Tax-Smart Investing: What High Earners Miss on Their Returns

When your income puts you in the 32% or 37% tax bracket, every dollar matters. I have worked with high-income earners for over two decades, and the difference between a good tax outcome and a great one often comes down to a handful of strategies that get overlooked.

Here is what I see people miss.

Tax-Loss Harvesting

If you have a taxable brokerage account, tax-loss harvesting can offset your gains dollar for dollar. The idea is simple: sell investments that have lost value to realize the loss, then use that loss to offset gains elsewhere in your portfolio. You can offset up to $3,000 of ordinary income per year with net capital losses, and carry unused losses forward indefinitely.

The key is doing this intentionally throughout the year, not just in December. Work with your advisor to review your portfolio quarterly.

Asset Location, Not Just Asset Allocation

Most investors think about what to own. Fewer think about where to own it. Putting tax-inefficient investments (like bonds and REITs) in tax-advantaged accounts and keeping tax-efficient investments (like index funds) in taxable accounts can add meaningful after-tax returns over time.

This does not change your overall portfolio strategy. It just makes sure you are not paying more tax than necessary on the same investments.

Maximizing Retirement Contributions

If you are a W-2 employee, you can contribute up to $23,500 to a 401(k) in 2026, plus a $7,500 catch-up if you are 50 or older. If you are self-employed, a SEP-IRA or Solo 401(k) can shelter significantly more.

But the real opportunity is in backdoor Roth IRA conversions. If your income is too high for direct Roth IRA contributions, you can contribute to a traditional IRA and convert it to a Roth. You pay tax on the conversion now, but the money grows tax-free forever. For high earners with a long time horizon, this is one of the most powerful tools available.

Charitable Giving Strategies

If you give to charity, donating appreciated stock instead of cash lets you avoid capital gains tax on the appreciation while still getting the full fair market value as a deduction. For larger gifts, a Donor-Advised Fund lets you take a large deduction in one year and distribute the funds to charities over time.

Qualified Opportunity Zone investments can also provide tax deferral and exclusion benefits, though they require careful planning and a long holding period.

The Net Investment Income Tax

High earners with investment income may owe the 3.8% Net Investment Income Tax on top of regular capital gains rates. This applies to individuals with modified adjusted gross income over $200,000 ($250,000 for married filing jointly). Strategies like maximizing retirement contributions, timing income recognition, and grouping deductions can help manage this additional tax.

The common thread in all of these strategies is planning. You cannot do tax-loss harvesting in April. You cannot make a backdoor Roth conversion after the year is over. These are decisions that need to happen during the tax year, with guidance from someone who understands your full financial picture.