Tax Strategies You Can't Find on Google: Secrets Your CPA Uses All the Time

Most high earners think they’re doing everything right. For high income earners, however, there are unique tax challenges and strategies that require specialized planning—eligibility for certain tax credits, investment choices, and advanced approaches can differ significantly from those with lower incomes. Max the 401 k, harvest some losses in December, maybe bunch charitable donations. Then they sit across from a friend at dinner who paid half the effective rate on twice the income—and realize they’ve been playing checkers while everyone else is playing chess.

The strategies in this guide aren’t secrets. They’re in the Internal Revenue Code, in IRS regulations, in the planning memos that CPAs share at conferences. But they’re almost never explained clearly in the generic “10 Tax Tips” articles that flood your search results every April.

This is the playbook for W-2 professionals, business owners, and investors earning $300,000 to $2,000,000+ who want to stop leaving money on the table.

Start Here: 7 “Hidden” Tax Plays Most High Earners Never Hear About

Let’s skip the definitions and get straight to the moves that actually shift your tax burden by five or six figures. Every strategy below is 100% legal, exists in black-letter tax law, and is used routinely by private-client advisors—just rarely explained to the people who could benefit most. They’re in the Internal Revenue Code, in IRS regulations, in the planning memos that CPAs share at conferences. These advanced strategies are all grounded in specific tax rules that govern different types of income, deductions, and filing statuses.

Here’s what we’re covering:

1. “Two-layer” retirement stacking – pushing tax deferred retirement accounts contributions into the $150,000–$300,000+ range per year

2. Multi-entity S-corp optimization – separating income buckets to unlock state tax, QBI, and fringe benefit advantages

3. Augusta Rule + accountable plan combo – turning your home and receipts into tax free cash

4. Spouse-as-CFO strategy – legitimately doubling household retirement contributions and health benefits

5. Low-basis asset “swap” with heirs – coordinating capital gains across generations for step-up planning

6. Residency + calendar planning – timing moves and income recognition to cut state income tax by hundreds of thousands

7. Post-liquidity Roth arbitrage – converting traditional IRAs at 22% instead of 37% by exploiting low-income windows

Each section below breaks down the mechanics with 2025–2026 numbers, the actual forms you’ll file, and realistic examples—physician, tech exec, law firm partner, real estate investor. No fluff, no “what is a deduction” explanations.

Let’s get into it.

Strategy #1: “Two-Layer” Retirement Stacking You Won’t See in a Basic 401(k) Article

If you’re a W-2 earner or owner-employee expecting $350,000 to $1,000,000+ in income for 2025–2026 and you’ve already maxed your 401 k, you’re probably wondering what else is left. By strategically combining pre tax contributions and after tax contributions within employer retirement plans, you can maximize your retirement savings beyond standard limits and take advantage of advanced strategies like the mega backdoor Roth. These strategies can significantly reduce your current taxable income, especially for high earners. The answer: a lot—if you’re willing to add a second layer.

Layer 1: Standard Qualified Plans

Most high earners stop here. For 2025, the projected limits look something like:

• 401(k)/403(b) employee deferral: approximately $23,500 (IRS adjusts annually for inflation)

• Catch-up contributions for age 50+: additional $7,500 (bringing total deferrals to ~$31,000)

• Combined employer/employee limit: approximately $70,000 (excluding catch-up)

However, income limits may restrict eligibility for certain retirement account contributions, such as direct Roth IRA contributions, so high earners need to be aware of these thresholds when planning their tax strategies.

Solid numbers, but for someone earning $800,000+, this barely dents their taxable income.

Layer 2: Cash Balance or Defined Benefit Plans

Here’s where sophisticated planners earn their fees. A cash balance plan (a type of defined benefit plan) can stack on top of a 401 k, allowing total sheltered contributions of $150,000–$300,000+ per year for owners aged 45–60. These plans are considered tax advantaged accounts, offering high earners the ability to maximize tax-deferred savings and reduce taxable income far beyond standard retirement accounts.

Concrete example: A 52-year-old orthopedic surgeon in California with $900,000 in Schedule C net income in 2026 maxes her solo 401 k (approximately $70,000 including employer contributions). She then adds a cash balance plan designed by an actuary to allow approximately $220,000 in additional deductible contributions.

Total tax deferred space: roughly $290,000—versus the $70,000 she’d get from “standard” Google advice.

