7 tax strategies for W2 earners making $100K to $1M

0:00 In today's video, I'm going to walk through the seven tax reduction strategies that my clients are earning between $100,000 to over a million dollars used to cut their W2 tax bills. I'm talking about people who are tired of writing massive checks to the IRS every April and want to actually keep more of what they earn. Now, before we dive in, let me be clear about something. I work with people who are already handling the basics. They've got their 401ks maxed out. They understand HSAs. What we're talking about today goes beyond that foundation. These are strategies that require actual work, real money, and careful implementation. None of this is passive and none of this is just some magic button. Let me start with a real example. I have a client with Colin Marcus. He's a software executive, $850,000 in W2 income. He's married and has two kids. Last year, he paid $287,000 in federal taxes alone. This year, we got him down to $164,000. That's $123,000 in actual tax savings. And we did this by combining three of the strategies I'm about to share with you. The first one is a short-term rental strategy. This has become the go-to move for higher earners over the past few years, and for good reason. Here's how it works and why it's so powerful. Most rental properties are considered passive activities by the IRS. That means that losses can only offset other passive income. You can't use them against your W2 salary, but the IRS carve out an exception for short-term rentals where the average guest stay is 7 days or less. If you meet the material participation requirements, then those losses become active and can offset your W2 income.

1:16 Material participation sounds complicated, but the most common test is actually straightforward. You need to spend more than 100 hours managing the property and spend more time than anyone else working on it. That includes your property manager, your cleaning crew, your maintenance people, etc. All you have to do is log more hours than any single person or entity. Here's what this looks like with real numbers. You buy a $500,000 short-term rental property, let's say in a market like Tennessee, Florida, or Arizona, where short-term rentals are still viable. Now, you put down 25%, so that's $125,000 out of pocket, and you finance the remaining $375,000. You then hire a cost aggregation engineer to analyze the property. The study can typically range from anywhere from $2 to $4,000 and up, but it's worth every single penny. The engineers can identify all the components of your property that can be depreciated faster. They're looking at things like appliances, carpeting, light fixtures, landscaping, parking lot, paving, fencing, etc. And in these items get reclassified into 5year, 7year, or 15-ear property categories. On a typical $500,000 property, the costic study will identify anywhere between, let's say, $125 to $200,000 worth of assets that qualify for accelerated depreciation.

2:17 And with bonus appreciation restored to 100% for properties placed in service after January 19th of 2025. This is under the one big beautiful bill act. You can deduct the entire amount in year 1. So let's say your study identified $150,000 in qualifying property. That entire $150,000 becomes a deduction against your taxable income in year 1. If you're in the 35% federal tax bracket, that's $52,500 in federal tax savings. And if you're in California and a 9.3% state tax, you can add another $13,950. So, total tax savings here is $66,450. You put down $125,000 and you saved $66,000 in taxes. And now you can own a cashling asset that could generate you $1,500 to $4,000 plus per month in rental income. Now, let's talk about the 100 hour requirement because this is where people either qualify legitimately or they get themselves into trouble. So, you're probably asking yourself, what counts towards your hours? things like responding to your guest inquiries and booking requests, managing your listings on Airbnb and other platforms, coordinating with the cleaning crews between guests, handling all the maintenance issues, purchasing supplies and furnishings, communicating with your property manager if you have one, reviewing financials and managing the books, also marketing and optimizing your listing. The biggest thing here is you need to track your hours religiously. You can use a simple spreadsheet or a time tracking app.

