tax code offers numerous strategies to help you keep more of what you earn and build wealth. A key partner in your journey is a talented tax professional who can help you create the right strategy for your situation and goals.  At Revonary, that’s exactly what we do: helping our clients navigate tax planning complexities with a modern, strategic approach that goes beyond generic, cookie-cutter strategies.

In this guide, we’re sharing several effective strategies that enable high earners to reduce their taxable income––and therefore, their overall tax liability. Take note that this is generic advice: the right strategy for your situation might be entirely different, and we encourage you to contact a Revonary advisor to discuss the best options for you. 

Understanding Your Income Type

Not all income is created equal under the U.S. tax code. The strategies for reducing taxable income vary depending on how you earn. Broadly, high earners fall into two categories:

• W-2 Earners: Employees who receive wages or salaries.
• Business Owners: Entrepreneurs or self-employed individuals.

While both groups can benefit from tax-saving strategies, the approach differs significantly. Many people have both types of income, drawing a salary as well as income from a business. There’s also the question of investment income: something many high-earners benefit from through ownership interests in real estate, stocks, or other assets. 

Generally speaking, our tax laws favor those who own a business or earn money from their capital over those who work a W-2 job. Understanding the breakdown of your income is the first step in determining the most appropriate way for you to reduce taxable income. 

Reducing Taxable Income: Strategies for W-2 Earners

For employees who earn their income through a wage or salary, at first glance, the opportunities to reduce taxable income may seem limited. And while it’s true that employees generally have less ability to reduce taxable income than business owners, there are several effective strategies that can help you make the most of your earnings while minimizing tax liability. 

From retirement planning to making the most of the benefits offered by your employer, the strategies outlined below are a great place to start if you’re a W-2 employee with high levels of income.

Maximize Retirement Contributions

Contributing to retirement accounts such as a 401(k) or traditional IRA is one of the most effective ways to lower taxable income. For 2025, the 401(k) contribution limit is $23,500 for those under 50, with an additional $7,500 catch-up contribution allowed for those aged 50 and older. There is also an additional catch up contribution of $3,500 available for those aged 60-63.

These contributions are made pre-tax, reducing your taxable income. Let’s say you earned $250,000 one year and contributed the maximum $23,500 to a 401(k) account. Instead of being taxed on your $250,000 income, you’d instead be taxed as if your income was $226,500 since your 401(k) contribution reduces your taxable income. As a result, the government is essentially funding a portion of your retirement account in the form of tax savings.

Strategies like these help you build a nest egg you can rely on later in life. While you will have to pay tax on these funds when you start drawing on them in retirement, you’ll likely pay less in taxes since income tends to be lower during retirement than in peak earning years. 

Utilize Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs)

Flexible Spending Accounts (FSAs) allow employees to set aside pre-tax dollars for eligible medical, dental, and dependent care expenses. By contributing to an FSA, you reduce your taxable income. For high earners, this can result in significant tax savings by earmarking pre-tax monies to cover necessary expenses.

Depending on the type of accounts your employer offers, FSAs may be a "use-it-or-lose-it" benefit, meaning that you have to use up all funds in the account by the end of the year or they’ll be forfeited. To calculate how much you should contribute to an FSA, estimate your annual expenses for the given account type and make sure you utilize the funds throughout the year. Many employers offer a grace period or the ability to roll over a limited amount of unused funds, making it important you understand the specific rules of your employer’s plan. 

If you’re enrolled in a high-deductible health plan, a Health Savings Account (HSA) offers a threefold tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. 

Leverage Employer Benefits

Many employers offer additional pre-tax benefits that can help well-compensated employees reduce taxable income. Examples include commuter benefits and stock purchase plans. 

For instance, by using pre-tax dollars to pay for commuting expenses, you reduce your taxable income while taking advantage of employer-sponsored programs. Reviewing and maximizing your use of these benefits each year is a reliable way to ensure you take advantage of every tax saving opportunity available to you.

Charitable Giving

High earners often turn to charitable giving as a way to reduce their taxable income while supporting causes they care about. Donor-advised funds (DAFs) are particularly effective, allowing you to make a large charitable contribution upfront, claim the deduction immediately, and distribute funds to charities over time. 

This strategy is especially beneficial in high-income years, helping to offset significant tax liabilities while giving you control over your philanthropic impact. Let’s say you typically give $100,000 to charity each year. One year, you receive a $5 million bonus (congratulations!). To minimize your tax exposure on that bonus, you create a DAF and fund it with $1 million, funding your next ten years of charitable contributions and reducing your taxable income by $1 million. 

