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Hello Fool Collective:

Was wondering if there are any tax strategies that high income earners -whose earnings come primarily through w2 income- can use? Aside from starting one's own business, using a backdoor Roth conversion/contribution, and trying to generate more dividend income, are there any strategies you can reccommend? I realize the term "high income" is pretty subjective.....we are not a one-percenter family, just feel like we are paying taxes like one....

Thanks in advance,
canuck104
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Was wondering if there are any tax strategies that high income earners -whose earnings come primarily through w2 income- can use? Aside from starting one's own business, using a backdoor Roth conversion/contribution, and trying to generate more dividend income, are there any strategies you can reccommend?

Danger, Will Robinson, danger!

What in the world is starting a business doing in that list? Your goal in starting a business is to increase your taxes (by making money), not to reduce them. You show symptoms of taxphobia, which can lead to bad financial consequences.

Maybe you heard stories at Grampa's knee about wonderful things that would generate tax loss deductions without costing you any money. Maybe you've seen things on the Internet that promise you can turn your personal expenses into tax deductions through a business. Always remember what Mother told you: if it sounds too good to be true, it is. Also remember what many here will tell you: if you generate a legitimate dollar of tax deductions you have less money in your pocket after taxes than you would have had without that deduction.

Now for financially sound things you can do.

Maximize 401(k) contributions.

Take full advantage of pre-tax spending plans available at work.

If available consider Health Savings Accounts

If you have children, consider 529 college plans. There's no current Federal tax benefit, but some states give a deduction, and growth is tax-free at all levels if the money is used for qualified expenses.

Phil
Rule Your Retirement Home Fool
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Maybe you can convince your congressman that it isn't really wages and should get carried interest treatment. You'll need to make some very big political donations but congress loves to help out their big donors.
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Was wondering if there are any tax strategies that high income earners -whose earnings come primarily through w2 income- can use? Aside from starting one's own business, using a backdoor Roth conversion/contribution, and trying to generate more dividend income, are there any strategies you can reccommend? I realize the term "high income" is pretty subjective.....we are not a one-percenter family, just feel like we are paying taxes like one....
===========================
What Phil said about maximizing 401(K) deferrals and using other tax-advantaged benefit plans through your job.

And I'm not sure you understand Roth conversions (2-step,or "backdoor", or otherwise.) The two-step method -(nondeductible IRA, followed by a conversion to a Roth) does not lower taxes, until you're ready to withdraw. And a regular Roth conversion costs you tax dollars now.

Bill
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Was wondering if there are any tax strategies that high income earners -whose earnings come primarily through w2 income- can use? Aside from starting one's own business, using a backdoor Roth conversion/contribution, and trying to generate more dividend income, are there any strategies you can reccommend?

Ummmm....assuming your W-2 income isn't affected by your dividend income (I know mine isn't), generating more income in taxable accounts via dividends will increase your tax liability, not decrease it.

One other possible solution - quit your job. ;-)

AJ
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Agree - starting a business will increase your taxes, if you are doing it right. On the other hand, it will (again if doing it right) also increase your income.

I pay WAY more in taxes now than I did before I started my business. But the again, my net worth is higher. Of course, I also now have a lot less free time. You need to decide if the trade-off is worth it for you. Generally, I would say if the only reason you are starting a business is for some cockamamie idea about tax benefits, you will probably fail. You need a lot of energy and attention to run a business. It doesn't just float on autopilot and reduce your taxes.
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The two-step method -(nondeductible IRA, followed by a conversion to a Roth) does not lower taxes, until you're ready to withdraw. And a regular Roth conversion costs you tax dollars now.

Bill


Tax savingas aren't direct, but it does avoid income tax on the gains, and eliminates any tax concerns about changing investments.
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Vote republican next time around.
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Was wondering if there are any tax strategies that high income earners -whose earnings come primarily through w2 income- can use?

A longer term strategy would be to save like mad and invest the savings. That should accelerate the date when the income from your savings is larger than your spending. At that point, quit working. You will then cut out your spending on social security tax, and potentially medicare taxes as well. And since some investment income (like qualified dividends and long term capital gains) are taxed at lower rates, you would also save on income taxes as well.

