Don’t Let the IRS Take More Than They Should: 15 Smart Tax Moves W2 Workers Can Use
If I were a high-earning W2 employee, I wouldn’t just accept a massive tax bill as the price of success. No group in America gets taxed harder, and unlike business owners or investors, W2 workers don’t get built-in loopholes.
That means you either plan smart or lose more of your paycheck than necessary.
According to the IRS, the top tax rate in 2024 is 37% for single filers on earnings over $609,350. That’s before payroll taxes, state taxes, and other deductions that chip away at your income. High earners don’t get automatic tax breaks, you have to build your own strategy.
This is where smart tax planning comes in. We’ll go through everything you should be thinking about. We’ll cover paycheck withholdings, investment strategies, real estate, deductions, and retirement contributions.
The goal? Keep more of what you earn legally and efficiently.
Table of Contents
Before We Get To The Good Part…
I’m a Chartered Financial Analyst (CFA) with years of experience in finance, but I’m not a CPA. Taxes are complicated, and everyone’s situation is different. Use this as a guide to know what to research or ask your tax pro so you can keep more of what you earn.
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Paystub & Withholding Optimization
Most W2 employees never check their paystubs, which is a mistake. If you withhold too much, you’re giving the IRS an interest-free loan. Withhold too little, and you’ll owe big at tax time.
The goal is to get as close to zero as possible by adjusting your W-4 and tracking year-to-date taxes. High earners with bonuses or RSUs often have under-withheld taxes, leading to surprise bills.
Check your numbers and adjust mid-year if needed. The right withholding strategy keeps more money in your pocket year-round.
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Tax Loss & Gain Harvesting
Losses aren’t always bad, they can slash your tax bill when used strategically. Selling underperforming investments to offset capital gains keeps more money in your pocket.
I’ve personally wiped out tens of thousands in capital gains tax this way, especially after selling real estate. While real estate losses generally can’t be used to offset stock gains, I harvested losses in mutual funds and ETFs to reduce part of the tax hit from selling rental properties.
By strategically using tax-loss harvesting, I was able to lower my overall tax bill.
The IRS allows up to $3,000 in losses to offset ordinary income, with excess losses carrying forward.
If a big gain is coming up, look for assets to sell at a loss to balance it out. Smart investors don’t just take losses, they use them.
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Asset Allocation & Asset Location
Where you hold investments matters as much as what you invest in. Think of it like a waterfall, fill tax-advantaged accounts first. Max out your 401(k) for an immediate tax break, then contribute to an HSA if available.
Roth IRAs and taxable brokerage accounts come next, depending on future tax expectations. Taxable Bonds, REITs, and high-dividend stocks should go in tax-deferred accounts, while tax-efficient index funds belong in taxable accounts.
Structuring investments this way minimizes taxes and maximizes long-term gains.
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Real Estate Analysis & Tax Impact Assessment
Real estate can be a tax goldmine or a liability, depending on how you own it. Depreciation on investment properties offsets rental income, and 1031 exchanges let you defer capital gains indefinitely.
If you own property, check if you’re maximizing deductions and depreciation. Appealing property taxes can also save thousands over time.
Buying real estate just for the tax benefits isn’t smart, but ignoring the tax benefits of what you already own is just leaving money on the table.
Related Video: Rental Property Depreciation: The IRS is Coming for You
Education Planning & 529 Contributions
High earners don’t qualify for education tax credits, but 529 plans offer a way to save on taxes while funding college. Contributions grow tax-free when used for education, and some states offer tax deductions.
Superfunding lets you front-load five years’ worth of contributions to maximize growth. Keeping college savings in a taxable account instead of a 529 is just unnecessary tax exposure.
It’s important to point out that superfunding a 529 plan doesn’t actually provide more overall tax benefits. Instead, it allows more money to grow tax-free earlier.
Also superfunding a 529 plan utilizes your annual gift tax exclusion for the next five years. This means you cannot make additional tax-free gifts to the same beneficiary during this period without potentially incurring gift taxes.
If you’re already saving for your kid’s education, make sure the account is working for you, not against you.
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Standard Deduction vs. Itemizing (Bunching Considerations)
Most high earners can itemize deductions, but planning is key. Mortgage interest, SALT taxes, and charitable contributions add up, but bunching deductions into a single year can push tax savings higher.
Instead of donating the same amount each year, stacking multiple years’ worth of donations into one year can help exceed the standard deduction. Timing expenses right can mean thousands in extra deductions.
Taxes aren’t just about what you deduct, it’s about when you deduct.
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Qualified Plan Contributions
Maxing out a 401(k) is the easiest way to lower taxable income, yet many high earners don’t do it. The 2024 limit is $23,000, with an extra $7,500 for those over 50.
Contributions lower taxable income immediately, which saves thousands each year. Employer matches add free money on top. Some plans even allow after-tax contributions, setting up a mega backdoor Roth opportunity.
