Tax strategies for low- to high-income wage earners

Tax planning isn’t one-size-fits-all situation. Different income levels demand different strategies, and as tax professionals, it’s crucial to tailor tax-saving tactics based on a client’s unique financial situation. Low-, medium-, and high-­income wage earners each have distinct opportunities and challenges, making it essential to develop strategies that maximize tax efficiency and align with long-term goals.

This guide explores key tax strategies for earners, equipping tax professionals with actionable advice to better serve a diverse client base.

Tax strategies for low-income wage earners (up to $100,000 annual taxable income) 

For clients in the low-income bracket, every dollar of tax savings counts. The primary goal is to maximize credits, leverage tax-advantaged accounts, and minimize taxable income. 

• Maximize tax credits: Tax credits can substantially reduce tax liability and, in some cases, result in refunds. Encourage clients to claim the Earned Income Tax Credit, Child Tax Credit, and Saver’s Credit. Many in this bracket are unaware they qualify, leading to missed opportunities for savings.
• Use Health Savings Accounts (HSAs): HSAs are one of the most effective tax-advantaged tools. Contributions are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are untaxed. Even modest contributions can provide clients with a buffer for medical costs, while offering immediate tax benefits.
• Prioritize Roth contributions over traditional retirement plans: While traditional 401(k)s or IRAs offer upfront tax deductions, Roth accounts often yield greater long-term benefits for low-income earners. Since they’re likely in a lower tax bracket now, paying taxes upfront means tax-free withdrawals in retirement. This is especially valuable for younger clients with decades of growth ahead.

Tax planner pro tip: During years of unusually low income, advise clients on Roth conversions. Converting funds from a traditional IRA to a Roth IRA during low-tax years can lock in lower rates and maximize future tax-free income. 

Tax strategies for medium-income wage earners ($100,000-$250,000 annual taxable income)

Medium-income earners often find themselves in a tricky spot-earning too much to qualify for certain tax credits, but not enough to absorb high tax bills easily. Here, the focus is on deferring taxable income, optimizing deductions, and leveraging tax-efficient investments. 

• Maximize pre-tax contributions: Encourage clients to take full advantage of 401(k)s, 403(b)s, HSAs, and Flexible Spending Accounts. In 2025, the 401(k)-contribution limit is $23,500 ($31,000 for those aged 5O+), providing significant opportunities for tax deferral. HSAs offer additional tax-free growth and can serve as a supplemental retirement account.
• Evaluate itemized vs. standard deductions: Many medium-income earners default to the standard deduction without evaluating whether itemizing would provide more benefits. Encourage clients to track mortgage interest, state and local taxes (up to $10,000 under SALT limits), charitable donations, and medical expenses exceeding 7.5% of AGI. Strategic timing of deductions, such as bunching charitable contributions, can push clients over the threshold for itemizing.
• Implement tax-efficient investment strategies: Tax-loss harvesting, municipal bonds, and careful management of capital gains can help reduce overall tax liability. For clients planning significant asset sales, timing transactions across tax years can also help manage income spikes.

Tax planner pro tip: If clients own small businesses or rental properties, explore the Section 199A Qualified Business Income (OBI) Deduction and consider cost segregation studies to accelerate depreciation. 

Tax strategies for high-income wage earners ($250,000+ annual taxable income) 

High-income clients face the highest tax rates and more complex tax regulations, but they also have access to sophisticated strategies. The focus here is on income deferral, strategic charitable giving, and long-term wealth preservation. 

• Optimize advanced retirement plans: Beyond maxing out traditional retirement accounts, high earners can benefit from strategies such as Backdoor Roth IRAs, Mega Backdoor Roth 401(k)s, and Defined Benefit Pension Plans. These options allow for higher contribution limits and significant tax deferral.
• Leverage charitable giving for tax benefits: For philanthropic clients, strategic giving can reduce taxable income, while supporting causes they care about. Encourage the use of Donor-Advised Funds, Charitable Remainder Trusts, and Qualified Charitable Distributions from IRAs for clients aged 70½ or older.
• Manage investment income and capital gains: High-income earners often face the Net Investment Income Tax, adding 3.8% to investment income taxes. Employ strategies such as tax-loss harvesting, 1031 exchanges for real estate investors, and Opportunity Zone investments to defer or reduce capital gains.

Tax planner pro tip: For clients concerned with estate planning and generational wealth transfer in addition to income tax, explore irrevocable trusts, family limited partnerships, and grantor-retained annuity trusts to minimize estate taxes. 

The big picture: Tailoring tax strategies by income level

One of the most critical insights for tax professionals is that marginal tax rates, not just gross income, should drive tax strategy. Marginal tax rate is a taxpayer’s #1 driver for tax planning. Many clients mistakenly believe that tax planning is only beneficial for high-income earners. However, thoughtful planning at any income level can unlock significant savings and long-term financial benefits. 

Encourage clients to consider all sources of income,­including passive income, retirement distributions, and investment earnings when evaluating tax strategies. Pay special attention to income fluctuations that may open new planning opportunities, including sabbaticals, career changes, or large one-time capital gains. 

A personalized approach wins 

Tax professionals offer the most value not by simply filing returns, but by crafting proactive, tailored strategies that align with each client’s unique goals and financial situation. Whether it’s helping a low-income earner maximize credits, guiding a medium-income client through complex deductions, or structuring an estate plan for a high-net-worth individual, thoughtful tax planning leads to better outcomes. 

In an ever-evolving tax landscape, staying adaptable, curious, and client-focused is the key to long-term success. As tax professionals, our role extends beyond compliance. We help clients build wealth, plan, and navigate the complexities of the tax code with confidence.