3:26 Write down the date, the activity, and the time that you spent. That way, if you get audited, this documentation has you covered. And you need to know how many hours your property manager and your cleaning crew are logging. If a cleaner spends three hours per turnover and you have 40 turnovers in a year, that's 120 hours. You need to work 120 hours minimum [music] to exceed their time. And this is why many of my clients choose to self-manage their short-term rentals, at least for the first year or two. Now, let's get into the second strategy, which is real estate professional status. Now, this is one of the best ways for real estate tax benefits, but it comes with serious time requirements that most W2 employees can't meet on their own. Let me break down exactly what's required and when this makes sense. You need to meet two tests. First, you must spend more than 750 hours per year in real property trades or business. Second, more than 50% of your personal services performed in all businesses during the year must be in real property activities. That second test is a killer for most W2 employees. If you work 2,000 hours at your job, you need 2001 hours in real estate. If you work 40 hours per week for 50 weeks, that's 2,000 hours. So, to qualify as a real estate professional, you need to work 2001 hours in real estate. That's another 40 hours per week. You basically need two full-time jobs, which is mathematically almost impossible for most people. Unless you're working part-time at your W2 job, you're not going to be qualifying as a real estate professional while employed full-time elsewhere. But now, if you're married, if you file jointly, only one spouse needs to meet both tests. If your spouse doesn't work full-time or is between careers or works part-time, they can potentially qualify as a real estate

4:44 professional for your tax return. Let's say your spouse works 20 hours per week as a consultant, bringing in, let's say, $30,000 per year. That's about a,000 hours annually. Then, to qualify as a real estate professional, they need to work, 101 hours in real estate and hit the 750 hour minimum. That's very achievable. Now, if your spouse already works in real estate, this becomes even easier. Maybe they're a real estate agent, maybe a property manager or real estate attorney, or they work in construction or development, those hours count. And if they're already spending 750 plus hours working at real property trades or business, and that represents more than half their working time, then they might already qualify. Now, here's something that most people miss. Once your spouse qualifies as a real estate professional, you still need to meet the material participation test for each rental property individually. The most common test is 500 hours per property, but you can make an election to group all your rental properties together as a single activity. That way, you only need 500 hours total across all properties and not 500 hours per property. If you own four rental properties and your spouse qualifies as a real estate professional, and you made the grouping election, you need 500 hours total managing those four properties to unlock all the losses. That's 10 hours per week. Very doable. Now, here's why this matters so much more than the short-term rental strategy. Real estate professional status works for any rental property. If you prefer the stability of long-term rentals and don't want to deal with the management intensity of short-term rentals, then this can be your path. You can own three long-term rental properties with a combined basis of $1.5 million after cost aggregation studies. And if your spouse qualifies as

6:01 a real estate professional and you meet the material participation, you [music] can generate 300 to $450,000 in firstear losses through accelerated depreciation. Those losses directly offset your W2 income at a 37% federal rate plus state taxes. That's potentially 150 to $200,000 in tax savings in year 1. the properties continue to generate depreciation and hopefully cash flow for years to come as well. The biggest thing here is to make sure that you track all your hours and have all the documentation ready in case you get audited. As long as you do that from day one, then you're good to go. The third strategy is maximizing qualified retirement plans beyond the basics. Now, everyone knows about 401ks, but very few people are actually maximizing retirement contributions at the highest levels. Let me show you what's actually possible. For 2025, the employee deferral limit for a 401k is $23,500. If you're 50 or older, you can add $7,500 as a catch-up contribution for a total of $31,000. If you're between 60 and 63, there's a new enhanced catchup provision under the Secure 2.0 act that lets you contribute $11,250 instead of $7,500, bringing your total to $34,750.

7:01 But here's what most people don't realize. That $23,500 or the $31,000 or even the $34,750, it's just the employee deferral limit. The total contribution limit for 2025, including employer contributions, is $70,000. If you're 50 or older with catchup, it's $77,500. And if you own a business or have self-employment income, you can make both employee and also employer contributions. You can max your employee deferrals at $23,500 and then add profit sharing contributions up to the $70,000 total limit. So for someone with $150,000 in self-employment income, that can mean over $50,000 plus in total contributions. Now, let's talk about the cash balance plans. These are defined benefit pension plans that work alongside your 401k. They're perfect for high-income business owners and professionals who want to contribute significantly more than the standard 401k limits. With a cash balance plan, your contribution amount is based on your age and your income. The older you are and the higher your income, the more they can contribute. So for someone in their 40s with $300,000 plus in income, contributions might be $100,000 to $150,000 annually. And for someone in their 50s or 60s with high income, contributions can exceed $200,000 or even $300,000 per year. Here's a real client example. They're a 52-year-old physician that has $400,000 in W2 income from their hospital position, plus $250,000 in income from her private practice. She maxes her hospital 401k at $31,000 with catchup. Then through her private practice, she contributes

