I keep hearing people talk about advanced tax planning, but no one really explains what it actually looks like.
High W2 income here. I’m already maxing out my 401k, HSA, and handling all the standard basics, but it feels like most advice stops there.
For higher earners, what strategies or moves have actually made a meaningful difference for you?
What does advanced tax planning actually look like for high earners?
byu/Forsaken_Trash_4950 intax
Posted by Forsaken_Trash_4950
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Deja vu, we saw this post like a week ago…
When you hire someone to do it, they will explain it.
Interested to see what people have to say here. Cash balance plans are one of the most useful tax strategies for high income earners, but when I think about advanced tax planning for high earners I think it’s more the level of detail going in to the accuracy of the tax planning/projection, and not the strategies themselves. There is a limited number of things that can be done to reduce taxable income.
Asking for generic “advanced tax planning” advice is like making on a post on r/medicine asking for a diagnosis without providing any symptoms.
There is no such thing as one-size-fits-all advanced tax planning. That’s why it’s advanced.
Things like maxing your 401(k) are basic tax planning precisely because it’s near-universal advice and applies to just about anyone with a job.
I didn’t chase dividends. In retirement, this gives me more control over taxes, MAGI.
Buy blighted property and just hoard it. Seems to work in my neck of the woods
Huge tax write offs
Rental properties.
Long term capital gains are taxed differentially than short term
You have to think just outside the box a bit. Have a ‘failing’ business that’s in the growing phases
Making sure you don’t make large stock sales in years of high income or decide to pull any rollovers without telling your cpa, trying to avoid the NIT and medicare taxes, making sure you qualify for things like ev rebates and car loan interest (used cars don’t count), maximizing hsa’s, 401ks, etc……529s, list is long
tax cpas who work in wealth firms are far far better at this…….worked in 2 wealth firms, 2 regular tax firms
If you just have W2 income you are more limited in tax strategies available to you. If you have other sources of income (a business, stock comp, real estate, certain investments, etc) there are a few other levers you can pull. It is really more high NET WORTH individuals than high income W2 employees that have more planning opportunities, and that is because they are often looking at estate, generational, and legacy planning.
Edited to add: Additionally, after you have your basic tax plan in place (for most high earning W2 employees, this would probably look something like maxing out 401k, HSA, Backdoor Roth IRAs, and Mega Backdoor Roths, and any other employer sponsored incentive plans as well as tax loss harvesting, proper tax allocation of investments across your full portfolio, taking advantage of capital gains rates, and donation planning) a lot of tax planning occurs more at decision points. An example would be if you buy an expensive home, whether you buy down your interest rate or leave it at the original offer may be influenced by whether you are able to itemize your deductions because points are deductible.
Additional strategies require work. The downside to all of these additional tax saving strategies is that your precious leisure time will go up in smoke. People will try to sell you on “easy” money and things that are too good to be true. Most of the truly easy things you are already doing.
I’m honestly surprised someone has not said residential real estate. But I guess it is just a wait-for-it thing. If someone does post that, be sure to drink a shot. Double if they throw out STR.
The system isn’t designed for high w2 income people to have many tax advantages. You need to own a business or real estate to get those perks. You’re not actually rich in this country if you have to work
Does your company offer a Non-Qualified Deferred Compensation Plan? If so, start putting money into it. I’m in a high tax state and started putting half my income into it. I plan on retiring in a low tax state, then I’ll get the income back without having to pay the high state and local taxes on it.
Nothing much you can do on w2