5 Mistakes High Earners Make Without a Tax Advisor
Working with a tax advisor can help high earners avoid costly mistakes involving bonuses, stock compensation, investments, and retirement savings. If you're a corporate executive or approaching retirement, overlooking these details could mean paying more taxes than necessary. The right strategy helps you keep more of what you earn while protecting the wealth you've built.
For the 2026 tax year, the top federal income tax rate is 37% for taxable income above $768,700 for married couples filing jointly and $640,600 for single filers, according to the 2026 federal tax brackets.
At Phillip James Financial, we combine financial planning, investment management, and tax expertise to help clients make informed decisions. Here are five common mistakes high earners make without professional tax guidance.
1. Waiting Until Tax Season to Plan for a Large Tax Bill
One of the biggest mistakes high earners make is treating tax planning as an annual task. By the time you file your return, many opportunities to reduce your previous year's tax liability may already be gone.
Consider an executive who receives a substantial annual bonus. That additional income could push more earnings into a higher federal or state tax bracket. If withholding doesn't account for the full amount, the executive could face an unexpected tax bill.
For 2026, federal income tax rates range from 10% to 37%, depending on taxable income and filing status. Minnesota has four income tax rates, with the highest at 9.85%. These rates make high-income bracket planning an important part of your overall strategy.
A tax advisor can review your income throughout the year and identify opportunities to:
Adjust paycheck withholding for bonuses and other compensation
Review retirement contributions and tax-advantaged accounts
Time eligible charitable contributions and deductible expenses
Evaluate investment gains and losses before selling assets
Tax planning works best when you have time to act on opportunities instead of simply reacting to a tax bill.
2. Overlooking Restricted Stock Unit Taxation
Equity compensation can be a valuable part of an executive's benefits package. However, corporate executive compensation taxes--including those on restricted stock units (RSUs) and stock options--introduce considerations that are easy to overlook.
RSUs generally become taxable as ordinary income when they vest and shares are delivered. Their fair market value is typically included in your W-2 wages. Any additional gain or loss when you sell the shares is generally treated as a capital gain or loss.
The problem is that employer withholding may not cover your full tax liability. Supplemental wage withholding can be lower than your actual marginal rate, particularly when you already earn a substantial salary.
Stock options introduce different considerations. Exercising incentive stock options (ISOs), for example, may create an alternative minimum tax liability even if you haven't sold the shares. The RSU tax guidance from Charles Schwab explains how vesting and selling shares affect tax treatment.
These details can affect both your tax bill and investment risk. Reviewing them before vesting or exercising options can help you avoid surprises:
RSU vesting dates and taxable compensation
Incentive and nonqualified stock option classifications
Employer withholding and projected tax liability
Concentrated company stock exposure
Employees who accumulate significant company stock through compensation plans should also consider the risks of holding too much wealth in one investment. A closer look at concentrated stock risk can help explain why diversification and tax planning need to work together.
3. Ignoring Alternative Minimum Tax Planning
High earners sometimes assume that paying substantial regular income taxes means they won't owe alternative minimum tax (AMT). Unfortunately, that's not always the case.
The AMT is a separate federal tax calculation that uses different income and deduction rules. Exercising incentive stock options is one activity that can increase your exposure. The difference between the exercise price and the stock's fair market value may create an AMT adjustment before you've sold the shares.
For tax year 2026, the federal AMT exemption is $140,200 for married couples filing jointly. The exemption begins to phase out when alternative minimum taxable income reaches $1 million for joint filers. The IRS 2026 AMT guidance outlines these thresholds.
These rules make alternative minimum tax planning particularly important for executives with significant equity compensation or unusual income events. Exercising options in one year rather than another could produce very different results.
Evaluate potential tax consequences before exercising options or making other major financial decisions. Comparing scenarios can help you understand your exposure and choose an appropriate strategy.
4. Missing Opportunities to Coordinate Investments and Taxes
Another common mistake is managing investments without considering their tax consequences. High earners often hold taxable brokerage accounts, traditional retirement accounts, and Roth accounts, each with different tax rules.
Selling appreciated investments can trigger capital gains taxes. Short-term gains generally receive ordinary income tax treatment, while qualifying long-term gains may receive lower federal rates.