8:18 $185,000 to a cash balance plan. And so the total retirement contributions here is $216,000 at a combined federal and state rate tax of 46%. That's nearly $100,000 in tax savings. The money grows tax deferred and she's building a serious retirement nest egg while slashing her current tax bill. And let's talk about IAS because there's a lot of confusion out there. The traditional IRA contribution limit is $7,000 for 2025 or $8,000 if you're 50 or older. The $7,000 IRA limit applies whether you're contributing to a traditional IRA, a Roth IRA, or combination of both. It's a combined limit across all your personal IAS. Most high earners can deduct traditional IRA contributions because they're covered by a workplace retirement plan and their income exceeds the deduction limits. For 2025, if you covered by workplace plan, the traditional IRA deduction phases out between $79,000 and $89,000 for singles and $126,000 to $146,000 for married filing jointly. You can't contribute directly to a Roth IRA if your income is too high. So for 2025, the Roth IRA contribution limit phases out between $150 to $165,000 for singles and $236,000 to $246,000 for married filing jointly. But here's the workound. The backdoor Roth conversion. You contribute to a traditional IRA on a non-deductible basis, meaning you get no tax deductions for the contribution. And then you immediately convert that traditional IRA to a Roth IRA. You're going to pay taxes on any earnings between the contribution and conversion, which is usually minimal

9:35 if you convert quickly. And now you have $7,000 in a Roth IRA that's going to grow taxree forever. This works regardless of your income level because there's no income limit on conversions, only contributions. Now, before we get into the next four strategies, I want to tell you about something. I'm hosting a live class this week where I'm going to deep dive on all these strategies plus several others. We're going to hang out for a few hours. I'm going to walk you through step by step exactly how my clients are able to reduce their tax bills and add over $100,000 or more to their net worth. If you're serious about keeping more of your money and building real wealth, you can grab a free se in the link in the description. And sponsor limited because I want to make sure that I can answer as many people's questions. All right, with that being said, let's keep going. The fourth strategy is the Augusta rule. This is one of the most overlooked tax strategies in the entire code and it's perfectly legal and extremely straightforward. It's called the Augusta rule. Okay. It's named after Augusta, Georgia, home of the Masters Golf Tournament. Under IRC section 280G, you can rent your personal residence for up to 14 days per year and pay absolutely zero taxes on that rental income. You don't even have to report it to the IRS. It's completely taxree. Now, the original intent for this rule was for homeowners near major events. If you live in Augusta and you rent your house for $10,000 per day during Masters Week, that income is taxree. And if you live in Phoenix near the Super Bowl stadium, same thing. But the rule doesn't limit to sporting events. Here's where this gets interesting for business owners and high earners. You can rent your home to your own business for legitimate business purposes. Think corporate meetings, board meetings, etc. And as long as you're charging fair market rates and the business uses legitimate,

10:52 then the business gets a deduction and you receive tax-free [music] income. Fair market rate here is critical. You need to document what comparable event spaces in your area charge. If local hotels charge $1,500 for conference room rentals, you can't charge your business $10,000 to use your house. But if high-end event venues in your area charge anywhere from $2 to $4,000 per day for your private home rentals, and that can be your benchmark. Let's say you own a consulting business. You have a nice home with a large living area, dining room, and outdoor space. You decide to host your quarterly board meetings at your home instead of renting a conference room. You also host two client appreciation dinners and an annual strategy retreat. That's six events throughout the year. Let's say comparable invent spaces in your area rent for $2,500 per day. You charge your business $2,500 for each of the six days that you use your home. That's $15,000 in rental income to you completely taxree. And so your business deducts $15,000 as a legitimate business expense at a 40% combined tax rate. Your business saves $6,000 in taxes from the deduction. and you pay zero taxes on the $15,000. If you had just paid yourself that $15,000 as salary, you'd pay $6,000 in taxes. With the Augusta rule, you keep all the $15,000. Now, here's what you absolutely have to do to make this legitimate. First thing, you have to document everything. Create rental agreements between yourself and your business. Secondly, charge fair market rates based on documented research.