Implementation Notes

• Plan design requires coordination with an actuary and third-party administrator (TPA)

• Solo 401 k deferrals must be elected by December 31, but cash balance funding can often occur by the extended due date (October 15, 2026 for 2025 calendar-year returns)

• Written plan documents are non-negotiable; you can’t “retroactively” decide to do this in March

• Form 5500 filing requirements apply for plans exceeding asset thresholds

Where This Shows Up on Your Tax Return

The deduction flows through Schedule C (for sole proprietors) or via K-1 (for S-corp or partnership owners) and ultimately reduces adjusted gross income on Form 1040.

Warning: This is powerful but rigid. If you exit the business, add employees later, or have a bad income year, required contributions can become a burden. Model this with a CPA and actuary before committing—the upfront planning cost pays for itself many times over.

Strategy #2: Multi-Entity S-Corp Optimization (When a Single LLC Leaves Money on the Table)

Many high earners run everything through one LLC or S-corp. It’s simple. It’s also often suboptimal. The choice of entity structure can significantly impact self employment income, as different setups affect how much self-employment tax you owe and which forms, like Form SE, you need to file.

Advanced planning frequently uses 2–3 entities to separate risk, create distinct income “buckets,” and unlock deduction streams that a single entity can’t access.

A Common Structure with Real Numbers

Consider this setup for a professional earning $800,000 gross through a consulting practice:

• Operating S-corp: Pays owner $500,000 as reasonable W-2 compensation. Remaining $300,000 flows through as S-corp profit (avoiding self employment tax on that portion).

• Separate Manager LLC (taxed as partnership or disregarded): Owns intellectual property, brand assets, or equipment. Charges the Operating S-corp reasonable management or licensing fees.

What This Unlocks Beyond “Basic” Google Advice

• State tax arbitrage: The IP-holding LLC can be domiciled in a state with no income taxes if it’s legitimately managed there—potentially shifting some income out of high-tax jurisdictions

• QBI flexibility: Section 199A qualified business income calculations can be managed more precisely when income and wages are allocated across entities

• Cleaner retirement plan design: Each entity can sponsor its own retirement plan with appropriate employee coverage. Holding assets in retirement plans offers tax-deferred growth, which is generally more tax-efficient than holding the same assets in taxable accounts, where investment gains are subject to annual taxation.

• Asset protection: Operating liabilities stay in one entity; valuable IP and real estate sit in separate, protected structures

Concrete 2025–2026 Scenario

Two partners own a dental practice in New York. They reorganize into:

1. An S-corp for clinical operations (employing staff, billing patients)

2. A separate LLC owning the equipment and office condo

The practice pays fair market rent and equipment lease fees to the LLC. Result: depreciation and interest deductions on the LLC side, while payroll taxes and income taxes are managed more efficiently in the S-corp.

Compliance Requirements

This structure fails without proper documentation:

• Written service, lease, or licensing agreements between entities

• Arm’s-length pricing support (appraisals, comparable rent studies)

• Separate bank accounts and bookkeeping for each entity

• Forms 1120-S for the S-corp and 1065 for partnership LLCs, with K-1s issued to owners

A Necessary Caution

Don’t use this solely as a tax dodge. The IRS applies substance-over-form doctrine aggressively. Each entity needs genuine business purpose, economic reality, and compliance with state professional licensing rules (especially for medical, legal, and accounting practices). Paper-only structures get unwound—and penalized.

Strategy #3: Augusta Rule + Accountable Plan Combo (Turning Your Home and Receipts into Untaxed Cash)

IRC §280A(g)—known informally as the “Augusta Rule”—allows you to rent your personal residence for up to 14 days per year and receive that rental income completely tax free, similar to how tax free withdrawals work in certain accounts like HSAs, letting you extract cash without tax liability. No reporting required on your tax return. Most business owners have no idea this exists.

How It Works in Practice

Your S-corp or partnership needs to hold legitimate business meetings. Your home can serve as the venue.

2025 example:

• S-corp professional practice holds 6 quarterly strategy and planning meetings in the owner’s home office or living room

• Corporation pays fair market rent of $1,500 per meeting day (documented with comparable local short-term rental rates from Airbnb/VRBO)

• Total: $9,000 rental deduction for the S-corp, $9,000 tax free income to the owner

That $9,000 isn’t reported as rental income on Schedule E. It simply doesn’t appear on your Form 1040 as taxable income.