Investment decisions can also affect other taxes. The federal net investment income tax adds 3.8% on certain investment income when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly. Minnesota also imposes a separate 1% net investment income tax on qualifying investment income exceeding $1 million.
For households with substantial portfolios, these additional taxes can make a meaningful difference. Several strategies may help improve tax efficiency:
Tax-loss harvesting: Investment losses to offset eligible capital gains, subject to applicable rules
Asset location: Strategic placement of investments across taxable and tax-advantaged accounts
Long-term investing: Holding-period considerations before selling appreciated assets
Charitable giving: Donations of appreciated investments to support charitable goals while potentially reducing capital gains taxes
These decisions should work together rather than happen independently. Our financial planning services consider your investments and tax situation together to identify opportunities for greater financial efficiency.
5. Failing to Build a Year-End Wealth Strategy
High earners approaching retirement often focus on current income without considering how today's decisions will affect their future finances. This can become costly when you have several high-earning years remaining before retirement.
For example, a married couple with substantial retirement savings may benefit from comparing their current tax bracket with the brackets they expect to face later. Depending on their circumstances, tax-deferred contributions, Roth conversions during lower-income years, or charitable giving could improve their long-term tax position.
A thoughtful year-end wealth strategy should review several areas. These decisions can influence both your current tax liability and future retirement income:
Retirement contributions: Available contribution limits and catch-up opportunities
Roth conversions: Immediate tax costs and potential long-term benefits
Charitable contributions: Donation timing and tax implications
Capital gains: Planned asset sales and eligible investment losses
Retirement income: Future withdrawals and Social Security benefits
The IRS recently announced that the 2026 401(k) contribution limit increased to $24,500, with an additional catch-up contribution allowance for eligible participants aged 50 and older. Reviewing 2026 retirement contribution limits can help you identify opportunities to make the most of your workplace retirement plan.
Your best tax strategy isn't necessarily the one that produces the smallest bill this year.
Why High Earners Should Work With a Tax Advisor
Managing substantial income and investments involves more than understanding tax brackets. You need to consider how compensation, investment decisions, and retirement contributions fit together.
For households with $1 million or more in investable assets, even small improvements in tax efficiency can have a meaningful impact over time. Identifying opportunities early and coordinating financial decisions can help protect your accumulated wealth.
Phillip James Financial is an independent, fee-only financial advisory practice founded by a CPA and CFA. Our fiduciary approach puts your interests first rather than relying on commissions from financial products.
We also have an affiliated tax and accounting firm, allowing us to bring financial planning and tax expertise together. This integrated approach helps clients understand how today's decisions affect their investments, taxes, and retirement plans.
Frequently Asked Questions
What Information Should I Bring to My First Tax Planning Meeting?
Bring recent tax returns, pay statements, investment account summaries, retirement plan information, and details about outstanding stock awards. These records help an advisor understand your current financial position.
Can Married Couples Benefit From Separate Tax Planning Strategies?
Yes. Even when filing jointly, spouses may have different compensation structures, retirement accounts, and investment holdings. Reviewing both financial situations can reveal planning opportunities.
What Financial Changes Should Trigger a Tax Strategy Review?
Major events such as an inheritance, business sale, relocation, divorce, or significant change in employment can affect your tax obligations. These events are good reasons to revisit your existing plan.
Does Fee-Only Financial Planning Include Tax Preparation?
Not automatically. Fee-only describes how an advisor receives compensation, not which services are included. Ask whether tax preparation is offered separately or through an affiliated accounting practice.
Build a More Tax-Efficient Financial Future
A tax advisor can help high earners make better financial decisions involving corporate bonuses, stock compensation, investments, and retirement contributions. Planning ahead can help identify opportunities before important deadlines arrive.
At Phillip James Financial, we combine comprehensive financial planning, investment management, and tax expertise to help clients protect their wealth. As an independent, fee-only fiduciary practice in Plymouth, Minnesota, we serve individuals and families throughout Maple Grove, Wayzata, Minnetonka, and the surrounding Twin Cities communities.
If you're approaching retirement or managing substantial executive compensation, now is a good time to review your strategy. Contact Phillip James Financial to schedule a complimentary consultation and learn how our team can help you make the most of your wealth.