[USER]

Hi! For the last couple of years, we have been paying a lot in income tax. We have high incomes, and live in California. I do our taxes, and my husband feels like I’m doing something wrong. I’m sure I’m doing everything right but just not being strategic throughout the year. I want to better learn and strategize so we don’t lose all of our hard worked savings to the IRS.

I have been reaching out to financial advisors but most want to take over our investment, funds, sell life insurance, etc. and want to grow our funds but not necessarily help with the tax planning. Am I looking for the wrong professionals? Should I search by financial planners? Or something else? We have two homes now, children, and therefore I would love some help to review our current finances and see what we can do to save on taxes, but also FIRE.

TIA!

[Michelle]

You need to talk to a tax professional.

[Stephanie]

W2 employees only have so much they can deduct on their taxes. To really maximize tax savings, you need to have a side hustle so you can use schedule C and write off every day expenses, like phone, groceries and mileage on your car.

Read the book, Lower your Taxes, by Sandy Botkin, a former US tax attorney.

[Dalton]

Accountants are great year to year for taxes, but their job is normally to minimize taxes this year. A good financial planner can help you evaluate your situation this year and how that will impact your taxes into the future. Some accountants scan do both, some planners can do both, but won’t file your taxes for you.

Finding a good one is key.

Don’t miss: Tax implications of paying off mortgage faster with extra principal payments?

[Jimmy]

You need a CPA.

[Mc.Turfers]

I realize taxes are intimidating to most people who don’t work in finance or accounting as a career field but when you break it down to its fundamentals, there’s really not much to it. Mostly there is no way to avoid paying taxes all together, what most tax planners try to do is defer it, but you can keep this going in perpetuity in theory. If you’re a W-2 employee, you could be hard pressed to find many ways to defer taxes unless you’re not maximizing obvious things like retirement vehicles. Chances are you’re already taking advantage of whatever deductions and credits that are afforded to you if you’re using an OTC software.

Now, if you receive a K-1 or own your business, that’s where many CPA’s will just look for ways to accelerate expenses. Think section 179, cost seg studies, etc. Maybe some r&d credits or ERTC funds are a hot item if you qualify.

However, for the average household, you might look into real estate investing which has been great to us. We diversify so we’re in everything but real estate is the crown jewel. Not to over complicate things here in a post, but when you talk about building generational type wealth with controllable taxation, real estate investing is a no brainer. Passive income is offset by passive losses which includes expenses, the largest being depreciation, on your properties. When done properly you make real money but you break even or operate at a loss (which carry forward) on taxes. If you fear you may trigger taxes via generating too much income, that means buy more property. The beautiful thing is your properties build equity that is never taxable unless sold, which you will never ever do. If you want to access the cash, you leverage the equity with bank financing. The interest is tax deductible while you access your equity, which triggers no taxable event. This is the part where you really hit pay dirt, literally when you pass away, your portfolio of properties transfers to your heirs and they get a step up in basis. Another way to say this is, if you die, and your kids inherited your wealth, they can sell all your properties and avoid capital gains. It’s rather incredible. Again, generational wealth. I will say the same rule applies to all financial assets. Cheers.

Have you seen: Any tips on how I can avoid a massive tax bill when I file next year?

[Hayes]

You want to look for a tax planner, not a financial advisor. Most financial advisors will specifically tell you that they don’t give tax advice.

[Lana]

You’ve been directed to a tax strategist, which is good advice. However, if you’re both W-2 and nothing else is going on (business, real estate), they are limited in what they can do.

W-2 is hard to optimize, you owe what you owe, less a handful of deductions.

[Damon]

Tax strategist. Typically CPA and/or tax attorney.

[Lana]

If you are a W2 employee, there’s little you can do. If you own a business, you can do all kinds of tax fraud. I don’t think every business owner does that, but many, many do.

[Alka]

Are you maxing out 401k and HSA? If you don’t have then their work, you can make your own. Have any 529 for each kid? After that find a good accountant.

[Elie]

I’ll agree that you may want to try a professional CPA. Unless your tax situation is super simple with only W2 and standard deductions, a CPA may be able to look in the right areas and ask the right questions to help you optimize your situation.

One word of caution is that some CPAs may prioritize saving you the most amount of money in taxes this year, without talking through the possible implications of taxes in the future (retirement). It probably wouldn’t hurt to try a CPA for one year, and if they don’t help add value to your tax situation, then you’re probably doing pretty well yourself.

Consider browsing: Should W2 employees pay taxes early?

[Sean]

As others have mentioned the person you’re looking for will be a CPA. But you’re high earners in a high tax area. Assuming you are W2 there will be very few deductions to be had.

Make sure you’re maxing out all tax advantaged accounts, especially the pretax ones, and make sure you are itemizing deductions if you can.

[Author]

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