Layering an Accountable Plan

An accountable plan lets your S-corp reimburse you for business expenses—and those reimbursements are deductible to the corporation while excluded from your W-2 income.

Eligible expenses typically include:

• Home office supplies and furniture used for business

• Mileage to temporary work locations (documented with logs)

• Cell phone and internet (business-use percentage)

• Professional subscriptions and software

Unlike a flexible spending account, which requires funds to be used within a specific tax year and has stricter limitations, an accountable plan offers greater flexibility in reimbursing a broader range of business expenses with more favorable tax treatment.

Combined with the Augusta Rule, you’re extracting cash from your business in two tax-efficient streams beyond salary.

Documentation Requirements

This strategy lives or dies on paperwork:

• Board or shareholder minutes authorizing home meetings and approving the rental rate

• Written rental agreement between you (personally) and your business

• Meeting agendas, dates, and attendance records

• Receipts, mileage logs, and expense reports for accountable plan reimbursements

Boundaries to Respect

• No double-dipping: don’t claim full home office depreciation on Form 8829 for the same square footage you’re renting under the Augusta Rule

• Meetings must serve bona fide business purposes (strategic planning, annual budget reviews, training sessions—not “watching TV in the living room”)

Sample Tax Impact

For 15 minutes of documentation per meeting, that’s a meaningful tax benefit—delivering meaningful tax benefits that few mainstream articles explain.

Strategy #4: Hiring Your Spouse (and Sometimes Your Kids) as Key Employees – Beyond the Generic Advice

You’ve probably seen the “hire your kids” advice a hundred times. Let’s move past the clichés and design a spouse-as-CFO or operations manager role that actually unlocks retirement savings, health benefits, and travel deductions.

Spouse Example with 2025–2026 Numbers

Business owner earns $600,000 via an S-corp. Spouse is paid $60,000 W-2 as a bona fide operations manager with documented:

• Job description (HR, vendor management, bookkeeping oversight)

• Time records (20–30 hours per week)

• Performance reviews

Now both spouses are eligible for maximized 401 k contributions. If the business also sponsors a cash balance plan, you’ve potentially doubled the household’s access to tax deferred accounts.

Health and Fringe Benefit Angles

When your spouse is a legitimate employee:

• Group health insurance: The business can offer coverage, making health insurance premiums deductible to the business and providing pre-tax benefits to the family. Health savings accounts (HSAs) are another tax-efficient option, allowing you to save for medical expenses with pre-tax dollars and offering additional tax advantages if eligibility criteria are met.

• ICHRA or QSEHRA: Individual coverage HRAs can reimburse qualified medical expenses and health insurance premiums tax-free

• Section 105 plans: In sole proprietorship contexts (with important S-corp caveats), medical reimbursement plans can cover medical and dental expenses for the employee-spouse and their family

The Family Travel Angle

Business trips where your spouse is legitimately working become partially deductible:

• Event logistics and client hospitality management

• Media content creation (photos, social media)

• Conference registration and sessions attended

Airfare and lodging for a working spouse are deductible when the trip is primarily for business. Documentation matters: itineraries, agendas, photos of event work, and notes on business activities.

Hiring Minor Children

For sole proprietorships (not S-corps), wages paid to children under 18 are exempt from FICA taxes. For any entity type:

• Wages up to the standard deduction (approximately $14,600 in 2024, adjusted annually) are federal income tax-free to the child

• Work must be real: social media content creation, filing, data entry, cleaning—with timesheets and age-appropriate tasks

• Roth IRA contributions: your child can contribute earned income to a Roth IRA, starting tax free growth decades early

Additionally, children with earned income may also be eligible for the earned income tax credit, depending on your family’s circumstances.

Compliance Requirements

This strategy requires normal payroll infrastructure:

• Form W-2 and W-3 issued to employee family members

• I-9 employment eligibility verification

• W-4 withholding elections

• Quarterly payroll tax returns (Form 941 or 944)

Skip the payroll compliance, and the IRS reclassifies everything—retroactively.

Strategy #5: Low-Basis Asset “Swap” and Intergenerational Step-Up Planning

Many wealthy families overpay capital gains tax by selling appreciated assets in their own names instead of coordinating with older family members. A more effective strategy involves selling investments at the right time to optimize tax outcomes, such as offsetting gains or leveraging step-up basis rules. The stepped-up basis at death remains one of the most powerful (and least utilized) provisions in the tax code.

