Tax Aversion Therapies · for higher earners
Diagnosis: a marginal rate of 32% to 37%, plus 3.8%, plus 4.40%, and a list of credits and deductions the code has quietly taken away.
Prognosis: the breaks that remain are the ones built for business owners and savers. Use those.
There is no cure for the top bracket. These are the therapies.
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Above about $400,000 of income, the therapies on the other pages mostly phase out: the child credit, the education credits, the student loan deduction, the Roth IRA contribution, the rental loss allowance, the senior deduction, and, under the 2025 act, part of the SALT deduction and a sliver of every itemized deduction. Our phase-outs page is the list of what is taken away. This page is the list of what is left, and what is left is substantial: retirement deferrals that reach six figures, Roth strategies with no income limit, the charitable tools that work best with appreciated assets, the entity-level state tax deduction, and the real estate provisions that were written for people in this bracket.
Ordered by how many of our higher-earning clients can actually use each one. The first four apply to almost everyone with a W-2 over $250,000; the rest need a business, a property, or a startup.
Dose for 2026: 401(k) $24,500 (catch-up $8,000 at 50, $11,250 at 60–63, Roth-only above $150,000 of prior wages); HSA $8,750 family plus $1,000 at 55; a governmental 457(b) in addition to a 401(k) or 403(b) for public employees ($24,500 more); nonqualified deferred compensation if the employer offers it; and the spouse’s plan, which is often half-funded (verify 2026 limits).
At 37% plus 3.8% plus 4.40%, every $10,000 deferred saves about $4,500 this year. A physician couple with a 403(b), a 457(b) and two catch-ups defers over $120,000 before any employer contribution. Nonqualified deferred comp is unsecured and should be sized to the employer’s credit, but for an executive planning to retire to a lower bracket it is the only deferral without a dollar cap. Full article: Tax Breaks for Retirement Savers.
↑ Back to topDose: a nondeductible traditional IRA contribution of $7,500 (plus $1,100 catch-up) converted to Roth, every year, for each spouse: $17,200 of Roth a year with no income limit. And, if the 401(k) allows after-tax contributions and in-plan conversions or in-service withdrawals, after-tax contributions up to the $72,000 overall limit converted to Roth: the “mega backdoor,” up to about $47,000 more.
The backdoor works cleanly only if the taxpayer has no other pre-tax IRA money (SEP, rollover, traditional), because the conversion is taxed pro rata across all IRAs; roll any pre-tax IRA into the 401(k) first to clear the denominator. File Form 8606 every year or the basis is lost. The mega backdoor depends entirely on the plan document; ask HR for the summary plan description and look for “after-tax” (not Roth) contributions. Full article: Roth IRAs: Contributions, Conversions, and the Backdoor Roth.
↑ Back to topDose: contribute two to five years of giving to a donor-advised fund in one year, in appreciated stock; deduct the full value this year (up to 30% of AGI for stock, 60% for cash); grant it out over the following years; take the standard deduction in between. The 2025 act added a floor: only charitable gifts above 0.5% of AGI are deductible starting in 2026, which makes bunching more valuable, not less (verify the 0.5% floor’s effective date and mechanics).
A couple giving $20,000 a year with $14,000 of mortgage interest and $40,400 of capped SALT is at $74,400 of itemized deductions, comfortably over the standard deduction; bunching matters less for them than for the couple under the cap. But the 0.5% floor at $600,000 of AGI eats the first $3,000 of giving every year it happens; bunching five years into one loses $3,000 once instead of five times. And appreciated stock to the DAF avoids the gain entirely. Full article: Charitable Giving: The Federal Rules.
↑ Back to topDose: for owners of an S corporation or partnership, the entity pays Colorado’s 4.40% and deducts it federally outside the SALT cap; at 37%, the saving is about 1.6% of the entity’s Colorado income, every year. Above $505,000 of MAGI the SALT cap phases back down toward $10,000, so a high-earning owner’s own Colorado tax is largely nondeductible, and the election recovers it.
Annual election, estimated payments by the entity, excluded guaranteed payments, and a refundable credit to the owners; the PTE election page has the mechanics. A W-2 executive with no pass-through income can’t use it; a physician in a practice LLC can, and most Colorado practice groups now do.
↑ Back to topDose: for a business owner above $400,000 of profit, the S corporation saves the 2.9% to 3.8% Medicare layer on distributions (the Social Security layer is capped by the wage base anyway); above the QBI threshold, the salary is also the W-2 wages that keep the 20% deduction for a non-service business; and for a specified service business (medicine, law, consulting), retirement contributions that bring taxable income back toward $553,500 joint recover a deduction that is otherwise gone.
At this income the entity question is less about payroll tax and more about QBI, the PTE election, and retirement plan design, all of which require an entity. A consultant netting $600,000 as a sole proprietor has no QBI deduction, no PTE election, and a SEP capped by compensation rules; the same consultant as an S corporation with a $250,000 salary, a cash balance plan and the PTE election has all three. Full articles: Reasonable Compensation, The QBI Deduction.
↑ Back to topDose: an actuarially determined contribution, deductible to the business, that for an owner in his fifties with $500,000 or more of steady profit typically runs $150,000 to $300,000 a year, on top of a 401(k) profit-sharing plan; the combination can shelter half or more of the income.