...

Wait. Never mind. I'm starting up this great deal. I'll use the money you invest with me to purchase CDOs tied to the VIX to do a LBO of a growing M&A practice. We'll take the EBITDA from the M&A and send that to an offshore SPE in the Caymans to save on taxes. Bottom line - you'll show a 100% ROI on a monthly basis, plus you'll get real, usable tax writeoffs for any money invested.

;-)

--Peter <== who has never had anyone take him up on the offer of creating bad debt writeoffs, so is trying a new marketing technique.
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ptheland: "Wait. Never mind. I'm starting up this great deal. I'll use the money you invest with me to purchase CDOs tied to the VIX to do a LBO of a growing M&A practice. We'll take the EBITDA from the M&A and send that to an offshore SPE in the Caymans to save on taxes. Bottom line - you'll show a 100% ROI on a monthly basis, plus you'll get real, usable tax writeoffs for any money invested.

;-)

--Peter <== who has never had anyone take him up on the offer of creating bad debt writeoffs, so is trying a new marketing technique."


I like the new marketing technique, and I too have never had anyone accept my offer to have an LLC I control borrow that targeted deduction amount on an unsecured basis. (;>) But I try to remain hopeful.

Regards, JAFO
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ptheland: "Wait. Never mind. I'm starting up this great deal. I'll use the money you invest with me to purchase CDOs tied to the VIX to do a LBO of a growing M&A practice. We'll take the EBITDA from the M&A and send that to an offshore SPE in the Caymans to save on taxes. Bottom line - you'll show a 100% ROI on a monthly basis, plus you'll get real, usable tax writeoffs for any money invested.

;-)

--Peter <== who has never had anyone take him up on the offer of creating bad debt writeoffs, so is trying a new marketing technique."


JAFO31: I like the new marketing technique, and I too have never had anyone accept my offer to have an LLC I control borrow that targeted deduction amount on an unsecured basis. (;>) But I try to remain hopeful.

And I keep waiting for someone who says they want to invest in an IRA to invest in me. <g>

Ira
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I keep waiting for someone who says they want to invest in an IRA to invest in me.

Thanks for a much-needed LOL (see separate thread).

My current inconsequential pimple on a gnat's butt that still drives me crazy is to get people to realize that the Roth retirement account is an eponym in honor of the late Sen. William Roth (R-DE), back-and-forth Chairman or Ranking Member of the Senate Finance Committee and father of the concept. It's not "ROTH," an acronym.

Phil
Rule Your Retirement Home Fool

who thanks you for listening and doesn't blame you for wanting to shuffle me off to Shady Pines so I can drool into my porridge out of sight
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the Roth retirement account is an eponym in honor of the late Sen. William Roth (R-DE), back-and-forth Chairman or Ranking Member of the Senate Finance Committee and father of the concept. It's not "ROTH," an acronym.

Wait, wait, you mean Coverdell isn't an acronym either? So who's ESA? :-)

-synchronicity, and who was this Ira guy who started some other savings accounts?
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-synchronicity, and who was this Ira guy who started some other savings accounts?



Ira Gershwin, Jr ?
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If you have children, consider 529 college plans. There's no current Federal tax benefit, but some states give a deduction, and growth is tax-free at all levels if the money is used for qualified expenses.
++++++++++++++++++++++++++++++++++++

after seeing how those plans work I would recommend a IRA for each kid. that is more flexible and then you are not forced to pick funds of funds.
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I would recommend a IRA for each kid.

I love Roth IRAs for kids, but remember they have to have earned income to make contributions. (Doesn't mean that the actual cash going into the IRA has to come from the kid.)

Phil
Rule Your Retirement Home Fool
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4thebird:

<<<If you have children, consider 529 college plans. There's no current Federal tax benefit, but some states give a deduction, and growth is tax-free at all levels if the money is used for qualified expenses.>>>
++++++++++++++++++++++++++++++++++++

"after seeing how those plans work I would recommend a IRA for each kid. that is more flexible and then you are not forced to pick funds of funds."