Concrete 2026 Scenario

A 45-year-old tech executive holds $2,000,000 of pre-IPO stock with a $200,000 cost basis. If she sells, she faces:

• $1,800,000 in capital gains

• Federal capital gains tax at 20% plus 3.8% NIIT: approximately $428,400

• State taxes (California): approximately $234,000

• Total tax bill: approximately $662,000

Her parents, in their late 70s, have similar or larger net worth. With coordination, this family can minimize lifetime capital gains while respecting estate tax thresholds.

Two Distinct Plays

Play 1: Wait for step-up in basis at death

Under current tax laws, assets receive fair market value basis on the date of death. If parents hold low-basis assets until death:

• $2,000,000 FMV, $200,000 basis becomes $2,000,000 FMV, $2,000,000 basis for heirs

• Heirs sell shortly after death: $0 capital gains tax

Play 2: Strategic asset swapping

Parents gift high-basis assets to high-bracket children. Parents retain low-basis assets expected to be held until death. Everyone’s lifetime tax burden decreases. Assets like a traditional IRA can also be considered in intergenerational tax planning, as they offer tax-deferred growth and potential tax deductions on contributions.

Relevant Forms and Limits

• Annual exclusion gifts: $18,000 per donee in 2024 (confirm current year)—no gift tax return required

• Lifetime estate and gift tax exemption: approximately $13.6 million per person in 2024, scheduled to sunset after 2025 under current law

• Form 709: Required for gifts exceeding the annual exclusion

• DSUE (Deceased Spouse Unused Exclusion): Married couples should track unused exemption from the first spouse’s death

Risks and Uncertainties

• Congress could modify step-up rules after 2025 (this has been proposed multiple times)

• States like New York, Massachusetts, and New Jersey impose their own estate or inheritance taxes at much lower thresholds

• Medicaid look-back periods (typically 5 years) affect seniors who may need long-term care

The Payoff

By planning who sells which asset and when, a family could save hundreds of thousands in capital gains tax. This isn’t aggressive tax avoidance—it’s simply understanding how basis works across generations.

Strategy #6: Tax Residency and Calendar Planning – Not Just “Move to Florida”

For high earners in California, New York, New Jersey, and similar high-tax states, state income tax savings can rival federal strategies. Strategic residency planning can significantly lower your tax bill by taking advantage of favorable state tax laws and optimizing your tax situation. But “move to Texas” is about 10% of the planning story.

Beyond Basic Advice: Calendar-Based Planning

Sophisticated planning involves:

• Splitting work and residency across two states in a single year

• Manipulating part-year resident status and income sourcing rules

• Timing bonuses, stock vesting, and business sale proceeds for maximum state tax efficiency; by carefully timing when you recognize income, you may be able to fall into a lower tax bracket, which can maximize your tax savings

Concrete 2025–2026 Scenario

A high-paid software executive in San Francisco knows a large RSU vest and bonus (approximately $1,200,000) is scheduled for March 2026.

The plan:

1. Legitimately relocate to Austin, Texas in November 2025

2. Ensure employment, primary home, voter registration, driver’s license, and day-to-day living all move by December 31, 2025

3. RSUs vest while a Texas resident (0% state income tax)

Savings: approximately 10–13% combined California state and local taxes versus staying—roughly $120,000–$156,000 on that single vesting event.

Documentary and Behavioral Steps

A clean residency change requires:

• New lease or home purchase in the low-tax state

• Sale, lease, or clear abandonment of old residence

• Moving family, changing school enrollment

• Updating corporate HR records to new work location

• Tracking days in each state with calendar apps and travel records (obsessively)

How Aggressive States Challenge Moves

California and New York audit residency changes aggressively. They look at:

• Statutory resident tests: 183+ days in state plus maintaining a permanent place of abode

• Domicile factors: where is your “true home”? (family location, voter registration, professional licenses, club memberships)

• “Sham move” indicators: keeping the old house, spending most weekends back in the high-tax state

Business Owner Considerations

Entity moves can compound savings:

• Re-domestication of LLCs to new states

• Moving nexus for consulting or digital businesses

But physical presence and customer location may still create state and local taxes obligations in old states. This requires multi-state analysis, not just a new mailing address.