Deferring Compensation

Deferring compensation allows high-income employees to lower current taxable income by postponing part of their salary or bonuses to a future year, such as retirement. Your ability to execute this strategy will be determined by whether your employer offers this level of flexibility. 

The goal, similar to funding retirement accounts, is to defer income to a time when you may be in a lower tax bracket, therefore reducing your overall tax burden. However, it’s essential to understand the terms of the plan and any associated risks. Working with a tax professional is essential to fully leverage these opportunities and stay compliant with regulations.

Reducing Taxable Income: Strategies for Business Owners

Business owners have far more opportunities to minimize their taxable income thanks to the flexibility and options available to those who have control over their own enterprises. 

Whether it’s through carefully planned deductions, tax-efficient investments, or strategic income planning, there are many tax strategies that allow entrepreneurs to maximize savings while maintaining compliance with the tax code.

Deferring Income & Accelerating Expenses

The end of the year is a time when savvy business owners make all kinds of tax moves that ultimately lower their tax liability for the year. This is primarily done in two ways: by deferring income into the following year or by pulling forward future expenses into the current year. 

First, let’s take a look at the concept of deferring income. The general idea here is that if your business has had a good year, you may want to wait until January to start collecting payments you’d otherwise collect in December. This means that instead of that income being taxed in the current year, it’ll be taxed in the following year. 

Accelerating expenses works in a similar way. If your business has had a good year, you might opt to pay suppliers earlier than usual, allowing you to use those expenses to offset your current year’s revenue, ultimately reducing your taxable income.

The decision to defer income or accelerate expenses shouldn’t be taken lightly. If you expect to make more money next year, for instance, it wouldn’t make sense to defer income or accelerate expenses, since this would result in a higher future tax liability. Connect with your tax advisor to discuss which options make sense for your situation. 

Read More: Do You Need a Year-End Check-In With Your Tax Advisor?

Deductions and Credits

As a business owner, you have access to a wide range of deductions that can significantly reduce your taxable income. These include costs related to operating your business, such as office supplies, travel expenses, and professional services. 

Additionally, many business owners can take advantage of tax credits for specific activities, like investing in energy-efficient equipment or research and development initiatives. Maximizing these deductions and credits requires meticulous record-keeping and a strategic approach to categorizing expenses, and it’s important to work with an experienced tax professional to guide you through the process. 

Set Up Retirement Accounts

As a business owner, you have access to far more powerful retirement planning accounts than your employees. These accounts, such as SEP IRAs or Solo 401(k)s, have higher contribution limits compared to traditional IRAs, allowing you to save more for the future while lowering your taxable income.

For example, a SEP IRA allows contributions of up to 25% of your compensation, with a maximum limit of $70,000 in 2025, far in excess of standard retirement accounts. This dual benefit of reducing taxes now while saving for the future makes these plans a cornerstone of effective tax strategy.

Pass-Through Entity Tax

The Pass-Through Entity (PTE) Tax is a valuable tool for business owners in states that allow it, such as New York. By electing to pay taxes at the entity level rather than the individual level, business owners can potentially bypass the federal SALT (State and Local Tax) deduction cap of $10,000. 

This strategy allows pass-through income to be taxed at the business level, making the full amount deductible for federal tax purposes. Consulting with a tax advisor is essential to determine whether this election is beneficial for your specific circumstances.

Qualified Business Income (QBI) Deduction

The Qualified Business Income (QBI) Deduction allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income. This deduction is available for sole proprietors, partnerships, S corporations, and some LLCs. However, it comes with limitations based on income levels, the nature of the business, and wages paid. 

For high-income earners, navigating these rules can be complex, but optimizing the QBI deduction can result in significant tax savings. It’s important to note, however, that there is often a trade-off between leveraging the QBI deduction and funding retirement plans.

Take a Better Approach to Tax Planning with Revonary

At Revonary, we take pride in delivering forward-thinking strategies that align with your financial goals. Whether it’s leveraging the latest tax law changes or uncovering unique opportunities tailored to your situation, our team brings unparalleled expertise to the table.

Clients often tell us they’re surprised by how much they didn’t know they could save until they worked with us. And not only did the clients not see these opportunities: their previous tax advisor didn’t either! That’s our promise at Revonary: actionable advice, delivered with precision.

Reducing taxable income as a high earner requires more than a surface-level understanding of the tax code. It takes strategic planning and the guidance of a trusted partner. Don’t leave money on the table—consult with Revonary to unlock your full financial potential.

Ready to get started? Contact us today and take the first step toward smarter tax planning.