It requires a business (the S corporation or partnership above), an actuary, a commitment to fund for several years, and contributions for eligible employees. For a two-physician practice or a successful solo professional over 50, it is the largest deduction available in the code. The money comes out as ordinary income in retirement, ideally in a lower bracket and after a Roth conversion plan. Full article: Tax Breaks for Retirement Savers.
↑ Back to topDose: a cost segregation study on a rental building reclassifies 20% to 35% of the cost into 5-, 7- and 15-year property eligible for 100% bonus depreciation, producing a first-year loss; the loss offsets wages only if the taxpayer (or spouse) is a real estate professional who materially participates, or if the property is a short-term rental the owner runs; otherwise it is passive and waits for passive income or a sale.
This is the therapy most heavily marketed to high earners and the one with the most failed claims. A surgeon cannot be a real estate professional while practicing; a surgeon’s spouse who manages the portfolio full time can be, and the losses then offset the surgeon’s wages on the joint return. A short-term rental with an average stay of seven days or less and the owner doing the work is the route that doesn’t require 750 hours. The depreciation is recaptured at sale unless exchanged or held to death. Full articles: Real Estate Professional Status, Your Home as Income, 1031 Exchanges.
↑ Back to topDose: gain on qualified small business stock excluded up to $15 million per issuer (post-July 4, 2025 stock; 50% / 75% / 100% at three, four and five years); a capital gain invested in a qualified opportunity fund within 180 days is deferred and, under the 2025 act’s permanent OZ program, gets a 10% basis step-up after five years (30% for rural funds) and tax-free appreciation after ten (verify the 2025 act’s OZ 2.0 terms and effective dates).
QSBS is for founders, early employees and angel investors in C corporations; it is lost by converting to an LLC, by redemptions, and by selling early. Opportunity zones are for anyone with a large gain who is willing to invest in a designated zone for a decade; the deferral is real, the quality of the fund is the risk, and the ten-year tax-free appreciation is the prize. Full discussion on the investors’ page.
↑ Back to topDose: appreciated stock to a donor-advised fund: full deduction, no gain. A concentrated position with a large gain into a charitable remainder trust: no gain on the sale inside the trust, an income stream for life, a partial deduction now, and the remainder to charity. At 70½, qualified charitable distributions of up to $111,000 a year from the IRA, which also satisfy the RMD.
The CRT is the tool for the executive with $2 million of one stock at a $200,000 basis who wants to diversify: the trust sells with no tax, pays 5% to 7% a year for life (taxed as received), and the donor deducts the present value of the remainder. It is irrevocable and needs an attorney. The DAF handles everything smaller. Full article: Charitable Giving.
↑ Back to topDose: know where the year’s income lands against: the SALT cap phase-down starting at $505,000 of MAGI (the $40,400 cap falls 30% of the excess toward $10,000) (verify); the 3.8% NIIT above $250,000; the 2025 act’s itemized-deduction haircut for 37%-bracket taxpayers (2/37 of itemized deductions otherwise allowed) (verify); the 0.9% additional Medicare tax above $250,000 of wages; the additional 20% capital gains rate above $613,700; and the AMT, which the 2025 act kept with its higher exemption but with a faster phase-out above $1 million (verify), and which still catches ISO exercises.
Each is a reason to time income: a bonus deferred to January, an ISO exercised early in the year, a Roth conversion that stops under $505,000, a gain split across two Decembers. The phase-outs page lists all of them with the 2026 figures; this therapy is simply the December meeting at which the year’s income is projected and the discretionary items are placed. Full article: The Tax Code for High Earners: The Phase-Outs.
↑ Back to topYes. The income limit applies to contributions, not conversions, and Congress acknowledged the strategy in the 2017 act’s legislative history. It works cleanly only if you have no other pre-tax IRA balances; if you do, roll them into your 401(k) first. File Form 8606 every year.
If you own part of an S corporation or partnership, the Colorado PTE election moves the state tax on that income to the entity, where it is deductible without a cap. For W-2 income there is no workaround; above $505,000 of MAGI the cap phases down and the planning is to keep MAGI under the line in alternating years where income is controllable.
Only if you or your spouse qualifies as a real estate professional (750 hours and more than half of working time in real estate, which a practicing physician can’t meet) and materially participates, or if the property is a short-term rental you personally run. Otherwise the losses are passive and wait for a sale. The depreciation is real; the question is when you get to use it.
A cash balance (defined benefit) plan, layered on a 401(k), for an owner over 50 with steady profit: often $150,000 to $300,000 a year, deductible. It requires an entity, an actuary, and a multi-year commitment, and it has to cover eligible employees.
For the Tax Shop desk · the thresholds, phase-outs and elections behind each therapy
At this income the fee for a planning meeting is a rounding error against any one item on this page. Bring the pay stubs, the plan documents (the 401(k) summary plan description, for the after-tax question), the K-1s, the brokerage statements and the giving plan, in November. We will project the year, place the discretionary items against the cliffs, and tell you which of these ten are open to you. The ones that need an entity, an actuary or an attorney take months to set up; the ones that need a phone call to HR take a day.
Call 303-734-1040 or stop by the office in Lone Tree. We’ve been reading the footnotes for Douglas County and the Denver area since 1969.
Figures reflect the 2026 tax year as currently published and are rounded for readability. Items marked (verify) are to be confirmed against IRS or Colorado DOR sources before the figures freeze in December. Last updated October 15, 2026.