Strategy #7: Post-Liquidity Roth Arbitrage and “Bracket-Filling” Conversions

After a big liquidity event—IPO, business sale, large severance—or upon early retirement, many high earners have several years of relatively low income before Social Security and required minimum distributions begin. This creates a window to move money into Roth accounts at unusually low rates. Tax loss harvesting can also be used during this period to offset capital gains, further reducing taxable income and optimizing the benefits of Roth conversions.

Numerical Case Study

A 48-year-old founder sells her business in July 2025 for $8,000,000. She pays capital gains tax in 2025, but then has minimal earned income from 2026–2030.

The opportunity:

During these low-income years, systematically convert $300,000–$500,000 annually from traditional IRAs and old 401 k accounts to Roth IRAs.

The math:

• Filling the 12%, 22%, and 24% federal tax brackets during conversion years

• Versus paying 32%–37% brackets in her 60s when Social Security, RMDs, and investment income push her back into higher brackets

Over a 10-year window, this can mean hundreds of thousands in lifetime tax savings—and all future earnings grow tax free in the Roth.

Mechanics to Understand

• Direct trustee-to-trustee conversions avoid withholding complications

• Quarterly estimated tax payments on conversion income using Form 1040-ES

• IRMAA Medicare premium surcharges can spike if modified adjusted gross income exceeds thresholds in the two years before Medicare enrollment—model this carefully for anyone approaching age 65

Coordination with Charitable Giving

Layer additional strategies for extra leverage:

• Donor advised funds “bunching”: Make large contributions in one high-income year (like the sale year), then take the standard deduction in conversion years

• Qualified Charitable Distributions (QCDs): After age 70½, donate directly from IRAs to charity (up to $105,000 in 2024), reducing RMD-driven income taxes in later years

The Key Insight

This strategy is about lowering lifetime tax liability, not this year’s tax bill. A simple “before vs. after” projection showing total taxes paid over 30 years with and without Roth conversions typically reveals six-figure differences.

Advanced Real Estate Plays You Rarely See Explained Cleanly

Generic advice says “buy a rental and depreciate it.” Advanced planning combines real estate professional status, cost segregation, and strategic financing for outsized tax shelter.

Let’s break down three specific plays that high earners use to offset capital gains and ordinary income. In addition to these strategies, it’s crucial to track deductible expenses like property taxes and mortgage interest for maximizing deductions, and to consider municipal bonds as a complementary tax-efficient investment.

Real Estate Professional Status as a Household Strategy

Real estate professional status isn’t about owning rental property—it’s about materially participating in real property trades or businesses.

Requirements:

• More than 750 hours per year in real property trades or businesses

• More than half of the individual’s personal services must be in real estate

• Material participation tests on specific properties (500-hour test) or aggregated groups

Married filing jointly scenario:

• High-earning anesthesiologist in New York with $800,000 W-2 income

• Spouse leaves corporate job in 2025 and spends 1,200+ hours acquiring, managing, and improving three rental properties

• Spouse qualifies as a real estate professional

The result: $350,000 in paper losses from accelerated depreciation on new rentals can offset the doctor’s W-2 income—saving approximately 37% federal plus 10% state taxes on that amount (roughly $165,000 in tax savings).

Documentation requirements:

• Time logs detailing hours and specific activities (not just “worked on properties”)

• Signed property management agreements

• Invoices showing active involvement (tenant screening, renovation oversight, vendor coordination)

Audit note: The IRS scrutinizes RE professional claims heavily. Your spouse must actually run a real estate business, not just own a few passive rentals.

Cost Segregation + Bonus Depreciation While It Lasts

Cost segregation is an engineering study that identifies shorter-life components (5, 7, and 15 years) within a building to front-load depreciation deductions.

Current law timeline:

• 100% bonus depreciation applied through 2022

• 2023: 80% bonus

• 2024: 60% bonus

• 2025: 40% bonus (unless Congress extends)

• Confirm exact rates at publication—these may change

Numeric example:

• Purchase of a $1,500,000 small office building in 2026

• $300,000 allocated to land (not depreciable)

• Cost segregation identifies approximately $400,000 of 5/7/15-year property

• At 40% bonus (2025 rate), first-year depreciation could generate $160,000+ in deductions—potentially $60,000+ in immediate tax savings for a qualifying owner

Most valuable when:

• You have unusually high income in the year of purchase (big bonus, stock option exercise, company sale)

• Combined with RE professional status to use losses against W-2 income rather than trapping them as passive losses

Caution: Recapture applies if property is sold or converted to personal use. The IRS expects formal cost seg reports from qualified engineering firms, not back-of-the-envelope allocations.