12:00 Third, make sure that you track attendee list, agendas, and photos of the setup. Fourth, your home needs to be suitable for the business purpose as well. You can't host a 50 person conference in a one-bedroom apartment. Now, a couple things that kill this strategy is trying to use it for 20 times per year. The limit is 14 days period, or trying to charge unreasonable rates, like $10,000 per day when comparable spaces rent for $1,500, claiming you held events about having no evidence or renting to your business for personal use like family birthday parties. If you use this correctly, the Augusta rule is a powerful, completely legal way to move money from your taxable business income to tax-free personal income. The fifth strategy is oil and gas working interest. This is one of the few remaining strategies where you can offset W2 income with active losses, even without material participation. It's also one of the most misunderstood strategies out there. So, let me break down exactly how this works and why it makes sense. Under IRC section 469C3, [music] working interest in oil and gas properties are specifically exempt from passive activity loss rules as long as your liability isn't limited. That's a key phrase. Your liability can't be limited. That means you can't invest through a limited partnership or LLC where your losses are capped at your investment. You need actual working interest exposure. Now, the IRS allows this because oil and gas production is considered critical to national energy security. The tax code incentivizes domestic energy production by allowing immediate deductions for drilling costs.

13:12 When you invest in an oil and gas drilling partnership with a working infrastructure, your investment gets split into two categories, intangible drilling costs and tangible drilling costs. Intangible drilling costs or IDCs include everything that doesn't have salvage value. Think labor, fuel, chemicals, hauling, site preparation, drilling services. These costs typically represent 60 to 85% of the total well cost. Now, here's a powerful part. You can deduct 100% of your share of the IDC's in the year they're incurred, even if the well doesn't start producing until the following year, as long as the drilling begins before the end of the tax year. Let's put some numbers to this. Let's say you invest $150,000 in a drilling partnership. The operator determines that 75% of the costs are IDC's. That means you can deduct $112,500 in the first year against your W2 income. At a 37% federal rate plus a 9.3% California tax rate, that's $52,000 in tax savings. You've effectively reduced your net investment to $97,000 after the first year tax benefit. The remaining 25% or $37,500 consists of tangible drilling costs like equipment, casing, and wellhead. These depreciate over 7 years. In year one, that's another $5,300 in deductions using the half-year convention. So, your total year one deduction is about $117,000 on $150,000 investment. That's a 78.6% first year deduction. But here's where people need to understand the risks.

14:23 First, you have unlimited liability exposure. If there's an environmental disaster, you can be personally liable beyond your initial investment. This is why the structure isn't a limited partnership. That unlimited liability is what makes the tax benefits work. Second, these are speculative investments. The well might not produce. Oil and gas prices fluctuate and you could lose your entire investment. This isn't a guaranteed return with a tax benefit. It's a real investment in energy production that happens to have favorable tax treatment. Third, there are alternative minimum tax considerations. Your IDC deductions can trigger AMT, which limits your ability to use the deductions. And under the AMT rules, you generally can't deduct more than 40% of your alternative and minimum taxable income through IDC's. And so, if you're already paying AMT, the strategy becomes less effective. Fourth, there are excess business loss limitations. For 2025, the limit is approximately $35,000 for single filers and $610,000 for married filing jointly. If you're already at or near these limits from other business losses, your IDC deductions might not provide immediate benefits. Now, given all these factors, when does this strategy make sense for you? This might make sense for you if you're a high earnner in the 35 to 37% federal bracket. You're not already in AMT and you're not hitting excess business loss limits or you have genuine interest in energy investing beyond just the tax benefits. You should plan to hold these investments for years and not just take the deduction and forget about them. If those conditions apply, then the combination of the immediate tax deductions plus the potential cash flow from production and the depletion allowance that shelters 15% of gross

