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

[Anonymous]

Short-term rentals (w a SAH spouse) and oil and gas investments.

[Anonymous]

Anonymous wrote:Short-term rentals (w a SAH spouse) and oil and gas investments.

Not on $500K HHI… Oil and gas makes sense when you’re making $2M+ annually and even that’s on the low side. Most people we know doing it clear min $5M annually. Initial investments are very large and you need to already have an in via your network.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Talk about first world problems lol my 30% tax rate is twice the median household income in the US whatever can I do about it?

Well most of us got to that place by choices we made. I grew up poor, neither parent went to college, I've had free lunch several years in school, and we were on/off from food stamps whenever parents were laid off. Yet I managed to go to college, pay off my college debt and do well in life. Nothing was handed to me, I had to work hard for it all. Yes, I recognize there are others who have it "worse" but my life wasn't a picnic. I just knew working hard and an education was key to a better life. Then I chose to live within my means and save save save and take career risks to advance.
The fact that those making $178K+ pay approximately 80% of the taxes in the US means that why yes we are in fact providing for the vast majority of society. It's our taxes that make roads, infrastructure, schools, and everything else happen. We more than pay our "fair share"

You acknowledge that for years you benefited from government programs. And now you don't want to pay into them?

Can you read? We have contributed far more than most. My family used those benefits for a total of about 2 years in my lifetime. We've paid $500K+ into medicare in our lifetime (probably much more), and that's just medicare. Happy to pay, but at some point, no I don't need to pay more. So we will do what we can to avoid estate tax issues (at both federal and StaTE level---our state starts much lower and would affect many people more than just us). That money was taxed once and we don't need to send 40% of everything above $3M to our state when we die.

We also contribute smartly to organizations that provide much more than the govt does with our tax dollars. I'd prefer to have it go locally to organizations that actually maximize it

You haven’t contributed enough. Freedom is priceless. Your contributions are still needed to support our defense spending. We all benefit from it.

Haaa! Yup, that's one of the main issues!

But yes, even after paying ALL of that into medicare, when we turn 65, we get to pay ~$1K+ just for part B and a gap plan. Add in more for prescription coverage. So we still will pay $2400/month for the 2 of us to have basic medical coverage. It's ridiculous

Yes. We are paying that now at 73/75. Unexpected. Confess never researched before DH retired last summer. Gave me cynical perspective on all the shrieking about ACA subsidies.

[Anonymous]

For all the storm and drang about 'loopholes' in the tax code there really aren't that many unless you're willing to do things like become a real estate professional (which is a lot of time and effort!). Even for small businesses/the rich the main ones are:

1. Buy, borrow die -- where you have enough assets to borrow from them and then when you die your heirs get the step up in basis so they don't have to pay taxes on gains. That said, you need to earn more than the interest rate plus cap gains to make this work and you need to be ultra rich.

2. Cash Balance Plans -- a 401k/pension hybrid for business owners where an individual can contribute up 150-300k depending on age. But, these cost a lot and you have to invest conservatively because they are also a pension which brings in a bunch of rules.

3. Solo 401k for small business owners where you can get an additional ~55k into a 401k beyond the employee amount.

4. QBI - if you're not a SSTB you get a decent write-off here. If you are a SSTB then it phases out fairly early.

Some people talk about running personal expenses through a business but that generally isn't tax avoidance, that's tax evasion. Some small things -- maybe internet and your cell phone you can get at a discount but there has to be a bona fide business reason to be spending the money.

You could buy rentals and turn it into a short term rental to take upfront depreciation, but you need to become a bona fide landlord and 500k isn't really enough money to take advantage of it. Honestly, at 500k you're not even in the top tax bracket if you're MFJ so you're not really paying that much in taxes. It feels like a lot but you're probably at around 20% effective tax rate at the federal level. If you want to really make significant changes to your life to save on taxes you probably need to be well into the top tax bracket which starts at $768k for MFJ this year.

