Tax Strategies for High Income W2 Earners Looking to Reduce Tax Liability

First, congratulations on the significant income increase! This is definitely a situation where strategic tax planning becomes crucial. While you're already making smart moves with retirement accounts and deductions, here are some additional strategies to consider: 1. Look into opening a Donor-Advised Fund (DAF) if you're charitably inclined. You can make a large contribution now, get the tax deduction immediately, and distribute the funds to charities over time. 2. Consider investing in Qualified Opportunity Zones which allow you to defer capital gains taxes if you have any investments you could sell. 3. Explore cash-value life insurance policies which can provide tax-advantaged growth, though be careful about fee structures. 4. Real estate investments can provide depreciation deductions, but be wary of passive activity loss limitations at your income level. Your LLC idea has merit but needs careful planning. 5. Section 179 vehicle deductions only work if the vehicle is genuinely used for business purposes and meets weight requirements (typically over 6,000 lbs). For serious tax planning at your income level, I'd recommend working with a CPA who specializes in high-net-worth individuals, possibly at a larger accounting firm. Also consider a financial advisor who works specifically with high-income professionals.

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I wanted to follow up about my experience with taxr.ai since I was skeptical at first. I decided to try it after our household income jumped from $300k to $650k last year with new executive positions. What surprised me was how it analyzed our specific W2 structures and suggested timing strategies for equity compensation and bonus payouts that our accountant never mentioned. It wasn't about finding magical deductions, but optimizing WHEN we recognized certain income and restructuring some compensation elements. The report suggested a tailored strategy combining a cash-balance pension plan with our existing retirement accounts that will save us about $47k in taxes this year alone. Totally worth checking out when you have a complex high-income situation.

If you're trying to get concrete answers about tax strategies for high earners, good luck getting through to the IRS! I spent WEEKS trying to confirm if my proposed tax strategy was compliant. I finally used Claimyr (https://claimyr.com) which got me connected to an actual IRS representative in about 15 minutes when I had been trying for days. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent was able to confirm which of my proposed strategies were compliant and which might trigger scrutiny. Saved me from making a costly mistake with a questionable Section 179 deduction I was considering. Definitely worth knowing about when you're dealing with complex tax planning questions that online resources can't definitively answer.

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Have you looked into a Cash Balance Plan? At your income level, this could be HUGE. It's like a super-charged 401k that allows much higher contributions - sometimes $200k+ annually depending on your age and income. It works alongside your existing retirement accounts. My wife and I are physicians making about $800k combined, and our cash balance plan lets us contribute almost $250k annually on top of our regular retirement accounts. The tax savings are significant. These plans work best if you own your own business or are a partner/owner in your practice, but some larger employers offer them too. Worth asking about or considering if you have any self-employment income on the side.

Since you're already maxing out retirement accounts, have you considered a backdoor Roth IRA? While the contribution isn't deductible, the growth is tax-free, which is valuable long-term. Also, have you explored tax-loss harvesting in your investment accounts? For immediate tax reduction though, real estate is probably your best bet. Section 179 vehicle deductions are useful only if you have legitimate business use. Beware of aggressive tax strategies that might trigger audits - at your income level, you're already in a higher audit risk category.

Don't overlook geographic tax arbitrage if you have any flexibility in where you live. Moving from a high-tax state like California or New York to a no-income-tax state like Florida, Texas, or Nevada could save you 10%+ on state taxes alone. If full relocation isn't possible, establishing domicile in a lower-tax state while working remotely part of the year is an option some high earners use (though be careful with state residency rules). Also, timing of income recognition matters. If your income fluctuates year to year, bunching deductions in high-income years and spreading income across tax years when possible can reduce your lifetime tax burden.

At your income level, you definitely need to think beyond the basic strategies you're already using. Here are some additional approaches to consider: **Immediate strategies:** - **Mega backdoor Roth**: If your employer's 401(k) allows after-tax contributions and in-service withdrawals, you could potentially contribute up to $69,000 total per person ($23,000 traditional + $46,000 after-tax converted to Roth) - **Solo 401(k) for side income**: If either of you has any 1099 consulting income, even small amounts, you can establish a solo 401(k) with much higher contribution limits - **Charitable giving bunching**: Instead of giving $10k annually to charity, consider giving $50k every 5 years to get above the standard deduction threshold in those years **Investment considerations:** - **Oil & gas partnerships**: These can provide significant depletion allowances and intangible drilling cost deductions, though they're high-risk investments - **Qualified Small Business Stock (QSBS)**: If you have any startup equity or can invest in qualifying small businesses, this offers potential tax-free gains up to $10M **Professional advice is crucial**: At $720k income, you're definitely in "get a tax attorney and wealth management team" territory. Look for CPAs who specifically work with executives in your income bracket - they'll know strategies that general practitioners don't. The real game-changer will likely be shifting from pure W2 income to building wealth through equity and investments where you can control timing and tax treatment.

One strategy you might not have considered is establishing a defined benefit pension plan if either of you has any consulting or side business income. Even small amounts of 1099 income can justify setting up a plan that allows massive tax-deductible contributions - potentially $100k+ annually depending on your ages. Also, look into **conservation easements** if you're willing to take on more aggressive strategies. These allow you to donate development rights on property (which you can purchase specifically for this purpose) and claim charitable deductions often worth 4-5x your investment. However, these are heavily scrutinized by the IRS, so you need bulletproof documentation and legitimate conservation value. For immediate relief, consider **installment sales** if you have any appreciated assets. This lets you spread the tax burden over multiple years rather than taking a huge hit all at once. At your income level, you should also explore **life insurance as an investment vehicle** - specifically, a Private Placement Life Insurance (PPLI) policy. These allow tax-free growth on substantial investments and can be structured to avoid estate taxes later. Most importantly, start thinking about **entity structuring**. Even as W2 employees, you can potentially shift some income through consulting LLCs or S-Corps if your employers allow side work. The key is legitimate business purpose - but the tax savings can be substantial. I'd recommend reaching out to wealth management firms that specifically serve executives in your income bracket rather than traditional CPAs. They'll have access to strategies that typical tax preparers don't even know exist.

At your income level, you're entering territory where tax planning becomes as important as the income itself. Here are some additional strategies to consider beyond what others have mentioned: **Immediate high-impact moves:** - **Deferred compensation plans**: If your employers offer these, you can defer a portion of current income to future years when you might be in lower brackets - **Executive physical programs**: Many employers reimburse these as business expenses, converting what would be personal medical costs into pre-tax benefits - **Professional development**: Maximize any employer-sponsored education benefits, professional memberships, and conference attendance **Investment restructuring:** - **Municipal bonds**: At your bracket, tax-free munis might yield better after-tax returns than taxable bonds - **I Bonds**: While limited to $10K per person annually, these provide inflation protection with tax deferral options - **529 plan superfunding**: You can contribute 5 years' worth of gifts ($90K per beneficiary) immediately for children's education while removing assets from your estate **Timing strategies:** - **Bonus timing**: If you have any control over when bonuses are paid, spreading them across tax years can help - **RSU management**: If you have any equity compensation, careful timing of vesting and sales can optimize tax impact The key at your income level is working with a team - CPA, financial planner, and possibly an estate attorney. Look for firms that specialize in tech executives or high-income professionals rather than general practitioners. The strategies available to you are significantly more complex and valuable than standard advice. Your effective rate concern is valid, but remember you're building wealth at an accelerated pace that most people never achieve. Smart tax planning now sets you up for long-term financial independence.