The IRS doesn’t hate you – but it will take everything you don’t defend.

Discover 7 tax reduction strategies that help high earners keep more income legally, with expert tips on HSAs, Roths, depreciation, harvesting & more.

Every April, millions of Americans look at their tax returns and feel the same quiet frustration.

You worked hard. You earned more. And somehow, the reward for that success is a big check written to the Internal Revenue Service.

It seems punitive. Just as progress is also taxed.

That reaction is understandable – but it’s also wrong in a way that costs people thousands of dollars over their lifetime.

Here’s an uncomfortable truth that most W-2 earners never fully assimilate:

The U.S. tax code is not designed to be “fair.”
It is designed to shape behavior.

If you earn income in a way that the government doesn’t actively encourage, you pay more.

If you align your money with its priorities – retirement, healthcare, housing, investing and capital building – you keep more.

This is not a loophole. That system works exactly as written.

The wealthy did not “hack” the tax code. They read it, hire professionals who understand it, and structure their lives accordingly.

Most people don’t do that. They:

• Take the standard deduction without checking whether it’s the best or not
• Treat tax planning as a once-a-year paperwork
• Confuse “legal avoidance” with “questionable behavior”
• Assume that high earners inevitably pay higher taxes

None of which is necessary.

What is necessary is intent.

With many provisions of the Tax Cuts and Jobs Act set to sunset after 2025, the window for specific strategies is narrowing – not closing, but changing. That makes proactive planning more valuable, not less.

This guide goes into seven legal, aggressive, and widely used tax strategies that materially change outcomes for high-income earners.

No offshore nonsense.

No fake businesses.

Don’t pretend to be a counselor to your dog.

Just incentives, structure, and discipline.

1. Health Savings Account: The Only Triple-Tax-Free Vehicle Left

If you misunderstand HSAs, you’re not alone. Most people do that.

They treat them like checking accounts for co-pays and prescriptions. That’s not just suboptimal – it’s fiscally negligent.

An HSA is not a spending account.

It is a long-term tax weapon.

What makes an HSA unique

An HSA is the only account in the U.S. tax code that has all three benefits at once:

1. Contributions reduce taxable income
2. Investments grow tax-free
3. Qualified withdrawals are tax-free

Not a 401(k).

Not an IRA.

Nothing else stacks up to those benefits.

For 2025:

• Individual contribution limit: $4,150
• Family contribution limit: $8,300
• Additional catch-up (ages 55+): $1,000

This limit is indexed to inflation and is expected to increase modestly in 2026.

People miss out on an important requirement

You must be enrolled in a high-deductible health plan (HDHP) to contribute. It’s non-negotiable.

But here’s the mistake people make:

They assume that “high deductible” automatically means “bad plan.”

That doesn’t happen often-especially for healthy, high-income people who can self-insure small expenses and want more tax efficiency than first-dollar coverage.

The Long-Game Strategy That’s Most Never Used

You don’t have to reimburse yourself the year you incur medical expenses.

That one fact turns an HSA into a much bigger thing.

Best approach:

• Pay medical expenses out of pocket
• Save every receipt (digitally)
• Invest HSA funds aggressively
• Let decades of tax-free compounding do the work
• Reimburse yourself years-or decades-later

There is no statute of limitations on reimbursement as long as the expense was incurred after you opened the HSA and you kept the documentation.

What happens at age 65

At age 65:

• Withdrawals for medical expenses remain tax-free
• Non-medical withdrawals are taxed as ordinary income
• The 20% penalty disappears

At that point, the HSA effectively becomes:

• A better traditional IRA for health care
• A flexible retirement account for everything else

It’s not conservative to ignore an HSA.

It’s expensive.

2. Tax-loss harvesting: Turning market failure into tax control

is a loss. Anyone who invests for a long time will experience it.

The mistake is to consider losses as entirely negative.

From a tax perspective, a realized loss is a financial asset.

How tax-loss harvesting really works

When you sell an investment for less than you paid:

• The loss can offset the capital gain dollar-for-dollar
• The additional loss can offset up to $3,000 of ordinary income each year
• The remaining loss can be carried forward indefinitely

This is not a trick. It is clearly legal.

Why the $3,000 Rule is More Important Than It Seems

$3,000 Income Offset:

• 24% in the bracket save $720
• 32% in the bracket save $960
• Repeats every year until the loss is eliminated

Over time, it adds up – especially for people who rebalance regularly.

Wash Sale Rule (where people make this mistake)

You cannot:

• Sell a security at a loss
• Buy an identical or “substantially identical” security
• Within 30 days before or after the sale

If you do this, the loss is not allowed.

But “substantially similar” does not mean “identical”.

Selling an S&P 500 ETF and buying a total market ETF is generally acceptable. The exposure is close, but the holdings and construction are different.

This allows you to:

• Maintain market exposure
• Reset cost basis
• Capture tax benefits

Get it wrong and you lose the deduction.

Get it right and the volatility becomes useful.

3. Backdoor Roth IRA: No loophole, just math

High earners are often told they “earn too much” for a Roth IRA.

That’s only true if they stop reading the rules halfway through.

Reality

The revenue limit applies to contributions, not conversions.

That difference is everything.

Basic Process

1. Contribute after-tax dollars to a traditional IRA
2. Take no deductions
3. Convert funds to a Roth IRA
4. Pay taxes only on any pre-tax portion converted

If implemented cleanly, the tax cost is minimal or zero.