Not using every dollar of 401(k) space first is just giving up tax savings for no reason.
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IRA & HSA Contributions
Maxing out tax-advantaged accounts should be automatic. Traditional IRAs work if you qualify, but most high earners phase out of deductions. Backdoor Roth IRAs are a workaround, but an HSA is even better if you have a high-deductible health plan.
Contributions reduce taxable income, grow tax-free, and can be withdrawn tax-free for medical expenses. After age 65, HSAs work like a Traditional IRA but without required minimum distributions.
Many people ignore the HSA, but it’s the best tax-free investment account available.
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Optimizing Roth vs. Traditional Contributions
Choosing between Roth and Traditional accounts comes down to tax brackets now versus later. I prefer Traditional because taxable income usually drops in retirement, meaning lower taxes on withdrawals.
Roth works if you expect higher taxes down the road, but most high earners get better savings upfront with Traditional because their income is lower in retirement. The real mistake is skipping contributions altogether.
I want to avoid being overly broad. Some retirees actually pay higher taxes due to Required Minimum Distributions (RMDs), Social Security taxation, and Medicare Income-Related Monthly Adjustment Amounts (IRMAA) brackets.
But in general, people make less in retirement, so they are in lower tax brackets.
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Backdoor Roth & Mega Backdoor Roth Strategies
The Backdoor Roth IRA lets high earners bypass income limits and still get money into a Roth. The Mega Backdoor Roth allows even bigger Roth contributions through after-tax 401(k) deposits if the plan allows it.
Many people love these strategies, but I still prioritize maxing out a 401(k) first. If extra cash is available, these moves can add tax-free retirement growth.
Not all plans support the Mega Backdoor Roth, so checking plan rules is key before relying on it.
Related Video: The Top Mistakes People Make with Their 401ks and How to Avoid Them
Roth Conversions
Converting Traditional IRA money into Roth during lower-income years can save thousands in taxes over time. It works well before required minimum distributions kick in or during early retirement when taxable income is low.
That said, I still prefer maxing a 401(k) first before shifting focus to Roth conversions. Paying taxes now just to lock in Roth status only makes sense if future rates will be significantly higher.
The best approach depends on personal income trends and long-term tax strategy.
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Charitable Giving Strategies
Giving to charity can be tax-efficient when structured right. Donor-Advised Funds allow lump-sum contributions for immediate tax deductions while spreading donations over time.
Gifting appreciated stocks instead of cash avoids capital gains taxes and provides a bigger deduction. Qualified Charitable Distributions let retirees donate directly from IRAs to reduce taxable income.
Writing checks to charity is fine, but smarter giving strategies maximize both generosity and tax savings.
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Equity Compensation Optimization
RSUs, stock options, and ESPPs bring big tax headaches if not handled right. RSUs get taxed as income when they vest, so planning for the tax hit matters.
Stock options can qualify for lower capital gains rates if held long enough, but selling too soon means higher taxes. ESPPs often come with discounts, but tax treatment depends on holding periods.
Many people treat equity compensation like free money without thinking about tax consequences. Smart timing and diversification can make a huge difference.
Inheritance, Estate & Estate Tax Planning
Estate taxes don’t hit most people, but high earners should still plan ahead. The 2024 estate tax exemption sits at $13.61 million per person, but rules can change.
Gifting money early reduces taxable estate value, and trusts help control distributions. Step-up in basis rules make inherited assets tax-efficient, but poor planning can create tax headaches for heirs.
The goal isn’t just passing on wealth, it’s making sure less of it goes to the IRS.
The step-up in basis rule is currently in place, but there have been discussions in Congress about limiting or repealing it. This could change in the future.
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Retirement Plan & Tax Strategy
Retirement isn’t just about saving money, it’s about pulling it out the right way. Defining the number needed to retire comfortably sets the foundation, but tax efficiency matters just as much.
Withdrawals should follow a smart order: taxable accounts first, then Traditional 401(k)/IRA, and Roth last to keep taxes low. Required Minimum Distributions (RMDs) can create massive tax bills if not planned for early.
Social Security timing affects lifetime benefits, and Medicare premiums get impacted by income levels. Planning withdrawals, tax brackets, and healthcare costs ahead of time keeps more money working instead of paying the government.
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Keep More, Save Smarter
High-earning W2 employees don’t get automatic tax breaks, but smart moves can cut a massive bill down to size. Optimizing paycheck withholdings, stacking deductions, and using every available tax-advantaged account makes a real difference.
Every dollar saved on taxes is another dollar compounding for the future. The biggest mistake is assuming there’s nothing to be done, tax laws are built for those who take action.
Smart planning now means more flexibility, more control, and more financial freedom later. Don’t just work hard, work smart and keep more of what’s yours.
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