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It’s easy to assume that certain tax strategies only apply to the wealthy who want to protect their assets. But there are ways to reduce tax liability that even the average taxpayer can take advantage of.
Strategic tax planning doesn’t require secret knowledge or a seven-figure net worth. In fact, upper-middle-class families adopt many approaches that most people can implement, even if on a smaller scale.
reconsideration of deductions
When it comes to choosing between taking the standard deduction and itemizing deductions, many taxpayers default to the standard deduction, which may not be the right decision. Laurie Smith, Tax Partner Vissaid higher-income households are more likely to conduct an annual review before making a decision.
As circumstances change, tax rules may also change, so last year’s decision may not work this year. For example, the One Big Beautiful Bill Act (OBBBA) increased the state and local tax (SALT) deduction limit from $10,000 to $40,000.
“(This) is especially impactful for taxpayers in high-tax states, where property taxes and state income taxes alone can easily exceed the old limits,” Smith said.
backdoor roth contributions
Smith explained that advanced strategies are not necessarily tied to specific income numbers, but become relevant when standard tax-advantaged options, such as traditional retirement accounts, are not enough to meet long-term goals.
For example, a backdoor Roth IRA allows money to be transferred from a traditional IRA to a Roth account, preserving the long-term benefits of tax-free growth.
“Backdoor Roth IRA contributions often come into play when a family’s income exceeds the IRS limits for direct Roth contributions, but still wants to build a tax-free retirement asset,” Smith said.
structuring income strategically
Upper-middle-class families often look beyond wages when managing taxes and generating income from investments, side businesses, and rental properties. These income types are treated differently under the tax code, which opens up legal opportunities to reduce overall liability.
“Most of these are parts of the tax code that regular taxpayers don’t use because they lack the same types of assets. Wealthy people structure their income differently,” explained Hector Castañeda, a certified public accountant (CPA) and principal. Castañeda CPA & Associates.
Even without large portfolios or businesses, many taxpayers can be more strategic about how they earn and tax income. Even small investments or additional income may qualify for lower rates and, given the timing and allowable deductions, may create tax benefits that may be overlooked.
planning with purpose
According to Smith, upper-middle-class families “focus on strategies that are clearly supported by existing tax law, that are consistent from year to year and that align with long-term financial goals, not just short-term tax savings.”
This principle can apply to anyone, not just the upper-middle class. Being thoughtful rather than reactive about tax decisions can help reduce tax liability and build wealth over time.