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Designing a Retirement Plan to Help Attract Top Talent
Attract and retain top talent with a well-designed retirement plan. Explore key features, investment options, and executive-level benefits to keep...
High-income business owners can lower taxes with strategies like S-Corps, Cash Balance Plans, cost segregation, and 1031 exchanges. Learn how tax planning helps.
How High-Income Business Owners Can Potentially Save on Taxes
Running a high-income business may come with significant tax liabilities, but smart planning can help business owners keep more of what they earn. Whether you own a thriving professional services firm or a multi-million-dollar company, strategic tax planning can reduce your tax burden while supporting long-term financial growth.
From business structure adjustments to retirement planning and expense management, here are ways high-income business owners can potentially lower their tax bills.
Choosing the Right Business Structure
The structure of your business impacts how much you pay in taxes. The right entity choice can reduce self-employment taxes, increase deductions, and create more flexibility in income management.
- S-Corporation Status – Unlike sole proprietors and partnerships, S-corps allow you to split income between salary and distributions—only the salary portion is subject to Social Security and Medicare taxes, which can lead to substantial savings on self-employment taxes. This is often one of the most effective tax-saving strategies for high-income business owners.
- Professional Corporations (PCs) – Ideal for doctors, attorneys, and consultants, professional corporations can offer additional retirement plan options and deferred compensation strategies.
- Multiple Entity Structures – Businesses with multiple income streams or real estate holdings may benefit from separating operations into different legal entities. For example, holding real estate in an LLC and leasing it to your operating company can create deductible business expenses while protecting assets.
Risk Management Through Insurance and Tax Planning
Large businesses with significant risks can benefit from self-insurance reserves or captive insurance strategies. These approaches allow businesses to set aside funds for future claims while gaining tax benefits.
A captive insurance company lets business owners insure their own risks while creating tax-deductible premiums. This strategy works best for companies with substantial cash flow and a need for risk management.
Hiring Family Members for Tax Benefits
For example, hiring spouses or children allows business owners to move income to lower tax brackets while keeping money within the family. Children who earn wages can contribute to Roth IRAs, benefiting from tax-free growth over time.
This strategy works as long as family members have legitimate roles and reasonable compensation.
Retirement Plans That Reduce Taxable Income
High-income business owners have access to advanced retirement plans that allow for substantial tax-deferred contributions beyond traditional 401(k) limits.
- Solo 401(k) With Profit Sharing – For self-employed individuals, a Solo 401(k) can allow up to $70,000 in annual contributions in 2025. Additional employee contributions in 2025 may be made by older participants: $7,500 for individuals aged 50-59 or 64 or older and $11,250 for individuals aged 60-63
- Cash Balance Pension Plans – These plans may allow business owners to contribute well over $200,000 per year, depending on age and income. This can be a great way to lower taxable income while building retirement savings if you are able to defer the money now.
- Defined Benefit Plans – Designed for business owners with consistently high earnings, these plans offer structured, long-term tax deferral with high contribution limits.
- Combining Retirement Plans – Some business owners layer multiple retirement plans (e.g., a Solo 401(k) plus a Cash Balance Plan) to further reduce taxable income now and defer it into lower-income years in retirement.
Timing Your Income and Expenses Wisely
Strategic timing of income and expenses can make a difference in your tax bill.
Many business owners choose to accelerate deductible expenses near the end of the year, especially if they expect a high-income year. Prepaying for certain expenses—such as rent, utilities, or insurance—can push deductions into the current tax year.
For equipment purchases, Section 179 deductions allow businesses to write off the full cost of qualifying assets in the year of purchase, rather than depreciating them over time. Bonus depreciation also offers another way to lower taxable income in the first year of use.
If you anticipate fluctuations in revenue, timing income recognition across tax years can be another way to manage taxable income strategically.
Real Estate and Investment Tax Strategies
For business owners who own real estate or investments, additional tax strategies can provide long-term savings.
Take Action on Tax Planning
High-income business owners face complex tax challenges, but with the right strategies, it’s possible to reduce liabilities while growing wealth. Whether through business structure adjustments, retirement contributions, expense deductions, or real estate planning, taking proactive steps can potentially lead to meaningful savings.
Explore customized tax strategies for your business with an EP Wealth financial advisor near you.
DISCLOSURES:
- EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
- Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
- Hiring a qualified advisor and/or tax strategist does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
- Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
- EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
- All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
- Laws vary by state. The information presented herein is intended to be general in nature and may not apply to your state of domicile. Please consult local legal counsel to determine the best practices for your state.
- Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.
