A high income on a W-2 form can be a double-edged sword. While it opens many opportunities, it also comes with tax complexities that can take a big chunk out of your paycheck. According to financial adviser Rachael Camp, a high-income salary above $250,000 is “the worst tax deal in America” due to its cumbersome tax implications.
However, there are strategies you can employ to trim those taxes and keep more of what you earn. Here’s how:
1. Itemize deductions: If you have significant expenses such as mortgage interest, charitable donations, or medical bills, itemizing deductions on your tax return can help reduce your taxable income.
2. Maximize retirement contributions: Contributing to a 401(k) or IRA can lower your taxable income and provide a tax-deferred savings advantage.
3. Consider a Roth conversion: If you have a traditional IRA or 401(k), converting it to a Roth account can help you pay taxes now and avoid higher taxes in the future.
4. Take advantage of tax credits: Tax credits, such as the Earned Income Tax Credit (EITC) or Child Tax Credit, can directly reduce your tax liability.
By implementing these strategies, high-income earners can mitigate the tax implications of their W-2 income and keep more of what they earn.
Source: https://www.marketwatch.com/story/its-the-worst-tax-deal-in-america-but-you-still-have-time-to-fix-it-heres-how-809a97d7