For those with high HHI ($500K), tax saving strategies

[Anonymous]

Our income tax code is so unfair. I wish we’d repeal the 16th amendment. The founders didn’t envision relying on taxing the productive activities of certain citizens to fund the government. Maybe setting the standard deduction should be 5 million or so could be a compromise, but I wish we’d scrap the federal income tax entirely.

Also, I don’t give a crap if the billionaires leave to avoid paying their fair share under a more fair system. Good riddance.

[Anonymous]

Anonymous wrote:https://www.newsweek.com/former-starbucks-boss-leaving-washington-what-we-know-11657833

Starbucks founder is leaving Washington State. Washington State passed a tax of 10% on anyone earning 1million dollars over and above the existing taxes.

Washington state has no income tax. So 10% on income only over a million is basically nothing.

[Anonymous]

Anonymous wrote:If you are a high W2 income employee you really need to live in a state with no or moderate income tax.

Most high W2 income jobs are located in states with higher income taxes

[Anonymous]

Anonymous wrote:

Anonymous wrote:If you are a high W2 income employee you really need to live in a state with no or moderate income tax.

Most high W2 income jobs are located in states with higher income taxes

This, unfortunately. Most Tier 1 and 2 cities (for COL adjusted pay, this is an actual method used by HR, not trying to start a city war!) are located in states with high state taxes.

Tier 1 pay is SF, LA, NYC, usually Seattle.

DC area is Tier 2 (so 90% ish of what a Tier 1 employee gets for base depending on company and then usually if you’re in tech RSUs are not adjusted for COL).

That’s not a bad deal if you live in VA which basically has a flat state income tax.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you are a high W2 income employee you really need to live in a state with no or moderate income tax.

Most high W2 income jobs are located in states with higher income taxes

This, unfortunately. Most Tier 1 and 2 cities (for COL adjusted pay, this is an actual method used by HR, not trying to start a city war!) are located in states with high state taxes.

Tier 1 pay is SF, LA, NYC, usually Seattle.

DC area is Tier 2 (so 90% ish of what a Tier 1 employee gets for base depending on company and then usually if you’re in tech RSUs are not adjusted for COL).

That’s not a bad deal if you live in VA which basically has a flat state income tax.

There are also some high paying industries that are heavily concentrated in these places. Tech in CA, finance in NYC metro, entertainment in LA, big law in NYC/Chicago/ LA/SF/DC, pharma in CT/NJ/MA. There’s been some dispersal in those industries, but the majority of the jobs are still in the original home bases.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Over the last few years, we have done well with our HHI but cringe at tax time. Together, we pay close to $150+K in federal taxes. I asked our CPA if there are ways to reduce our taxes, he said as W2 employees, we don't really have many options. He didn't really give us any "outside the box" ideas. We max out our retirement accounts, HYSA. CPA said we can't use home office (we work from home sometimes) as a deduction.

I was curious as to how some folks reduce their tax burden legally...Any ideas, please share.

OP, I'd move to Delaware for no state income tax.

Delaware has income tax? It doesn't have sales tax.

[Anonymous]

Anonymous wrote:

Anonymous wrote:401k
mega back door Roth will avoid taxes over time
HSA
I bonds
Tax efficient investment allocation
529
Flexible spending accounts

THis is good advice, and some that you may not get from a CPA because they are not investment experts. I'd also add in tax loss harvestig - -there are automated investment options (we use Wealthfront) that do this automatically.

We have some money with a financial advisor and they aim to reduce taxes now (typically divident payments) but choosing investment vehicles that shield us from that. Better to take such gains down the road when our income is lower (retired) and we'd be in a lower tax bracket.

Are they really going to be in a lower tax bracket though? OP is making over $500K. That tax bracket's floor is $250K. Are they really going to live on half their current income in retirement? That's quite a lifestyle adjustment.

[Anonymous]

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Anonymous wrote:OP, you need a side business: rental income, landscaping, tutoring, house cleaning, remodeling, etc.

Let’s say they have a side gig doing tutoring and earn a few extra bucks that way. How can that benefit someone earning 500k+ ?

Or you mean it needs to be an actual business where they hire others?

I think they mean a side business that loses money for the tax write off

No that's not what is meant. It would be silly to own a business just to lose money considering the time exerted and liability.
However, what does happen is this from first hand experience. I could make tons more money than i do now. I simply don't have the desire to pay $40,000 in more taxes for every $100,000 earned. It's taken away my desire to spend more time earning that money when such a huge chunk goes to pay others that don't pay tax. Our capitalist economy is already suffering and many of you fools want to tax us more out of nothing but sheer greediness. GOYA's It's not fair that someone sacrifices their time to make twice the income, but after paying tax is closer to the goof that only works 40 hr weeks.

If you are starting a business just to lose money to write off against your W2 income, then it’s not much time exerted (and not sure about the liability).