Refinance and Distribute: Debt Instead of Taxable Sales

Most mainstream guides ignore the ability to harvest equity from rentals via refinancing rather than selling. A refinance generally does not trigger capital gains tax.

Example:

• Investor buys a duplex in 2018 for $600,000 with $120,000 down

• By 2026, property is worth $950,000 and mortgage balance is $400,000

• Investor refinances to 70% LTV ($665,000 loan) and takes approximately $265,000 cash out—tax free at the time of refinance

• Rental income still covers the higher monthly payments

Partnership considerations:

Debt-financed distributions from an LLC taxed as a partnership generally reduce partners’ basis but don’t create immediate taxable income if basis remains positive. This requires careful basis tracking and partnership agreement language around distributions.

Risks to understand:

• Increased leverage means more exposure to market downturns and interest rate spikes

• Future sale triggers larger gain due to reduced basis

• Banks require solid underwriting (DSCR tests, current appraisals)

10-year comparison:

For investors focused on long-term wealth building, refinancing often beats selling.

Tax-Smart Business Exits and Liquidity Events (What Generic Guides Leave Out)

Most online advice about selling a business stops at “pay long-term capital gains tax.” But advanced planning—started 1–3 years before exit—can shift millions of dollars of tax through entity structure, timing, and charitable strategies. These strategies can dramatically reduce the total tax owed at exit, maximizing your net proceeds.

Section 1202 QSBS: The 0% Capital Gains You Almost Never See on Blogs

Qualified Small Business Stock under Section 1202 offers what might be the most valuable capital gains tax exclusion in the tax code.

QSBS requirements:

• Stock of a domestic C-corporation originally issued after August 10, 1993

• Acquired at original issuance (not on secondary market)

• Corporation engaged in qualifying active business (excludes personal services, finance, hospitality)

• Under $50 million gross assets at time of issuance

• Held more than 5 years

The exclusion:

• 100% exclusion of gain for QSBS acquired after September 27, 2010

• Up to the greater of $10 million per taxpayer per issuer OR 10x adjusted basis

Scenario:

• Founder incorporates a C-corp in Delaware in 2018

• Holds stock for more than 5 years

• Sells in 2026 for $12 million with $500,000 basis

• Excluded gain: $10 million (greater of $10M cap or 10x $500K basis)

• Taxable gain: $1.5 million

• Federal tax saved: approximately $2.4 million versus no QSBS planning

Planning for non-founders:

Early angel investors can also qualify. QSBS stacking between spouses and non-grantor trusts can multiply exclusions—each taxpayer or trust potentially claims their own $10 million cap.

Critical timing: Entity choice at startup matters. Converting from an LLC to a C-corp years later may not qualify the stock. Keeping meticulous capitalization records from day one is essential.

Pre-Sale Charitable Planning with Appreciated Equity

Donating private company or concentrated stock before a binding sale agreement means the charity—not you—recognizes the capital gains.

2026 case study:

• Owner expects $6 million gain on practice sale

• Transfers $600,000 worth of equity (10% of expected proceeds) to a donor advised fund 3–6 months before closing

• Receives immediate charitable tax deduction (subject to AGI percentage limits)

• Eliminates capital gains tax on that $600,000 portion—saving approximately $140,000 in federal and state taxes

Mechanics:

• Qualified appraisal required for closely held stock donations over $10,000

• Coordinate with buyer’s counsel on transfer logistics

• Donor advised fund or charity must be willing to accept illiquid stock

• Form 8283 and proper substantiation documentation

DAF vs. Charitable Remainder Trust (CRT):

Timing warning: These moves must occur before a definitive agreement to sell is signed. Once a binding LOI closes, the IRS may treat the gift as an assignment of income—and you pay taxes anyway.

Installment Sales and Earn-Outs to Smooth Tax Brackets

Section 453 allows sellers to spread gain recognition over multiple tax years when payments are received over time.

