Tax Planning for High-Income Entrepreneurs

Miranda Kishel
Jul 31
2 min read

Why Tax Planning Matters for High-Income Entrepreneurs

As your business grows, so does your tax bill—unless you have a proactive plan in place. High-income entrepreneurs often overpay in taxes simply because they don’t take full advantage of available strategies for tax reduction and income planning. Effective tax planning for High-Income Entrepreneurs can free up capital, improve cash flow, and accelerate wealth building.

Step-by-Step Guide to Tax Planning

1. Know Your Current Tax Position

Before you can plan, you need clarity:

Review last year’s personal and business tax returns.
Identify your effective tax rate.
Separate W-2 income, business income, passive income, and capital gains.

Pro Tip: Use your financial reports to project this year’s income—don’t wait until tax season.

2. Maximize Deductions Strategically

High earners have access to more deduction opportunities, but they must be intentional:

Home office deduction if used regularly and exclusively.
Depreciation of assets and cost segregation studies for real estate.
Business use of vehicle (actual expenses or standard mileage).
Qualified retirement plans (see Step 4).

Make sure deductions are ordinary, necessary, and documented per IRS rules.

3. Consider Entity Structure Optimization

Your business entity impacts how much you pay in taxes:

Sole proprietors pay full self-employment tax.
S Corporations can reduce self-employment tax through a reasonable salary + distributions model.

4. Max Out Retirement Contributions

Retirement plans aren’t just for retirement—they’re powerful tax shelters:

Solo 401(k): Up to $69,000 contribution (2024 limits, including catch-up).
SEP IRA: Up to 25% of net earnings (max $66,000 in 2023).
Defined Benefit Plans: Can allow six-figure contributions for older, high-income earners.

Example: A 50-year-old consultant earning $500K might contribute $150K+ into a combo DB + 401(k) plan.

5. Implement Income Shifting Techniques

Shift income to lower-bracket family members when appropriate:

Pay children for legitimate work in your business (must follow IRS guidelines).
Gift appreciated assets instead of cash.
Use family trusts to spread income tax efficiently.

Warning: Ensure all strategies follow IRS rules for “arms-length” arrangements.

6. Invest in Tax-Advantaged Assets

Some investments offer built-in tax benefits:

Real estate (depreciation, 1031 exchanges)
Oil and gas partnerships (intangible drilling costs)
Opportunity Zones
Tax-free municipal bonds

These are complex and should align with your overall financial plan.

7. Conduct Year-Round Tax Planning Reviews

Waiting until April is too late. Instead:

Schedule quarterly reviews with your tax advisor.
Track income fluctuations and tax law changes.
Adjust estimated tax payments as needed.

Common Mistakes to Avoid

Waiting until tax season to plan.
Misclassifying contractors or employees.
Overpaying estimated taxes due to poor forecasting.
Claiming aggressive deductions without proper substantiation.
Not working with a tax strategist year-round.

Summary of Best Practices

✅ Review your tax position early and often

✅ Use your business structure to your advantage

✅ Maximize contributions to retirement and tax-deferred accounts

✅ Implement income shifting and legal family strategies

✅ Invest in tax-advantaged vehicles

✅ Consult with a qualified tax advisor regularly

For personalized guidance on tax reduction and income planning, explore our Tax Advising Services