At the end of the day, the big 'loophole' if you can call it that is the preferential treatment that cap gains get. Of course, that money has generally already been taxed once so...

Just take the low-hanging fruit that's available to you and don't add a bunch of complexity and difficulty to your life to save a few bucks.

[Anonymous]

Anonymous wrote:For all the storm and drang about 'loopholes' in the tax code there really aren't that many unless you're willing to do things like become a real estate professional (which is a lot of time and effort!). Even for small businesses/the rich the main ones are:

1. Buy, borrow die -- where you have enough assets to borrow from them and then when you die your heirs get the step up in basis so they don't have to pay taxes on gains. That said, you need to earn more than the interest rate plus cap gains to make this work and you need to be ultra rich.

2. Cash Balance Plans -- a 401k/pension hybrid for business owners where an individual can contribute up 150-300k depending on age. But, these cost a lot and you have to invest conservatively because they are also a pension which brings in a bunch of rules.

3. Solo 401k for small business owners where you can get an additional ~55k into a 401k beyond the employee amount.

4. QBI - if you're not a SSTB you get a decent write-off here. If you are a SSTB then it phases out fairly early.

Some people talk about running personal expenses through a business but that generally isn't tax avoidance, that's tax evasion. Some small things -- maybe internet and your cell phone you can get at a discount but there has to be a bona fide business reason to be spending the money.

You could buy rentals and turn it into a short term rental to take upfront depreciation, but you need to become a bona fide landlord and 500k isn't really enough money to take advantage of it. Honestly, at 500k you're not even in the top tax bracket if you're MFJ so you're not really paying that much in taxes. It feels like a lot but you're probably at around 20% effective tax rate at the federal level. If you want to really make significant changes to your life to save on taxes you probably need to be well into the top tax bracket which starts at $768k for MFJ this year.

At the end of the day, the big 'loophole' if you can call it that is the preferential treatment that cap gains get. Of course, that money has generally already been taxed once so...

Just take the low-hanging fruit that's available to you and don't add a bunch of complexity and difficulty to your life to save a few bucks.

Agreed. $500K HHI simply isn’t that wealthy today. You’re not even cracking the 2nd highest tax bracket if you’re at $500K flat and married. At $500K I’d invest like crazy so you boost your NW as fast as possible. Once you hit $5-10M NW you can get more creative with tax strategies, deferred comp, etc.

[Anonymous]

Buy some holiday rental properties and rent week by week. As the owner operator you can deduct the mortgage payments, costs, (and property management fees if you go that route).

[Anonymous]

Anonymous wrote:

Anonymous wrote:For all the storm and drang about 'loopholes' in the tax code there really aren't that many unless you're willing to do things like become a real estate professional (which is a lot of time and effort!). Even for small businesses/the rich the main ones are:

1. Buy, borrow die -- where you have enough assets to borrow from them and then when you die your heirs get the step up in basis so they don't have to pay taxes on gains. That said, you need to earn more than the interest rate plus cap gains to make this work and you need to be ultra rich.

2. Cash Balance Plans -- a 401k/pension hybrid for business owners where an individual can contribute up 150-300k depending on age. But, these cost a lot and you have to invest conservatively because they are also a pension which brings in a bunch of rules.

3. Solo 401k for small business owners where you can get an additional ~55k into a 401k beyond the employee amount.

4. QBI - if you're not a SSTB you get a decent write-off here. If you are a SSTB then it phases out fairly early.

Some people talk about running personal expenses through a business but that generally isn't tax avoidance, that's tax evasion. Some small things -- maybe internet and your cell phone you can get at a discount but there has to be a bona fide business reason to be spending the money.

You could buy rentals and turn it into a short term rental to take upfront depreciation, but you need to become a bona fide landlord and 500k isn't really enough money to take advantage of it. Honestly, at 500k you're not even in the top tax bracket if you're MFJ so you're not really paying that much in taxes. It feels like a lot but you're probably at around 20% effective tax rate at the federal level. If you want to really make significant changes to your life to save on taxes you probably need to be well into the top tax bracket which starts at $768k for MFJ this year.