Numeric example:

• $3 million sale price, $600,000 basis ($2.4 million gain)

• Structure: $600,000 down payment plus $480,000 annually for 5 years (plus interest)

• Gain recognized proportionally as payments received

• Result: roughly $400,000 of gain per year instead of $2.4 million in year one

Tax bracket impact:

Spreading $2.4 million of gain across 6 tax years can:

• Keep seller out of the highest 37% federal income tax bracket in multiple years

• Potentially stay under NIIT thresholds in some years

• Reduce alternative minimum tax exposure

Earn-out considerations:

Contingent payments based on future business performance add complexity:

• Integration with installment reporting vs. open transaction doctrine

• Characterization of payments (capital gain vs. ordinary income)

• This requires detailed tax counsel—not DIY

Practical factors:

• Credit risk: Will the buyer actually pay over 5+ years?

• Security interests: Liens and collateral protecting the seller

• State nexus: Payments tied to operations in a high-tax state may still be taxed there

Form 6252 tracks principal vs. interest allocation on installment proceeds each year.

Putting It All Together: Building a Personal “Private-Client” Tax Strategy

These strategies aren’t meant to be one-off tricks. The real value comes from layering retirement, entity, real estate, and charitable tools based on your specific income level, age, and goals.

How to think about this:

• Start with your highest-pain tax issue (usually ordinary income in peak earning years or a looming liquidity event)

• Identify which strategies directly address that issue

• Layer complementary strategies that reinforce each other

• Consider additional credits like the child tax credit and income tax credit (such as the Earned Income Tax Credit) for families and those with qualifying dependents, as these can further reduce your tax liability

• Model forward 5–10 years, not just this year’s tax return

• Build in flexibility for life changes and law changes

Three Vignettes

38-year-old Big Law partner in New York ($1.4M income):

• Multi-entity structure separating partnership income and consulting income

• Spouse transitions to RE professional managing rental portfolio

• Aggressive Roth conversions planned for any “gap years” between firms

• Calendar planning around bonus timing and potential relocation

50-year-old multi-clinic healthcare owner in Texas ($2M practice income):

• Two-layer retirement stacking (401 k plus cash balance plan)

• Augusta Rule + accountable plan for strategy meetings at home

• QSBS planning for satellite clinics structured as C-corps

• Pre-sale charitable planning 2 years before expected exit

60-year-old tech founder post-exit in Washington state ($15M liquidity event behind them):

• Post-liquidity Roth conversions filling lower tax brackets through age 72

• Intergenerational step-up planning with aging parents

• Charitable remainder trust for concentrated stock positions

• QCDs after age 70½ to reduce future RMDs

Timing Matters

Many of these moves require action by June 30 or September 30 of the tax year. Waiting until March with a stack of 1099s is almost always too late.

Work with the Right Team

Private-client style planning isn’t just for billionaires. It’s for anyone earning $300,000+ who’s willing to plan ahead. But you need:

• A CPA who understands multi-year modeling and proactive planning

• For QSBS, estate, and complex real estate: a tax attorney

• For defined benefit/cash balance plans: an actuary and TPA

The fee for sophisticated advice is almost always dwarfed by the tax savings.

Key Takeaways

• “Two-layer” retirement stacking can push deductible contributions into the $150,000–$300,000+ range for business owners aged 45–60

• Multi-entity structures unlock state tax, QBI, and benefits planning—but require substance and documentation

• The Augusta Rule and accountable plans can extract $10,000–$20,000+ annually in tax free or tax-deductible cash

• Hiring a spouse legitimately doubles household retirement contributions and unlocks health benefits

• Step-up in basis planning across generations can save hundreds of thousands in capital gains tax

• State residency changes timed around large income events can save 10–13% in state income taxes

• Post-liquidity Roth conversions during low-income windows convert money at 22–24% instead of 37%

• Real estate professional status turns paper losses into deductions against W-2 income

• QSBS can make up to $10 million in startup gains completely tax free per taxpayer

• Pre-sale charitable planning with appreciated equity eliminates capital gains tax on donated portions

Your Next Step

Create a written 2025–2027 tax roadmap. Right now, list three strategies from this article you want to explore with your advisor. Schedule a planning session before October—not during filing season when your CPA is buried in returns.

The difference between high earners who pay 40%+ effective rates and those who pay 25% isn’t luck or loopholes. It’s planning—ideally starting 12–24 months before each major tax event.

Your CPA knows these strategies. The question is whether you’re asking for them.