Middle-income clients often find themselves in an uncomfortable tax “middle ground.” They earn too much to qualify for many income-based credits, yet not enough to benefit from high-net-worth tax strategies. The result? Many miss out on valuable tax savings that are well within reach with the right planning.
The good news is that there are practical, realistic strategies that can help this group keep more of what they earn—without requiring complex tax maneuvers or aggressive planning. Below are five tax approaches that can make a meaningful difference for everyday taxpayers in 2025.
1. Use AGI-Based Planning to Unlock More Tax Benefits
Adjusted Gross Income (AGI) remains one of the most powerful levers in tax planning. AGI determines eligibility for key tax benefits, including education credits, retirement contribution deductibility, and other tax-saving opportunities.
Even small reductions in AGI can unlock savings that clients might otherwise miss. Strategies such as maximizing above-the-line deductions, leveraging retirement contributions, and using HSAs (for those eligible) can help lower AGI and increase benefit eligibility.
Why this matters:
• AGI affects access to credits such as the Child Tax Credit and American Opportunity Tax Credit (AOTC)
• Lower AGI can increase the benefit of other deductions and planning options
According to the IRS, AGI thresholds affect more than 20 different tax benefits each year, making this a core planning priority for anyone in the middle-income bracket. (Source: IRS.gov)
2. Encourage the Use of HSAs and Other Tax-Advantaged Accounts
For clients with access to a High-Deductible Health Plan (HDHP), a Health Savings Account (HSA) remains one of the most powerful tax tools available. Known for its “triple tax advantage,” HSAs allow:
- Tax-deductible contributions
- Tax-free growth
- Tax-free withdrawals for qualified medical expenses
After age 65, non-medical withdrawals are taxed as ordinary income, but without penalty, making HSAs a supplemental retirement strategy as well.
Despite the benefits, HSA participation remains underutilized. A recent Devenir report found that only about 50% of eligible taxpayers contribute to their HSA. (Source: Devenir Research Report, 2024)
3. Leverage Income Timing and Smart Withholding Adjustments
Middle-income households often benefit from timing strategies, particularly when they anticipate income changes from one year to the next. The presentation illustrated how deferring a year-end bonus to a lower-income year can produce real tax savings, especially when marginal rates drop.
However, constructive receipt rules must be considered to avoid unintended tax consequences. Income that is “made available” without substantial restriction may still be taxable, even if the client hasn’t physically received it. (Source: IRS Topic No. 451)
Withholding adjustments can also boost tax efficiency. For example, updating Form W-4, specifically Step 4(c), can improve accuracy and help avoid large balances due or oversized refunds.
4. Maximize Above-the-Line Deductions First
Above-the-line deductions reduce AGI, offering a double benefit: lowering taxable income and increasing eligibility for tax-saving opportunities.
Common above-the-line deductions that are especially impactful for middle-income clients include:
- Educator expenses
- HSA contributions
- Student loan interest (where eligible)
- Self-employed health insurance
- Traditional IRA contributions (subject to income limits)
Because many taxpayers no longer itemize under the expanded standard deduction, these adjustments have become more valuable than ever.
5. Use Loss Harvesting to Reduce Taxable Income
While income deferral strategies are valuable, many taxpayers, especially W-2 earners, have limited flexibility in controlling when they receive income. This is where capital loss harvesting becomes a practical solution.
Taxpayers can use capital losses to offset capital gains, and when losses exceed gains, up to $3,000 of the excess can offset ordinary income each year. Unused losses can carry forward indefinitely. (Source: IRS Publication 550)
This approach is especially useful for investors who may not have significant portfolios but do have taxable investment accounts or periodic gains.
Final Thoughts
Middle-income clients often miss tax-saving opportunities not because they aren’t eligible, but because they aren’t aware of them, or don’t know how to apply them. With thoughtful planning, tax professionals can make a meaningful impact on their financial outlook each year.
Want to Help Your Clients Save More?
If you’d like to go deeper into these strategies and gain practical tools you can use with clients, our course 2025 Tax Strategies for Middle-Income Taxpayers explores these topics in more detail with real examples you can apply right away. Click here to learn more.
External Source URLs
IRS – Adjusted Gross Income (AGI) and Credits
IRS Publication 550 – Investment Income and Expenses
IRS Topic No. 451 – Assignability of Income / Constructive Receipt of Income
Devenir HSA Research Report (2024)
