Tax Strategies for Business Owners Making Over $1 Million

Crossing the $1 million income mark is a milestone worth celebrating, but it also puts a target on your back at both the federal and state level. Combined with the additional 3.8% Net Investment Income Tax and the top marginal rate of 37%, business owners at this income level can lose nearly half of every incremental dollar to taxes if they rely on a standard once-a-year filing relationship with their accountant. The good news is that the tax code offers more tools to high earners than to anyone else -- you just have to use them before December 31, not after.

Why Standard Deductions Are Not Enough

Most CPAs who prepare returns for high-income business owners are excellent at compliance -- accurately reporting what already happened. What they often are not equipped to do is proactive planning: designing the structure of your income and entities so that less of it is taxable in the first place. If your current advisor's primary contribution each year is finding a few more write-offs in March, you are almost certainly leaving money on the table. Learn more about the difference in our article on why business owners overpay taxes every year.

Entity Structuring at Scale

Layering S-Corps and Management Companies

At seven figures of income, a single S-Corp is often not the most efficient structure. Splitting operations into an operating entity and a separate management or holding company can shift income into lower brackets, isolate liability, and create additional avenues for retirement contributions. For a full breakdown of entity mechanics, see entity structuring: LLC vs S-Corp.

Considering a C-Corp Component

A C-Corp taxed at a flat 21% federal rate can be a useful complement to a pass-through entity, particularly for owners reinvesting profits into equipment, real estate, or a second location. The comparison is nuanced -- see our detailed analysis in S-Corp vs C-Corp: which saves more in taxes.

Retirement Plans Built for High Earners

A SEP-IRA caps out around $70,000 in annual contributions for 2026, which is a rounding error for an owner earning over $1 million. A cash balance defined benefit plan, layered on top of a 401(k) with profit sharing, can allow contributions of $150,000 to $350,000 per year depending on age, all of which is fully deductible against ordinary income. For an owner in the 37% bracket, that is potentially over $100,000 in immediate tax deferral, invested and compounding for retirement.

Real Estate and Depreciation

If you own the building your business operates from, or hold rental real estate on the side, cost segregation studies can accelerate depreciation dramatically. Under current law, 100% bonus depreciation is permanent, meaning components reclassified into 5-year, 7-year, and 15-year property can be fully expensed in year one. Read more in tax planning for real estate agents and brokers or explore how a cost segregation study works for rental property owners specifically.

The Augusta Rule

IRC Section 280A(g), commonly called the Augusta Rule, allows you to rent your personal residence to your own business for up to 14 days per year, tax-free to you and deductible to the business, as long as the rate charged is reasonable and documented. At $1 million-plus in income, even this small strategy can shelter several thousand dollars annually with minimal effort. See the Augusta Rule explained for documentation requirements.

Reasonable Compensation and QBI

If your business is structured as an S-Corp, your W-2 salary directly affects both your payroll tax exposure and your eligibility for the Qualified Business Income deduction under Section 199A. Setting compensation too high erodes the 20% QBI deduction; setting it too low invites IRS scrutiny. This balance requires a documented reasonable compensation analysis, not a guess. Our article on how much to pay yourself as an S-Corp owner walks through the methodology, and maximizing your QBI deduction under Section 199A covers the phase-out thresholds that matter most above $1 million in income.

Charitable and Income-Shifting Strategies

Donor-advised funds, charitable remainder trusts, and appreciated-asset gifting can all reduce taxable income while supporting causes you care about, but timing matters. Bunching several years of charitable giving into a single high-income year, rather than giving the same amount annually, can push you over the itemization threshold and generate a materially larger deduction.

State Tax Considerations

If you operate in a high-tax state, the SALT cap workaround via a Pass-Through Entity Tax (PTET) election can restore a full federal deduction for state income taxes paid at the entity level, something that was effectively capped at $10,000 for individuals since 2018. Nearly every state with an income tax now offers a PTET election, and most business owners earning over $1 million are not using it simply because their CPA never brought it up.

Bringing It All Together

None of these strategies works in isolation. A defined benefit plan interacts with your reasonable compensation figure. Your entity structure affects your QBI deduction. Real estate depreciation interacts with your overall taxable income and potential AMT exposure. This is precisely why high-income business owners need a coordinated, multi-year tax plan rather than a list of tips applied piecemeal in April.