4 Tax Strategies Every High-Earning Entrepreneur Needs to Know

The modern economic and regulatory landscape presents countless tax hurdles for fast-growing businesses. Many entrepreneurs encounter unexpected liabilities or fail to optimize their tax exposure due to limited or delayed planning. As a result, they face unnecessary risks, miss prime opportunities to safeguard their wealth, and often overpay taxes.

Below are four practical strategies for reducing your tax burden. These strategies can help you reinvest your savings back into your business (or maybe treat your spouse).

Related: The Top Tax Strategies for 2025, According to a CPA

1. Optimize business expenses

Entrepreneurs often manage diverse income sources, ranging from core business revenue to profits from consulting, real estate or side hustles. This can quickly lead to complicated reporting obligations. Each source of income may have its own set of deductible expenses based on its individual characteristics. Missing any eligible or subtle deduction can result in a loss of savings, creating missed opportunities and leaving extra money on the table.

However, tax laws at the federal, state, and local levels are constantly updated, so it is crucial to stay on top of new rules, such as changes to SALT (State and Local Tax) deductions or emerging pass-through entity taxes. Overlooking state deductions, including unreimbursed employee expenses in California — which can apply even to W-2 employees — like home office deductions — can create unnecessary tax burdens.

Maintaining meticulous records of business expenses, consulting with a qualified tax professional and scheduling regular “tax checkups” can help ensure that as your venture grows, you’re not leaving money on the table or exposing yourself to unwelcome surprises.

2. Utilize advanced tax deductions & credits

Pass-through entities, such as S Corps, certain LLCs and partnerships, should consult tax strategists to help maximize their overall tax deductions. The Qualified Business Income Deduction is one way that entities can be offered substantial relief of up to 20% of eligible business income. With this, income thresholds do apply, hence the need for careful planning if you are close to crossing the limit.

Another tax deduction opportunity is Pass-Through Entity Taxes, which are available in certain states as a workaround for the SALT deduction limitations that the Tax Cuts and Jobs Act brought on. Eligible businesses can elect to pay state taxes at the entity level, leading to the potential of a lower federal taxable income and offsetting some of the SALT cap restrictions.

Another overlooked strategy for reducing research and development costs is using the R&D tax credit. This credit can be extremely useful for startups and high-growth companies seeking to develop and innovate without incurring the full cost of those expenses. In some cases, the credit can be applied against payroll, providing immediate savings that can help fuel growth.

Related: 4 Tax Tips That Will Give Your Business an Edge and Save You Money in 2025

3. Proactively plan your retirement contributions

Entrepreneurs should proactively use retirement planning as an essential tool for reducing their tax burden while securing their long-term wealth. In 2025, for those under 50, 401(k) contribution limits might be up to $23,500. For those over 50, an additional $7,500 catch-up allowance is added. Solo 401(k)s, in which you can contribute as both an “employer” and “employee,” may allow up to $70,000. IRAs also may allow up to $7,000 annually, but income rules apply.

When deciding between Roth and traditional plans, consider your expectations surrounding all future tax rates. Roth accounts do not offer an immediate deduction but enable tax-free qualified withdrawals later, which can be appealing if you anticipate higher taxes in retirement. Traditional accounts offer tax deductions on contributions right away, but withdrawals are taxed and potentially may be subjected to Required Minimum Distributions.

Cash Balance plans, which function similarly to defined-benefit pensions, allow considerably higher contributions, potentially from five to six figures, depending on age and income. They can dramatically lower current taxable income but are complex and expensive to manage, so they may not be the right fit for everyone.

4. Structuring your business entities for tax efficiency

Choosing the right entity can impact your exposure to taxes, how you distribute profits, and your compliance burdens. The 21% federal corporate tax rate for C corporations may appear tempting, yet the drawback of double taxation on distributions persists. S corporations, by contrast, enable profit distribution without incurring corporate taxes, although shareholders must pay themselves a “reasonable salary” subject to payroll taxes. Meanwhile, LLCs offer versatility, allowing taxation as a disregarded entity, partnership, S corp, or even C corp, depending on your needs.

If you start as an LLC taxed as a sole proprietorship, eventually transitioning to an S corp can reduce self-employment taxes. As your revenue surges, re-evaluating an S corp vs. C corp structure might yield better savings. Collaborate with a tax expert to weigh the advantages against your business goals to ensure your chosen structure remains optimal as tax laws and your income evolve. On top of federal considerations, states have introduced pass-through entity taxes and other incentives that can shift your calculation. In 2024 alone, 36 states and one locality offered some variation of PTE tax, influencing how entrepreneurs handle SALT deductions and choosing their entity.

It is not a secret that many high-earning entrepreneurs feel shaken when tax season rolls around. The rules are constantly changing, and the stakes are high. Yet this upheaval also opens up exciting avenues to optimize your financial outcomes, provided you stay engaged.