At the end of the day, the big 'loophole' if you can call it that is the preferential treatment that cap gains get. Of course, that money has generally already been taxed once so...

Just take the low-hanging fruit that's available to you and don't add a bunch of complexity and difficulty to your life to save a few bucks.

Agreed. $500K HHI simply isn’t that wealthy today. You’re not even cracking the 2nd highest tax bracket if you’re at $500K flat and married. At $500K I’d invest like crazy so you boost your NW as fast as possible. Once you hit $5-10M NW you can get more creative with tax strategies, deferred comp, etc.

Yes we all know our income isn’t “that” high (thanks for the reminder!) however that’s the point: we are taxed at a higher rate than our income warrants. The government treats us like we are rich, yet we’re pinching pennies and going without in order to pay bills, save for college and put $ away for retirement.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For all the storm and drang about 'loopholes' in the tax code there really aren't that many unless you're willing to do things like become a real estate professional (which is a lot of time and effort!). Even for small businesses/the rich the main ones are:

1. Buy, borrow die -- where you have enough assets to borrow from them and then when you die your heirs get the step up in basis so they don't have to pay taxes on gains. That said, you need to earn more than the interest rate plus cap gains to make this work and you need to be ultra rich.

2. Cash Balance Plans -- a 401k/pension hybrid for business owners where an individual can contribute up 150-300k depending on age. But, these cost a lot and you have to invest conservatively because they are also a pension which brings in a bunch of rules.

3. Solo 401k for small business owners where you can get an additional ~55k into a 401k beyond the employee amount.

4. QBI - if you're not a SSTB you get a decent write-off here. If you are a SSTB then it phases out fairly early.

Some people talk about running personal expenses through a business but that generally isn't tax avoidance, that's tax evasion. Some small things -- maybe internet and your cell phone you can get at a discount but there has to be a bona fide business reason to be spending the money.

You could buy rentals and turn it into a short term rental to take upfront depreciation, but you need to become a bona fide landlord and 500k isn't really enough money to take advantage of it. Honestly, at 500k you're not even in the top tax bracket if you're MFJ so you're not really paying that much in taxes. It feels like a lot but you're probably at around 20% effective tax rate at the federal level. If you want to really make significant changes to your life to save on taxes you probably need to be well into the top tax bracket which starts at $768k for MFJ this year.

At the end of the day, the big 'loophole' if you can call it that is the preferential treatment that cap gains get. Of course, that money has generally already been taxed once so...

Just take the low-hanging fruit that's available to you and don't add a bunch of complexity and difficulty to your life to save a few bucks.

Agreed. $500K HHI simply isn’t that wealthy today. You’re not even cracking the 2nd highest tax bracket if you’re at $500K flat and married. At $500K I’d invest like crazy so you boost your NW as fast as possible. Once you hit $5-10M NW you can get more creative with tax strategies, deferred comp, etc.

Yes we all know our income isn’t “that” high (thanks for the reminder!) however that’s the point: we are taxed at a higher rate than our income warrants. The government treats us like we are rich, yet we’re pinching pennies and going without in order to pay bills, save for college and put $ away for retirement.

But they don’t. If you make 500k you’re not even in the top two tax brackets MFJ. Your effective federal income tax rate is probably around 20 percent. How low do you want your taxes to be?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Short-term rentals (w a SAH spouse) and oil and gas investments.

Not on $500K HHI… Oil and gas makes sense when you’re making $2M+ annually and even that’s on the low side. Most people we know doing it clear min $5M annually. Initial investments are very large and you need to already have an in via your network.

There are many ways to take advantage of IDC deductions without a large outlay.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Short-term rentals (w a SAH spouse) and oil and gas investments.

Not on $500K HHI… Oil and gas makes sense when you’re making $2M+ annually and even that’s on the low side. Most people we know doing it clear min $5M annually. Initial investments are very large and you need to already have an in via your network.

