Tax Deductions Every High Earner Should Know

Introduction

For high earners, understanding available tax deductions can mean thousands—or even tens of thousands—of dollars in annual tax savings. While tax laws vary by jurisdiction, many common deduction strategies apply across major markets.

This guide covers the most valuable tax deductions for high earners, organized by category and jurisdiction, to help you maximize your after-tax income legally and effectively.

Retirement Account Deductions

United States

• 401(k) Contributions: Up to $23,000 (2025) pre-tax, reducing taxable income immediately
• Catch-Up Contributions: Additional $7,500 if 50+
• Traditional IRA: $7,000 ($8,000 if 50+), though deductibility phases out for high earners with employer plans
• SEP-IRA: For self-employed, up to $69,000 or 25% of compensation
• Solo 401(k): For self-employed, up to $69,000 total

Tax Savings Example: A $23,000 401(k) contribution at 37% marginal rate saves $8,510 in federal taxes, plus state taxes.

United Kingdom

• Pension Contributions: Up to £60,000 annually (or 100% of earnings) with tax relief at your marginal rate
• Tax Relief: Basic rate relief added automatically; higher/additional rate taxpayers claim via self-assessment
• Lifetime Allowance: Removed in 2024, but annual allowance still applies

Canada

• RRSP Contributions: Up to 18% of previous year's income, max $31,560 (2025)
• Tax Deferral: Contributions reduce taxable income; withdrawals taxed as income

Australia

• Superannuation: Employer contributes 11.5% (2025); additional personal contributions up to $27,500 with tax benefits
• Concessional Contributions: Taxed at 15% in super fund vs. marginal rate

Health Savings Accounts (US)

HSAs offer triple tax advantage:

• Contributions: Pre-tax (reduce taxable income)
• Growth: Tax-free
• Withdrawals: Tax-free for qualified medical expenses
• 2025 Limits: $4,300 individual / $8,600 family
• After 65: Can withdraw for any purpose (subject to income tax, like Traditional IRA)

Strategy: Maximize HSA contributions, invest the funds, and pay medical expenses out-of-pocket. Save receipts and withdraw tax-free later.

Charitable Giving Deductions

United States

• Cash Donations: Up to 60% of AGI deductible
• Appreciated Securities: Up to 30% of AGI, avoid capital gains tax
• Donor-Advised Funds: Contribute appreciated assets, receive immediate deduction, distribute over time
• Qualified Charitable Distributions (QCDs): For those 70.5+, direct IRA distributions to charity (satisfies RMD, excludes income)

Example: Donating $10,000 of appreciated stock (cost basis $2,000) saves $3,700 in income tax (37% rate) and avoids $1,880 in capital gains tax (23.8% on $8,000 gain).

United Kingdom

• Gift Aid: Charities can claim 25% extra from HMRC on donations
• Higher Rate Taxpayers: Can claim additional relief on difference between basic and higher rate
• Payroll Giving: Donate directly from salary before tax

Canada

• Charitable Tax Credit: 15% on first $200, 29% on amounts above $200
• Appreciated Securities: No capital gains on donated securities

Business Expense Deductions

Self-Employed / Business Owners

If you're self-employed or own a business, many expenses become deductible:

• Home Office: Deductible portion of rent/mortgage, utilities, internet
• Business Equipment: Computers, software, office furniture
• Professional Development: Courses, conferences, certifications
• Business Travel: Flights, hotels, meals (50% of meals in US)
• Vehicle Expenses: Business use percentage of car expenses
• Professional Services: Legal, accounting, consulting fees

Employee Business Expenses

Note: In many jurisdictions (including US since 2018), employees cannot deduct unreimbursed business expenses. However:

• Job Search Expenses: May be deductible in some cases
• Moving Expenses: Limited circumstances (military, certain job relocations)
• Work-Related Education: If required to maintain/improve job skills

Investment-Related Deductions

Tax-Loss Harvesting

While not a traditional deduction, realizing investment losses can offset gains:

• Offset Capital Gains: Dollar-for-dollar
• Excess Losses: Up to $3,000 can offset ordinary income (US)
• Carry Forward: Unused losses carry forward indefinitely
• Wash Sale Rule: Can't buy same or substantially identical security within 30 days

Investment Interest Expense

Interest on loans used for investments may be deductible (subject to limitations):

• Investment Interest: Deductible up to net investment income
• Margin Interest: Deductible if used for taxable investments

Education Deductions

United States

• Student Loan Interest: Up to $2,500 deduction (phases out for high earners)
• 529 Plans: Contributions not federally deductible, but many states offer deductions
• Coverdell ESAs: Limited contribution limits

United Kingdom

• Professional Subscriptions: Deductible if required for employment
• Work-Related Training: Deductible if required to maintain/improve job skills

Medical Expense Deductions

United States

• Medical Expenses: Deductible if exceeding 7.5% of AGI
• Includes: Health insurance premiums, long-term care insurance, unreimbursed medical costs, dental, vision
• Long-Term Care Insurance: Deductible up to age-based limits

State and Local Tax (SALT) Deduction

United States

• SALT Cap: $10,000 deduction for state and local taxes (income + property)
• Impact: Particularly affects high earners in high-tax states (CA, NY, NJ, IL)
• Workaround: Some states offer pass-through entity tax elections

Mortgage Interest Deduction

United States

• Mortgage Debt: Interest deductible on up to $750,000 of mortgage debt ($1M for mortgages before Dec 15, 2017)
• Home Equity: Interest only deductible if used for home improvements
• Itemization Required: Must itemize to claim (standard deduction is $14,600 single / $29,200 married in 2025)

United Kingdom

Mortgage interest relief was phased out for most taxpayers, but:

• Buy-to-Let Properties: Limited tax relief on mortgage interest

Energy Efficiency Deductions

United States

• Residential Energy Credits: Up to $3,200 for energy-efficient home improvements (2025)
• Electric Vehicle Credit: Up to $7,500 for qualifying EVs
• Solar Credits: 30% tax credit for solar installations

Maximizing Your Deductions

Strategy 1: Bunching Deductions

Alternate between itemizing and taking standard deduction:

• Year 1: Accelerate charitable contributions, prepay deductible expenses
• Year 2: Take standard deduction
• Repeat cycle

Strategy 2: Donor-Advised Funds

Contribute multiple years' worth of charitable giving in one year to exceed standard deduction threshold, then distribute to charities over time.

Strategy 3: Maximize Retirement Contributions

This is often the easiest and most valuable deduction. Maximize 401(k), IRA, and HSA contributions annually.

Strategy 4: Keep Detailed Records

Maintain organized records of all deductible expenses:

• Receipts and invoices
• Mileage logs for business travel
• Charitable contribution acknowledgments
• Medical expense documentation

Common Mistakes to Avoid

1. Not Maximizing Retirement Contributions: This is often the easiest deduction
2. Poor Record Keeping: Missing deductions due to inadequate documentation
3. Not Understanding Phase-Outs: Many deductions phase out for high earners
4. Mixing Personal and Business Expenses: Keep clear separation
5. Not Reviewing Annually: Tax laws change; strategies that worked last year may not be optimal

Working with Tax Professionals

For high earners with complex situations, professional tax guidance is essential:

• CPAs: For tax preparation and planning
• Enrolled Agents: Tax specialists authorized to represent you before IRS
• Tax Attorneys: For complex structures and tax disputes

Conclusion

Understanding and maximizing available tax deductions can significantly improve your after-tax income. The most valuable deductions for high earners typically include:

1. Retirement account contributions
2. Health Savings Accounts (where available)
3. Charitable giving (especially appreciated assets)
4. Business expenses (for self-employed/business owners)
5. Mortgage interest and property taxes (if itemizing)

Remember: tax laws are complex and jurisdiction-specific. Always consult with a qualified tax professional before implementing deduction strategies.

For more tax optimization strategies, see our Complete Guide to Global Tax Optimization and US Tax Optimization Strategies.