For many high earners, bigger paychecks bring bigger headaches come tax season. Doctors, lawyers, entrepreneurs, and executives often find themselves shocked at how much of their income disappears to taxes. The truth? Most of these losses aren’t inevitable. They come from common, avoidable mistakes.
Karlton Dennis, tax strategist and CEO of Tax Alchemy, has built his career helping high-income earners cut their tax bills legally and strategically. As he explains, “The tax code was written to reward certain behaviors. If you don’t know how to play the game, you’re going to lose by default.”
Here are the five most costly mistakes high earners make and what Karlton says you can do about them:
1. Failing to Incorporate Properly
Dennis doesn’t mince words: “If you’re making over $100,000 and still running everything through a personal Schedule C, you’re probably leaving tens of thousands on the table.”
Many high earners stay as sole proprietors long after their income justifies a more strategic setup. A consultant pulling in $300,000, for example, ends up paying self-employment tax on every dollar plus regular income tax. By electing S-Corporation status, they could pay themselves a reasonable salary and take the rest as distributions, dramatically cutting their tax liability. Proper incorporation also strengthens liability protection and makes future planning easier.
2. Ignoring Retirement Planning
As Dennis puts it, “The IRS literally gives you permission to move money out of reach of taxation, but most people don’t take it.”
Retirement accounts aren’t just savings vehicles. They are tax shelters. Many high earners max out a standard 401k but stop there. A solo 401k, defined benefit plan, or cash balance plan can allow six-figure contributions that slash taxable income today while compounding for tomorrow. A surgeon earning $500,000 who leverages these plans could defer hundreds of thousands in income that would otherwise be taxed at the highest rates.
3. Poor Bookkeeping and Lack of Documentation
Dennis warns, “If you can’t prove it, you can’t use it. The IRS doesn’t accept guesses.”
Messy bookkeeping is more than an inconvenience. It is a direct hit to your bottom line. Every undocumented expense is a deduction lost, and every sloppy category increases audit risk. The fix is simple but powerful: treat bookkeeping as a monthly habit, not a yearly scramble. Clean books mean every eligible expense is captured, from travel and meals to software and subscriptions, and they create the foundation for advanced planning.
4. Misusing or Overstretching Write Offs
“The key is strategy, not sloppiness. Don’t play games with the IRS. Play within the rules, but use every rule in the book,” Dennis advises.
Some high earners push personal expenses through their business — a vacation disguised as a “conference” or luxury clothes passed off as “uniforms.” Others are too cautious, skipping deductions they could legally claim. Both mistakes are costly. The sweet spot is documentation and planning: meals tied to client meetings, continuing education, and travel directly linked to business. When aligned with a larger tax strategy, write-offs become one of the safest and strongest ways to reduce taxable income.
5. Missing Out on Real Estate Tax Advantages
Real estate is one of Dennis’s favorite tools. “I’ve seen clients cut their taxes in half simply by adding real estate to their portfolio and knowing how to treat it.”
Real estate remains one of the most tax-friendly wealth builders, yet many high earners ignore it. Depreciation alone can offset rental income, while cost segregation studies accelerate deductions to create even larger short-term tax benefits. For W2 professionals, a short-term rental strategy can, under the right conditions, offset not only rental income but salary income as well. With the right structure, real estate becomes both a wealth-building and tax-cutting machine.
The Final Takeaway
Dennis leaves his clients with a clear reminder: “Taxes are the single biggest expense for most high earners. The wealthy don’t leave that to chance — they use strategy. And anyone can do the same.”
The difference between overpaying the IRS and keeping more of what you earn usually comes down to awareness and planning. Incorporate properly, use retirement accounts to their full potential, keep clean records, leverage write-offs strategically, and explore the real estate advantages that wealthy families rely on year after year.
