How to Avoid a Huge Tax Bill if You Make $100K+

Making six figures is a great financial milestone, but it can come with an unwelcome surprise—a hefty tax bill. Many high earners find themselves owing thousands to the IRS because they don’t plan ahead. Fortunately, with the right strategies, you can reduce your tax liability and keep more of your hard-earned money. Here’s how to avoid a massive tax bill if you make $100K or more:

1. Adjust Your Withholding

One of the main reasons high earners owe taxes is insufficient withholding from their paychecks. If you consistently owe each year, update your W-4 form with your employer. Increasing your federal tax withholding ensures you pay enough throughout the year, reducing the risk of a big tax bill in April.

How to Adjust Your Withholding:

Use the IRS Tax Withholding Estimator to determine the right amount.

Select Single or Married Filing Separately instead of Married Filing Jointly if your spouse also has income.

Opt for additional withholding if needed—ask HR or payroll to withhold extra tax from each paycheck.

2. Maximize Pre-Tax Retirement Contributions

Contributing to tax-advantaged retirement accounts is one of the best ways to reduce taxable income. If you’re making six figures, maxing out your contributions can significantly lower your taxable income.

Contribution Limits for 2024:

401(k), 403(b), and most 457 plans: Up to $23,000 (plus an extra $7,500 if you're 50+).

Traditional IRA: Up to $7,000 (plus $1,000 extra if 50+), but income limits apply for tax deductions.

3. Take Advantage of an HSA or FSA

If your employer offers a Health Savings Account (HSA) or a Flexible Spending Account (FSA), you can contribute pre-tax dollars to cover medical expenses, reducing your taxable income.

HSA Contribution Limits (2024): $4,150 for individuals, $8,300 for families (+$1,000 if 55+).

FSA Contribution Limit (2024): $3,200.

4. Leverage Tax Deductions

Even if you don’t own a business, you can still take advantage of tax deductions to lower your taxable income. Some key deductions include:

Student Loan Interest Deduction: Up to $2,500 if you qualify.

State and Local Taxes (SALT) Deduction: Capped at $10,000 for property, income, or sales tax.

Mortgage Interest Deduction: Available if you itemize your taxes.

Charitable Contributions: Deductible if you itemize, or use Qualified Charitable Distributions (QCDs) from IRAs if you're over 70½.

5. Utilize Tax Credits

Unlike deductions, tax credits directly reduce your tax bill dollar-for-dollar. Some credits that high earners may qualify for include:

Child Tax Credit (CTC): Up to $2,000 per child, phased out at higher income levels.

Lifetime Learning Credit (LLC): Up to $2,000 for education expenses, but phaseouts apply.

Energy-Efficient Home Improvement Credit: If you’ve installed energy-saving upgrades, you may qualify.

6. Consider a Roth Conversion

If you're in a lower tax bracket now but expect higher taxes in retirement, consider converting traditional IRA funds to a Roth IRA. You’ll pay taxes on the converted amount now, but future withdrawals will be tax-free. This strategy is useful if you're planning for long-term tax savings.

7. Make Estimated Tax Payments

If you earn additional income from side gigs, investments, or bonuses, the IRS may not withhold enough taxes. To avoid penalties, consider making quarterly estimated tax payments using Form 1040-ES.

8. Take Advantage of Business Deductions (If Applicable)

Even if you don’t own a business, you might have side income (consulting, freelancing, real estate, etc.). If so, track your expenses and claim deductions like:

Home office expenses (if you have a dedicated workspace).

Business mileage and travel costs.

Software, advertising, and professional development expenses.

9. Harvest Capital Losses

If you have investment losses, you can use them to offset taxable gains through tax-loss harvesting. You can deduct up to $3,000 in losses per year to reduce your taxable income.

10. Work With a Tax Professional

Tax planning isn’t just for the ultra-wealthy—if you earn over $100K, working with a tax professional can help you find additional deductions, avoid penalties, and optimize your strategy. A tax advisor can:

Review your filing status to ensure you’re optimizing deductions.

Identify missed deductions and credits.

Help with tax-efficient investment strategies.

Final Thoughts

Earning six figures doesn’t mean you have to dread tax season. By adjusting your withholding, maxing out retirement contributions, leveraging deductions and credits, and planning ahead, you can significantly reduce your tax bill. The key is to be proactive rather than waiting until tax time.

Need personalized tax planning? Let’s connect and create a strategy to keep more of your money where it belongs—in your pocket!