As your income grows, so does the potential for higher tax liabilities. If you’re a high-income earner in Essex County, navigating tax planning can seem a bit overwhelming at times, but it can help preserve more of your hard-earned income and wealth when done correctly. 

Tax planning shouldn’t be a separate exercise during certain times of the year—it should be a regularly scheduled part of a comprehensive wealth management strategy. 

At Sherr Financial Associates (SFA), we integrate tax planning with other elements of wealth management to help clients protect and grow their assets over time. Our team of Danvers, MA financial planners specialize in recognizing your unique tax planning needs as a high-income earner. We offer customized solutions based on income, investing, and estate taxes. 

In today’s blog, we’ll look at important tax planning tips you can use now to help preserve and manage your wealth in Essex County. 

Read our latest Quick Guide: Comprehensive Financial Planning in Danvers, MA

First: Why You Need a Personalized Tax Strategy

As a high-income earner in Essex County, your tax planning needs are as unique as you are. Whether you’re looking to minimize income tax through strategic deduction planning or structuring your estate to lighten the tax load for your heirs, a generic approach likely won’t be enough.

Your tax strategy should be as tailored as your investments. Here’s what we recommend you focus on when creating a unique tax strategy:

• Income Tax Minimization: At SFA, we focus on strategies like income deferral or acceleration that are designed to optimize your situation within a range of tax brackets. This seeks to ensure you’re not paying more taxes than necessary while optimizing your after-tax results.

• Utilizing Tax-Efficient Investments: We guide you through selecting investments like municipal bonds or leveraging tax-advantaged retirement accounts, which may significantly reduce your taxable income.

• Deductions and Credits: Our team of Danvers, MA financial advisors will work to identify and utilize deductions, such as mortgage interest or business expenses, that are the direct results of your lifestyle and financial activities. You should also explore all relevant tax credits that could optimize your tax situation further.

• Reducing taxes can be an easy way to help improve your “net” return potential.

Nine Tax Planning Tips for High-Income Earners in 2025

Personalizing your tax strategy can help reduce your tax burden, enhance net return potential, and prepare you for a more secure and prosperous financial future. Here are nine actionable tips, including specific 2025 limits and other tax considerations:

1. Max Out Retirement Contributions:

Here are the key 2025 retirement account contribution limits:

• 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan:
  • Annual contribution limit: $23,500 for those under 50
  • Catch-up contribution: An additional $7,500 for individuals aged 50 and over, totaling $31,000
  • For individuals aged 60-63, the catch-up contribution limit increases to $11,250, allowing a total contribution of $34,750

• IRAs (both Traditional and Roth):
  • Annual contribution limit: $7,000 for those under 50
  • Catch-up contribution: An additional $1,000 for those aged 50 and over, bringing the total to $8,000

• SIMPLE IRA:
  • Annual contribution limit: $16,500 for those under 50
  • Catch-up contribution: An additional $3,500 for those aged 50 and over, for $20,000
  • For individuals aged 60-63, there’s a higher catch-up contribution of $5,250, totaling $21,750

• SEP IRA:
  • The contribution limit is linked to the annual additions limit for defined contribution plans, which for 2025 is $70,000 (not including catch-up contributions)

• Health Savings Account (HSA):
  • Individual coverage: $4,300
  • Family coverage: $8,550
  • Catch-up contribution for those aged 55 or older: An additional $1,000.

2. Utilize Mega Backdoor Roth Conversions

As a high-income earner, you may exceed the income limits for Roth IRA contributions (>$245,000 MAGI for married filing jointly in 2025). By contributing after-tax dollars to a 401(k) plan that allows in-plan Roth conversions, you can take advantage of the higher contribution limits while growing your investment amounts tax-free.

3. Optimize Charitable Contributions

Contribute to Donor-Advised Funds (DAFs) to claim an immediate deduction while distributing funds to charities over time.

You can deduct the fair market value (up to 30% of AGI) for appreciated assets like stocks without incurring capital gains tax.

4. Take Advantage of the Annual Gift Tax Exclusion

The annual gift tax exclusion for 2025 is $19,000 per recipient. Gifting assets to family members reduces your taxable estate and allows for a more efficient transfer of intergenerational wealth.

5. Plan Capital Gains Sales

• Long-term Capital Gains Rates: High-income earners may face a 20% tax rate on long-term gains and an additional 3.8% net investment income tax (NIIT)
• Consider tax-loss harvesting to offset gains and reduce your taxable income
• Explore use of installment sales or 1031 exchanges for real estate investments to defer or minimize taxes

6. Be Strategic with Stock Options and Equity Compensation

• For Incentive Stock Options (ISOs): Exercise strategically to minimize Alternative Minimum Tax (AMT) exposure
• For Non-Qualified Stock Options (NSOs): Spread exercise dates over multiple years to avoid being pushed into higher tax brackets

7. Utilize Qualified Business Income (QBI) Deduction

• High-income earners with pass-through business income (e.g., from an LLC or S-corp) may qualify for a 20% deduction on QBI
• For 2025, income phase-outs start at $364,200 (married filing jointly) and $182,100 (single filers)
• Planning strategies like hiring family members or deferring income can help optimize eligibility

8. Stay Aware of Estate Tax Limits

The 2025 federal estate tax exemption is $13.6 million per individual or $27.2 million per couple. Consider strategies like irrevocable trusts and lifetime gifting to reduce estate tax exposure.

9. Maximize Education Savings with 529 Plans

• Contributions to 529 plans are not tax-deductible at the federal level, but they grow tax-free, and withdrawals for qualified expenses remain tax-free
• Front-load contributions using the five-year election rule ($85,000 per beneficiary in 2025 without incurring gift taxes)

Why Partner with Sherr Financial Associates (SFA)?

As you can see, tax planning for high-net-worth and high-income earners requires specialized expertise and a deep understanding of tax law, your personal circumstances, and your financial goals. 

At SFA, we bring years of experience working with individuals and families with unique financial situations, ensuring that every strategy we recommend is tailored to our client’s best interests and needs.

Here’s how we can support your tax planning in Essex County:

• Holistic Approach: We integrate tax strategies with investment management, retirement planning, your estate, and other financial considerations.
• Proactive Solutions: We stay ahead of the curve by preparing for changes in government tax regulations and taking advantage of new opportunities.
• Collaborative Team: Our team collaborates with your accountants and attorneys to provide seamless, holistic advice.

Ready to learn more about developing a comprehensive tax plan for 2025? Connect with us today.

Municipal bonds are federally tax free but may be subject to state and local taxes, and interest income may be subject to federal alternative minimum tax (AMT).

The earnings portion of a nonqualified withdrawal from a 529 plan will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits.

This material is intended for general informational and educational purposes only and should not be construed as tax, legal, or investment advice, nor as a solicitation or recommendation to buy or sell any security or investment product. You should consult a tax preparer, professional tax advisor, lawyer, or financial professional regarding your individual situation.