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10 Tax Strategies Rich People Use That Most People Don't Know Exist

These tax strategies can work for everyday earners looking to build wealth.

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Updated Aug. 6, 2025
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The wealthiest Americans don't just earn more; they also think differently. Rich people use smart, legal strategies to lower their taxes.

Many workers with modest incomes might be able to use the same moves to lower their taxes and build wealth. Here are some things that can work for anyone willing to learn the rules.

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Using tax-loss harvesting

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When the wealthy take a hit in the market, many of them try to turn a setback into something positive.

Tax-loss harvesting involves selling investments that have lost value to offset capital gains on other investments.

While rich people use this strategy to lower their taxes, everyday investors with a small brokerage account can use the same approach.

Turning to a backdoor Roth IRA

Vitalii Vodolazskyi/Adobe roth ira vs traditional ira

Roth IRAs offer the advantage of tax-free growth and tax-free withdrawals. However, if your income is too high, you are not eligible to make a contribution to this type of account.

Currently, the phaseout for Roth IRA eligibility is between $150,000 and $165,000 in income for single filers and $236,000 and $246,000 for joint filers.

However, high-income earners often work around this limit by using a "backdoor" strategy where they contribute to a traditional IRA, and then convert it to a Roth.

This same move can work for anyone who is ready to start investing in a Roth IRA, but who also earns an income that is above the eligibility limits.

Taking advantage of the HSA's triple tax advantage

Andrii/Adobe hsa health savings account

The health savings account (HSA) offers a rare triple tax benefit: Contributions are tax-deductible, growth is tax-free, and withdrawals are tax-free when used for qualified medical expenses.

You don't need to be rich to get this triple advantage by contributing to an HSA. All you have to do is enroll in a high-deductible health plan to be eligible to make HSA contributions.

Here is something else you might not know: Once you turn 65, you can withdraw money from an HSA for any reason, penalty-free. However, if you do not use the money to pay for qualified medical expenses, you will owe taxes on the withdrawal.

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Avoiding taxes on real estate with the 1031 exchange

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Many wealthy investors grow real estate empires by rolling profits from one property into another, deferring capital gains taxes by using what's called a 1031 exchange.

This type of exchange allows you to push capital gains into the future as long as you take the proceeds of an investment property sale and use the money to purchase another like-kind property.

This rule isn't just for millionaires. If you own even one rental property, you could potentially use the same rule to defer taxes.

Growing wealth with the expanded 401(k) catch-up contribution

Iryna/Adobe catch up contribution text on a clipboard

When tax laws shift, the wealthy tend to notice and act. A recent change allows workers between the ages of 60 and 63 to make larger contributions to 401(k) accounts starting in 2025.

While the catch-up contribution is $7,500 for most people 50 and older, those in the 60 to 63 age range can make a larger contribution of $11,250.

That's one way high earners can reduce taxable income fast. Everyday workers in their early 60s can also use this rule to strengthen retirement savings while likely trimming their tax bill.

Finding ways to reduce self-employment taxes

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Business-owning millionaires know many of the tricks to keeping taxes low. One way to reduce self-employment taxes is to form an S corporation.

Doing so allows you to pay yourself a "reasonable" salary and shelter other revenue from self-employment taxes. Anyone who is a freelancer or a contractor can do the same, even if their income is much more modest.

However, choosing this route can bring extra complications into your business life. So, talk with a tax professional about whether this approach makes sense for you.

Earning more money from investments than wages

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Many wealthy individuals focus on building investment income because it's often taxed at capital gains rates, which typically are lower than the rates on regular income.

This is one reason wealthy people often prefer stock options over a higher salary.

While most workers don't have this option, the takeaway lesson still applies: Prioritizing stock market investments might reduce your future tax burden and help you build wealth more efficiently.

Making charitable deductions strategically

Zoran Zeremski/Adobe volunteers with working in community charity donation center

When high earners donate to charity, they often do it in lump sums, sometimes bundling several years' worth of giving into a single year. This tactic can help maximize deductions and reduce taxable income.

You don't have to be wealthy to use the same idea. Whether you're donating $500 or $5,000, planning ahead and timing donations based on your income might make a noticeable impact at tax time. It's always beneficial to keep your receipts for the goods, food, or monetary donations you make as well. 

Deferring income when possible

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Timing matters. Some wealthy individuals try to push income into future years so they will owe less in taxes during their peak-earning years.

If you are an everyday earner who happens to be a contractor or freelancer, you might be able to persuade clients to delay certain payments. Even shifting income by a month or two into a new year might reduce your tax bill for the current year.

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Using tax-efficient funds and accounts

Vitalii Vodolazskyi/Adobe 401(k) plan

Tax-savvy wealthy investors often go to great lengths to avoid paying annual taxes on interest, dividends, and capital gains. Many of them are careful to purchase tax-efficient funds that keep their yearly tax bill low.

Others keep money in an IRA or 401(k) that helps them defer taxes for years, or even decades.

The good news? You can do the same to boost your financial fitness, even if you are not rich.

Bottom line

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The tax code is full of opportunities for everyone, not just for the wealthy. Many of the strategies rich people use to reduce their tax burden can also help everyday earners get ahead financially.

Look at the items on this list and see if any of them can help you keep more money in your pocket and out of Uncle Sam's clutches.

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