Pro-rata Rule (Real Trap)

The IRS views all of your IRAs as one combined pool.

If you have pre-tax money sitting in:

• Traditional IRAs
• SEP-IRAs
• SIMPLY IRAs

Then your conversion is taxed proportionally.

This is where many people get burned.

How do people solve this legally

• Roll existing pre-tax IRA into employer 401(k) if allowed
• Employer plans are excluded from pro-rata calculation
• This “clears the runway” for clean backdoor conversions

This is common. It’s allowed. It just requires coordination.

4. Real Estate Depreciation: Why Paper Losses Are More Than Real Income

Real estate is prioritized for one reason:

The government wants people to provide housing.

Devaluation is a major factor.

Key Concept

Residential rental property depreciates over 27.5 years.

This means that:

• You deduct a portion of the value of the house each year
• Even if the property is increasing
• Even if the cash flow is positive

The deduction is a non-cash expense.

It reduces taxable income without reducing actual cash.

A clean example

• Building value: $275,000 (excluding land)
• Annual depreciation: ~$10,000
• Cash flow: $10,000

Taxable income: $0
Cash on hand: $10,000

This is not a trick. That’s standard accounting.

Bonus Depreciation and Cost Allocation

Under current law:

• Certain components can depreciate more quickly
• This front-load deduction
• is often used in short-term rentals or larger properties

However-this is where the hype often outweighs the reality.

The bonus depreciation percentage is being phased out until Congress steps in. Anyone promising a “guarantee of massive write-offs” without context is overselling.

Passive Loss Rules (Read This Carefully)

Rental losses generally cannot offset W-2 income unless:

• You qualify as a real estate professional, or
• The property meets certain short-term rental tests

This is the higher level. Most people are not qualified.

Depreciation is powerful-but only when applied correctly.

5. The Augusta Rule: Legal, Powerful, and Easy to Abuse

Section 280A(g) allows homeowners to rent out their primary residence tax-free for up to 14 days per year.

Yes, even for your own business.

No, it’s not automatic.

Why this works

• Business reduces rental expenses
• Homeowner reports no income
• Stays with deductions and exclusions

This is intentional. It’s not hidden.

Where People Get Audited

Abuse occurs when:

• Rates are not secured
• Meetings are not legal
• Documentation is non-existent
• Sole proprietors try to “pay themselves”

This strategy works best with:

• S-Corps
• C-Corps

And it requires:

• Market-rate pricing
• Meeting agenda
• Lease agreement
• Proof of business purpose

If you’re careless, don’t do it.

If you’re certain, it’s effective.

6. Mega Backdoor Roth: When Retirement Becomes a Strategy

This isn’t available to everyone – and it would be dishonest to pretend it is.

But when it is available, it is one of the most powerful wealth building tools in the code.

Limits (2025)

• Total 401(k) limit: $69,000
• Employee deferral: $23,000
• Catch-up (50+): Additional $7,500

The difference between the employee limit and the total limit can be made up with after-tax contributions – if your plan allows it.

Two essential features

Your employer plan must allow:

1. After-tax contributions
2. Roth conversions or distributions in service

Many plans do not allow. Some do.

Why Speed Matters

After-tax money that grows before conversion creates taxable gains.

An immediate conversion locks all future growth inside the Roth.

Delay costs money.

HCE Problem

Employees who receive excessive compensation may face contribution limits due to non-discrimination testing.

If your HR department can’t explain this clearly, don’t assume anything.

7. Donor-Advised Funds: Charitable Giving Without Time Penalties

Effective use of the charitable deduction has become more difficult since the standard deduction was increased.

The answer is bunching.

How Bunching Works

Instead of making an annual donation:

• Give for multiple years at once
• Take a large deduction
• Give funds gradually

Donor-advised funds make this easy.

The Smart Way to Fund a DAF

Use Valuable Assets.

Donating stock:

• Avoids capital gains taxes
• Provides a deduction for the full market value
• Saves more money for the cause

This is not philanthropy theater.

It’s math.

Frequently Asked Questions

The Ultimate Reality Check

Taxes are not a moral decision.

They are a designed system.

If you earn income in a way that the system doesn’t reward, you will pay more.

If you organize your life around its incentives, you will pay less.

That’s not cheating.

That is adulthood.

Choose a strategy. Execute it properly. Then move on to the next one.

Only structure.

And structure is a choice.

Disclaimer

The information provided in this article is for educational and informational purposes only and should not be construed as tax, legal, or financial advice.

U.S. tax laws, IRS regulations, contribution limits and interpretations change frequently and may vary based on individual circumstances, filing status, income level, residency status and business structure.

The strategies discussed here – such as HSAs, Roth conversions, real estate depreciation, and business deductions – may not be appropriate or available to every taxpayer.

Nothing in this article constitutes a client-consultant relationship. Before implementing any tax strategy, you should consult with a qualified CPA, tax attorney, or financial advisor who can evaluate your specific situation and ensure compliance with current IRS regulations.

While every effort has been made to ensure accuracy at the time of writing, no guarantee of completeness or future applicability is made. The author and publisher accept no responsibility for actions taken based on the content of this article.

Tax planning is a highly personal matter. What works well for one person may be ineffective – or even harmful – for another.