There are many ways to take advantage of IDC deductions without a large outlay.

Of course, someone has to invest in the bad sites

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For all the storm and drang about 'loopholes' in the tax code there really aren't that many unless you're willing to do things like become a real estate professional (which is a lot of time and effort!). Even for small businesses/the rich the main ones are:

1. Buy, borrow die -- where you have enough assets to borrow from them and then when you die your heirs get the step up in basis so they don't have to pay taxes on gains. That said, you need to earn more than the interest rate plus cap gains to make this work and you need to be ultra rich.

2. Cash Balance Plans -- a 401k/pension hybrid for business owners where an individual can contribute up 150-300k depending on age. But, these cost a lot and you have to invest conservatively because they are also a pension which brings in a bunch of rules.

3. Solo 401k for small business owners where you can get an additional ~55k into a 401k beyond the employee amount.

4. QBI - if you're not a SSTB you get a decent write-off here. If you are a SSTB then it phases out fairly early.

Some people talk about running personal expenses through a business but that generally isn't tax avoidance, that's tax evasion. Some small things -- maybe internet and your cell phone you can get at a discount but there has to be a bona fide business reason to be spending the money.

You could buy rentals and turn it into a short term rental to take upfront depreciation, but you need to become a bona fide landlord and 500k isn't really enough money to take advantage of it. Honestly, at 500k you're not even in the top tax bracket if you're MFJ so you're not really paying that much in taxes. It feels like a lot but you're probably at around 20% effective tax rate at the federal level. If you want to really make significant changes to your life to save on taxes you probably need to be well into the top tax bracket which starts at $768k for MFJ this year.

At the end of the day, the big 'loophole' if you can call it that is the preferential treatment that cap gains get. Of course, that money has generally already been taxed once so...

Just take the low-hanging fruit that's available to you and don't add a bunch of complexity and difficulty to your life to save a few bucks.

Agreed. $500K HHI simply isn’t that wealthy today. You’re not even cracking the 2nd highest tax bracket if you’re at $500K flat and married. At $500K I’d invest like crazy so you boost your NW as fast as possible. Once you hit $5-10M NW you can get more creative with tax strategies, deferred comp, etc.

Yes we all know our income isn’t “that” high (thanks for the reminder!) however that’s the point: we are taxed at a higher rate than our income warrants. The government treats us like we are rich, yet we’re pinching pennies and going without in order to pay bills, save for college and put $ away for retirement.

But they don’t. If you make 500k you’re not even in the top two tax brackets MFJ. Your effective federal income tax rate is probably around 20 percent. How low do you want your taxes to be?

OP claims that they pay $150k in federal taxes alone though, which is 30%... I also feel like something is wrong here.

[Anonymous]

Anonymous wrote:

Anonymous wrote:So let me get this straight. You asked a CPA. You didn't like the correct answer s/he gave you. And so you thought you'd crowd source this?

Maybe count your blessings to be doing so well that you can contribute that level of taxation and be glad you don't live in other places of the world where taxes are higher (because the USA is basically the world's tax haven).

The short answers is the same your CPA gave you. You're salaried employees. Short of increasing exclusions like 401K contributions, there really are no magic tricks here. And thank God for that. Pay your fair share, damnit.

Ditch the attitude!!

It's frustrating to pay so much of your income in taxes. Those making over $178K pay 75-80% of all income taxes at the federal level. So while many of us are happy to do our part, it's frustrating to see so much of our hard earned income go to taxes ALL the time. We see no real breaks, and are not billionaires

That’s a load of horseshit.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:So let me get this straight. You asked a CPA. You didn't like the correct answer s/he gave you. And so you thought you'd crowd source this?

Maybe count your blessings to be doing so well that you can contribute that level of taxation and be glad you don't live in other places of the world where taxes are higher (because the USA is basically the world's tax haven).

The short answers is the same your CPA gave you. You're salaried employees. Short of increasing exclusions like 401K contributions, there really are no magic tricks here. And thank God for that. Pay your fair share, damnit.

