High-Income Professional Tax Planning

Learn high-income tax planning strategies for your situation.

The big planning areas:

• Phase-outs and hidden marginal rates. As income rises, you lose access to deductions and credits through phase-outs. The itemized deduction for state and local taxes is capped at $10,000 (SALT cap). Education credits, IRA deductibility, and child tax credits all phase out at various thresholds, creating effective marginal rates higher than the stated bracket.
• Net Investment Income Tax (NIIT). A 3.8% surtax on investment income (dividends, capital gains, rental income, interest) applies when modified AGI exceeds $200,000 single or $250,000 married filing jointly under IRC 1411. This tax cannot be reduced by deductions.
• Additional Medicare tax. An extra 0.9% Medicare tax applies to earned income above $200,000 single or $250,000 MFJ. Combined with the employer share, total Medicare tax on high earnings reaches 3.8%.
• Retirement plan limitations. High earners hit contribution limits quickly and may be ineligible for direct Roth IRA contributions. Backdoor Roth conversions and mega backdoor strategies through employer plans require careful execution to avoid pro-rata taxation.
• Entity structuring for side income. If you earn 1099 income alongside W-2 income, an S-corp election can reduce self-employment tax. The QBI deduction under Section 199A adds further complexity for specified service trades.

What a high-income CPA does: They coordinate across all income sources, optimize timing of income recognition and deductions, and ensure you're not leaving legal tax reduction strategies unused.

The tradeoff: High-income tax planning is a year-round activity, not a once-a-year filing exercise. If you only engage a CPA at tax time, you've already missed most planning opportunities.