Most kids do not have the income to support an IRA contribution.

Not all 529 plans are funds of funds, IIRC.

Regards, JAFO
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So what your saying is that there are no real strategies other than 401ks, HSA, etc. That would have been a lot easier to read than the snarkiness that is now part of the Fool community:

- Grandpa's knee.......of course you can reinvest profits in a business and defer/minimize taxes.

- Of course backdoor Roth contribution potentially lowers your FUTURE tax burden (yes I do in fact understand them)

- Vote Republican next time......how do you know I didn't

Or.....the most genius of the posts:

- Quit my job......pure genius.....wish I would have thought of that myself!! With that kind of keen insight, he/she should probably run for political office!!

The answers to this thread remind how much the Fool has degraded since the late 90s......no real answers other than smart-ass comments from wannabe know-it-alls. The Fool USED to be a place where people wanted to help with questions....not a place where pinheads post garbage to feel superior to those asking the questions. Jeez.

There are still some "old school" Fools who actually want to help -but they are getting scarcer and/or are less active because of stupidity like the follow-up posts to my question.

And Phil, as a Fool employee, I would expect better of you most of all as you are (presumably) the bearer of the Fool culture that David and Tom created decades ago but which is slowly degrading.

Respectfully,
canuck104
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Try the millionaire fool board. Probably some high w2 folks there. This bunch of yeahoos are all just jealous and some are already drooling in their porridge apparently. Maybe if they went back to charging for membership ...
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Maybe if they went back to charging for membership ..
I think they lost a significant # of useful posters when they did the last time - and that's contributed to the degradation of the boards.
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Hey canuck--

Perhaps your humor detector is on the fritz. Phil did try to entertain a bit at first, but he also had some solid ideas there as well. Ditto for several other posts.

Yes, they may have been things you've already heard. And yes, some replies were longer than they absolutely needed to be. But how about cutting a little slack instead of going directly on the attack?

Whenever people post about ways to cut taxes and include some common trigger items (like starting a business for the tax write-offs), we here start posting warnings. We do that because the culture here is to try to help people avoid doing really stupid things.

Also, these responses aren't entirely for you. For every question posted, there are maybe a dozen lurkers reading with the same question. And some of them would probably be more likely than you to fall victim to some scam done in the guise of saving taxes.

In short, take the good, overlook the bad humor, and ignore what you don't like. But if you bite the hands that type the replies, with barely a comment on the good advice, you're likely to get snark in response.

--Peter
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Maybe if they went back to charging for membership ..
----------
I think they lost a significant # of useful posters when they did the last time - and that's contributed to the degradation of the boards.




Meh .they comped so many posters I doubt they lost money over that
probably lost more good posters to Death


but then, I don't see much degradation
certainly don't see this thread as an example
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overlook the bad humor

I beg your pardon, sir. Call me snarky? Feh. I've been called worse. But accuse me of bad jokes? I may have to take to the bottle.

Hmmm. Now there's an idea. Bye now.

Phil
Rule Your Retirement Home Fool
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Peter:

I respect you and the advice you have given me and others in the past and I (and probably the others) are grateful for it. I take all advice as a starting point for research, not as gospel. I am responsible for my own decisions and I would not blame anyone giving me FREE advice if I lost money by not doing my own DD. I hold the others in Fool community to the same standard -and doing less than that would be doing them a disservice.

As for "cutting a little slack"....although part of The Fool's mandate is to "amuse" it now seems like so much "slack" has been cut by so many in the Fool community that the tone of the community is one of condescension rather than "in good fun".

I'm sorry but I don't feel the need to cut any more slack to those that don't contribute meaningful words of encouragement or advice....too much slack has already been given to the pinheads. I'm not DEMANDING a response to my posts.......I'm ASKING. And if the educating is done with humor, even better. If it's done with condescension or stupidity, I'd rather the poster just keep it to themselves.

Respectfully,
canuck104
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I may have to take to the bottle.

Nearly midnight on a Friday and you haven't done that yet??!!???

You must be getting old. ;-)

--Peter
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