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

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[quote=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. [/quote]

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