Of the many tax deductions and credits built into the tax code, a significant portion have income limits built in to make them accessible only to low- or middle-income taxpayers. However, there are a few nice tax breaks for which high-income taxpayers can qualify. (For the purposes of this discussion, "high income" is defined along IRS lines: $157,500 and up for single taxpayers and $315,000 and up for married couples filing jointly. This is the threshold of the 32% tax bracket in 2018).
Here are some tax breaks that high earners might find especially valuable.
Retirement account contributions
With one exception, deductions for retirement account contributions have no income limitation. The exception arises if you or your spouse has access to a 401(k) or other employer-sponsored retirement plan and also contributes to an IRA; such a high-income taxpayer will get a tax break on contributions to the 401(k), but not the IRA.
Solo entrepreneurs and those with a side gig have a sneaky option for getting around this IRA deduction limitation: Open a SEP-IRA for yourself and make contributions as your own employer. For 2018 you can contribute up to 25% of your annual compensation (from your own business, not your income from all sources) or $55,000 -- whichever is smaller. And because this contribution is coming from your "employer" rather than yourself, it's fully deductible as a business expense, regardless of your income.
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Mortgage interest
While the mortgage interest deduction is now subject to a new cap (the mortgage in question can't exceed $750,000), there's still no income limit on this particular tax break. What's more, the new cap on mortgage size applies only to new mortgages, not existing ones.
Better yet, tax reform repealed the income phaseout limits for itemized deductions, at least through 2025 -- which means high-income taxpayers can now claim the entire amount of whatever itemized deductions they're eligible for. This greatly improves your ability to claim both this deduction and the charitable donation deduction (see the next section for more on that tax break).
Charitable donations
Giving either goods or money to a qualified charity can get you a nice tax break. You can deduct the value of all such contributions as an itemized deduction, up to 60% of your adjusted gross income (AGI) for the year (that's up from the previous maximum of 50% of your AGI, thanks to tax reform). Aside from that 60% AGI cap, there's no income limit to this particular deduction, so feel free to give till it hurts.
Long-term capital gains tax rate
Hanging on to your investments for at least a year and a day before selling them can get you a significant tax break. Short-term capital gains (what you get when you sell an investment one year or less after buying it) are always taxed at your marginal income tax rate. Meanwhile, long-term capital gains tax rates are much lower and cannot exceed 20%. Given that high-income taxpayers are likely to be stuck in an income tax bracket of 32%, 35%, or 37%, that's a pretty huge discount. In fact, if you're in that top 37% bracket, you're getting almost a 50% reduction in your long-term capital gains taxes. Thus the higher your income is, the better the deal you're getting from these special long-term capital gains rates.
These tax breaks are just a sampling of the options available to high-income taxpayers. If you're lucky enough to count yourself among this group, then your best bet is to turn to a tax expert to prepare your return and provide tax advice for the future. A professional can not only help you maximize your tax breaks this year, but also help you get an even better deal in future years.