Why is reducing someone's tax burden a bad thing all of a sudden?

It isn't! Most of us in the making $178K and up are paying the majority of taxes in this country. Someone making $500K is paying even more. But yet we don't use the roads or services any more than the person not paying any taxes or paying barely anything. SO yes, we are happy to contribute, but the solution to a budget problem is not to tax us more....it's to budget better.

Smart people work within the law to minimize their taxes. And for W2 workers it is challenging. And yes, when I have paid more in Federal taxes than most will earn in a lifetime, I think I've paid my fair share and would rather have my money to direct to charities that actually fully utilize the money (and to my own family and friends)

Agreed. I’m tired of the assumption that government is the most efficient and benevolent spender of our money. Don’t get me started on state and local taxes. Always going up and so much grift.

It usually is. It’s one of the reasons Medicare is superior to health insurers, for example.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For all the storm and drang about 'loopholes' in the tax code there really aren't that many unless you're willing to do things like become a real estate professional (which is a lot of time and effort!). Even for small businesses/the rich the main ones are:

1. Buy, borrow die -- where you have enough assets to borrow from them and then when you die your heirs get the step up in basis so they don't have to pay taxes on gains. That said, you need to earn more than the interest rate plus cap gains to make this work and you need to be ultra rich.

2. Cash Balance Plans -- a 401k/pension hybrid for business owners where an individual can contribute up 150-300k depending on age. But, these cost a lot and you have to invest conservatively because they are also a pension which brings in a bunch of rules.

3. Solo 401k for small business owners where you can get an additional ~55k into a 401k beyond the employee amount.

4. QBI - if you're not a SSTB you get a decent write-off here. If you are a SSTB then it phases out fairly early.

Some people talk about running personal expenses through a business but that generally isn't tax avoidance, that's tax evasion. Some small things -- maybe internet and your cell phone you can get at a discount but there has to be a bona fide business reason to be spending the money.

You could buy rentals and turn it into a short term rental to take upfront depreciation, but you need to become a bona fide landlord and 500k isn't really enough money to take advantage of it. Honestly, at 500k you're not even in the top tax bracket if you're MFJ so you're not really paying that much in taxes. It feels like a lot but you're probably at around 20% effective tax rate at the federal level. If you want to really make significant changes to your life to save on taxes you probably need to be well into the top tax bracket which starts at $768k for MFJ this year.

At the end of the day, the big 'loophole' if you can call it that is the preferential treatment that cap gains get. Of course, that money has generally already been taxed once so...

Just take the low-hanging fruit that's available to you and don't add a bunch of complexity and difficulty to your life to save a few bucks.

Agreed. $500K HHI simply isn’t that wealthy today. You’re not even cracking the 2nd highest tax bracket if you’re at $500K flat and married. At $500K I’d invest like crazy so you boost your NW as fast as possible. Once you hit $5-10M NW you can get more creative with tax strategies, deferred comp, etc.

Yes we all know our income isn’t “that” high (thanks for the reminder!) however that’s the point: we are taxed at a higher rate than our income warrants. The government treats us like we are rich, yet we’re pinching pennies and going without in order to pay bills, save for college and put $ away for retirement.

But they don’t. If you make 500k you’re not even in the top two tax brackets MFJ. Your effective federal income tax rate is probably around 20 percent. How low do you want your taxes to be?

OP claims that they pay $150k in federal taxes alone though, which is 30%... I also feel like something is wrong here.

OP probably doesn’t understand progressive tax brackets and that their max rate isn’t applied to all income, only the portion above the previous threshold. Many people don’t understand the tax brackets and effective tax rates.

[Anonymous]

I make high 1s / low 2s most years - all W2 income. I have yet to find any substantive tax loop holes. I pay a truly massive, and I would say unfair, amount of my income in taxes.

I think the comments about real estates write-offs are true, but I do not have the interest, time, or mental capacity to do real estate management.