For top earners, the real competition isn’t the market. It’s the margin between what you earn and what you keep. Yet, most high earners still treat tax as an afterthought to investing, when in reality, it’s the single largest controllable expense in their portfolio.
At Wahl Street, we reframe high income tax planning as a design challenge, redefining the financial, legal, and behavioral levers that determine how efficiently your wealth compounds, and how much of it stays under your control.
Managing Adjusted Gross Income
Most high earners focus on their tax bracket, but effective high income tax planning starts one layer higher, at Adjusted Gross Income (AGI).
AGI is the control panel for your entire tax outcome. It determines eligibility for deductions, credits, and phaseouts, as well as exposure to surtaxes like the 3.8% Net Investment Income Tax (NIIT) and the Additional Medicare Tax.
Once AGI crosses certain thresholds ($250,000 for joint filers, $200,000 for singles, and $400,000+ for select phaseouts), every additional dollar earned can trigger cascading losses in tax efficiency.
The goal is to engineer AGI deliberately, not passively. High earners can do this by coordinating the timing of bonuses and option exercises, strategically realizing or deferring capital gains, and leveraging deferred compensation or retirement plan structures to smooth income across years.
For business owners, shifting income through S-corp elections or entity-level deductions (like PTET elections) can also keep AGI within more favorable zones.
AGI management gives the ability to stay under critical cliffs without compromising long-term growth.
Turning SALT Caps into Strategy
The $10,000 cap on state and local tax (SALT) deductions has quietly reshaped the after-tax landscape for high earners in high-tax states such as California, New York, and New Jersey. For years, the cap effectively penalized success in those jurisdictions until Pass-Through Entity Tax (PTET) elections began changing the equation.
By shifting state tax payments from the individual to the entity level, qualifying LLCs and partnerships can reclaim full federal deductibility while owners receive a corresponding state credit on their personal returns. In effect, you’re moving a nondeductible personal tax into a deductible business expense.
But execution matters. Each state has unique filing deadlines, opt-in procedures, and credit mechanics, making early coordination between entity and personal filings essential.
PTET planning also opens the door for multi-state arbitrage, where income sourcing and apportionment strategies can meaningfully alter overall effective rates.
For partners, professional service firms, and closely held investment vehicles, PTET elections remain one of the most undervalued tax strategies for high income earners heading into 2025.
Extracting Value from Pass-Through Income
Section 199A’s 20% Qualified Business Income (QBI) deduction remains one of the most valuable tools in high income tax planning, but few optimize it to its full potential.
For high earners above the threshold, managing W-2 wages and UBIA (unadjusted basis of qualified property) becomes critical. The QBI formula effectively rewards balanced structures or entities that combine sufficient wages with depreciable property to justify the deduction.
Strategic entity aggregation can also expand the available deduction by consolidating complementary businesses under common ownership, provided they meet regulatory standards.
Professionals in “specified service trades or businesses” (SSTBs) — such as legal, financial, or medical practices — face additional constraints once taxable income surpasses approximately $440,000. Yet, advanced structuring can often isolate certain streams of income, like management fees, IP royalties, or ancillary services, within separate non-SSTB entities.
Done correctly, that distinction preserves partial QBI eligibility without compromising compliance.
Institutional Tools for Individual Wealth
High-income earners often overlook the tools large corporations use to defer or reallocate taxable income, yet many of these are accessible on a personal level.
Cash Balance Plans
For professionals and business owners with strong, predictable cash flow, cash balance plans can allow six-figure annual contributions ($150K–$300K+) that are fully deductible.
Unlike traditional 401(k)s, these defined-benefit plans let you accelerate retirement savings while lowering current taxable income. The dual advantage: immediate deduction today, compounded growth tomorrow.
Deferred Compensation Arrangements
Executives and partners can use nonqualified deferred compensation to shift income from high-bracket years into retirement or liquidity events, when rates are lower.
When integrated with long-term investment planning, it creates a personal tax deferral mechanism that smooths exposure across decades, not just years.
Captive Insurance Companies
For operating businesses with consistent risk exposure, a properly formed captive insurance company can convert premiums into retained capital, allowing the owner to underwrite legitimate risks while capturing investment gains within a compliant insurance structure.
The Strategic Use of Capital Gains Windows
Markets move in cycles, but capital gains are controllable. For high-income investors, managing when and how gains are realized can make a greater difference than portfolio allocation itself.
The spread between short-term (up to 37%) and long-term (20%) capital gains creates powerful timing opportunities. Thoughtful planning turns this spread into strategy:
- Harvesting gains during lower-income years to reset cost basis without triggering higher brackets.
- Leveraging the Qualified Small Business Stock (QSBS) exclusion to eliminate up to $10 million per issuer under Section 1202.
- Using Section 1045 rollovers to reinvest QSBS proceeds into new qualifying ventures, deferring gains while maintaining entrepreneurial momentum.
Philanthropy can enhance the efficiency further. Contributing appreciated assets to donor-advised funds or charitable remainder trusts allows investors to support causes they value while deferring or even eliminating immediate capital gains.
Estate Alignment: The Sunset Scenario
The scheduled 2026 reduction of the federal estate and gift exemption — from $13.6 million to roughly $7 million per person — represents a narrowing window of opportunity. For families with appreciating businesses, real estate, or portfolios, waiting could double the eventual tax cost of transferring wealth.
Proactive estate planning now means leveraging the current exemption before it disappears. Tools such as Spousal Lifetime Access Trusts (SLATs) and Intentionally Defective Grantor Trusts (IDGTs) allow families to shift appreciating assets out of their taxable estate while retaining access or income rights.
But effective estate alignment means integration. When income and estate planning operate on parallel tracks, inefficiencies multiply. Coordinating both allows you to manage liquidity events, valuation freezes, and charitable giving within one cohesive framework.
The Bottom Line
High income tax planning is one of the few areas where affluent investors can engineer outcomes with intention. When you align entity design, income timing, capital-gains strategy, and estate planning, taxes stop eroding returns and start reinforcing them.
Treat your tax posture as a living system and watch how much more of your wealth stays under your control.