Start a business as an Amazon reseller and write off your home internet and cell phone and a portion of your utilities…heck, have it resell everyday items and you buy all your normal home products as inventory.

Find some “trade shows” in vacation destinations (where you can usually walk the floor for free) and attend for one day, yet you write off a bunch of your travel expenses. Have your CPA prepare taxes for your family and the business, and write off the entire cost.

The list goes on.

Only problem is you can only lose money for 3 of 5 years, or IRS considers it a hobby and you can no longer take losses. Though you could probably eke out a small profit every 3rd year.

Lose money for 3 years and close the business. Start a new one, rinse and repeat.

It is all tax fraud if you are pretending. You are ultra rich but are going go through all of this to avoid taxes even if you will still be ultrarich after you pay them? You cannot take it with you!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Over the last few years, we have done well with our HHI but cringe at tax time. Together, we pay close to $150+K in federal taxes. I asked our CPA if there are ways to reduce our taxes, he said as W2 employees, we don't really have many options. He didn't really give us any "outside the box" ideas. We max out our retirement accounts, HYSA. CPA said we can't use home office (we work from home sometimes) as a deduction.

I was curious as to how some folks reduce their tax burden legally...Any ideas, please share.

OP, I'd move to Delaware for no state income tax.

Delaware has income tax? It doesn't have sales tax.

Alaska and New Hampshire are the places to move.

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the states with no income tax, but generally they make up for it with high property and sales taxes. Except, Alaska and New Hampshire also have no sales tax. New Hampshire also no longer taxes interest and dividends, while Washington taxes capital gains on high income earners.

[Anonymous]

Anonymous wrote:https://www.newsweek.com/former-starbucks-boss-leaving-washington-what-we-know-11657833

Starbucks founder is leaving Washington State. Washington State passed a tax of 10% on anyone earning 1million dollars over and above the existing taxes.

The state has never had a state income tax, and now is only going to tax everybody's income over the first $1 million. Your first million is free of tax -- I'd take that in a heartbeat! White a whiner to move over such a thing.

[Anonymous]

Anonymous wrote:https://www.newsweek.com/former-starbucks-boss-leaving-washington-what-we-know-11657833

Starbucks founder is leaving Washington State. Washington State passed a tax of 10% on anyone earning 1million dollars over and above the existing taxes.

The "existing taxes" are zero.

[Anonymous]

Anonymous wrote:

Anonymous wrote:https://www.newsweek.com/former-starbucks-boss-leaving-washington-what-we-know-11657833

Starbucks founder is leaving Washington State. Washington State passed a tax of 10% on anyone earning 1million dollars over and above the existing taxes.

The "existing taxes" are zero.

And the departure from WA state was already planned. But yes, this tax will drive many out of WA. Just like the Cap gains tax (essentially just on stock options) did.

Also, it may be 10% on anything over a million now, but the WA legislature would not codify that the "1M" will never go lower. Their entire plan is to reduce it as a backdoor way into getting an income tax (just like the Fed income tax started as).
When they don't get enough from the "over $1M" they will try to lower it (and with the current court likely succeed in WA state).

[Anonymous]

Anonymous wrote:

Anonymous wrote:https://www.newsweek.com/former-starbucks-boss-leaving-washington-what-we-know-11657833

Starbucks founder is leaving Washington State. Washington State passed a tax of 10% on anyone earning 1million dollars over and above the existing taxes.

Washington state has no income tax. So 10% on income only over a million is basically nothing.

Not to people making more than $1M. Also, there is no "double to $2M" for couples filing jointly. So it is incredibly unfair tax as well. Where else do we tax someone single starting at $1M and a couple starting at $1M as well? Nowhere because it's unethical and wrong.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:https://www.newsweek.com/former-starbucks-boss-leaving-washington-what-we-know-11657833

Starbucks founder is leaving Washington State. Washington State passed a tax of 10% on anyone earning 1million dollars over and above the existing taxes.

Washington state has no income tax. So 10% on income only over a million is basically nothing.

Not to people making more than $1M. Also, there is no "double to $2M" for couples filing jointly. So it is incredibly unfair tax as well. Where else do we tax someone single starting at $1M and a couple starting at $1M as well? Nowhere because it's unethical and wrong.

What a bizarre statement. It's unethical to tax someone at $1MM in income vs. most states that tax everyone at all income levels with like a $30k exclusion but you hit the maximum marginal tax rate at like $200k?

In what universe is that unethical? Would you prefer that everyone making $100k+ pay income tax, and you still hit a 10% marginal rate at $1MM+ (but now the person earning $1MM is paying taxes on another $900k)?

[Anonymous]

I just love these complaints about taxes. People don't think clearly.

Live in a world where there are no taxes and you are not suddenly pocketing all this extra money.

Employers would adjust their market rates and salaries DOWN to account for the fact that you are not being taxed.

So really, think of your income as thenpist tax number and you'll be a lot happier.