15:40 revenue makes this a legitimate wealth building strategy with significant tax advantages. The sixth strategy is a private family foundation. If you're earning $300,000 or more, a private family foundation gives you significantly more control than donor advised funds while still delivering substantial tax benefits. But foundations come with real responsibilities and costs. So, you need to understand what you're getting into. First, let's go over the tax benefits. When you contribute to your private foundation, you can deduct cash contributions up to 30% of your adjusted gross income. For contributions of publicly traded securities you've held for over one year, the limit is 20% of your adjusted gross income, but you get to deduct the full fair market value and avoid capital gains taxes on the appreciation. For most other appreciated assets like real estate or closely held stock, your deduction is limited to your cost basis and not the fair market value. And any contributions that exceed these annual limits can be carried forward for up to 5 years. So if you have a big income spike one year, you can make a large contribution and spread the deductions over multiple years.

16:29 Let's walk through a realistic scenario. You're a business owner with $800,000 in adjusted gross income. You decide to establish a family foundation and you make an initial contribution. You have $300,000 in cash, $200,000 in publicly traded stocks with a $50,000 cost basis that you've held for 3 years. So, you contribute the cash and stock to your foundation. You immediately deduct the full $300,000 cash contribution, which is under your 30% adjusted gross income limit of $240,000. So, the $240,000 deducts this year and the $60,000 carries forward. You also deduct the full $200,000 fair market value of the stock, but your limit is 20% of your adjusted gross income, which is $160,000. So the $160,000 deducts this year and the $40,000 carries forward. Your total year one deduction is $400,000 at a 40% combined tax rate. That's $160,000 in tax savings. In year two, assuming your income is similar, you get to deduct the remaining $100,000 in carry forwards, saving another $40,000 in taxes. And so your total tax savings is $200,000 on a $500,000 contribution. Plus, you avoided paying capital gains taxes on $150,000 of stock appreciation. At a 23.8% 8% long-term capital gains rate, including the Medicare sir tax. You saved another $35,700. Now, here's what makes Foundations different from donor advised funds. You control the assets completely. You get to choose the investments. You can invest into alternative assets like real estate, private equity, Bitcoin, whatever aligns with your strategy as long as you follow prudent investor rules. You can involve your family as well. You can pay

17:46 reasonable salaries to family members who perform real work for the foundation. And you can put your kids on the board and teach them about philanthropy and also wealth management. But these foundations come with requirements. You have to distribute approximately 5% of your assets annually to a qualified 501c3 charities. This is calculated based on the average value of your non-charitable assets from the prior year. The administrative expenses count towards this requirement, but you have to actually give money away. You also have to file form 990 PF annually. This is a public document. Anyone can see your foundation's financial information, your grants, and also your compensation. You also have to pay a 1.39% excess tax on your net investment income. You also need to follow strict rules about self-deing, which means no transactions that benefit you or your family members directly. So, who should consider a private foundation? High earners with $500,000 plus in assets to contribute who also want family involvement and also investment control. If you just want tax deductions and simpler administration, then a donor advice fund is probably better. But if you want a control and also a legacy, then a private foundation is the ultimate tool. The seventh strategy is Bitcoin mining equipment and accelerated depreciation. Bitcoin mining equipment purchases qualify for 100% bonus appreciation, which means you can deduct the entire cost in year 1. And unlike most equipment purchases, Bitcoin miners give you exposure to Bitcoin appreciation without actually having to buy Bitcoin directly. I don't see a lot of people talking about this, so let me explain how this works and why it's so powerful for high earners who believe in Bitcoin. Bitcoin mining equipment, specifically ASIG miners, are computers designed for one purpose, mining

19:03 Bitcoin. These machines cost anywhere from 2,000 to $50,000 plus per unit, depending on the model and the efficiency. When you purchase these miners for use in a trade or business, they qualify for a 5-year property under MACS depreciation. With 100% bonus appreciation restored under the One Beautiful Bill Act for property place and service after January 19th of 2025, you can deduct the entire purchase price in year 1. It's specifically designed to incentivize business investment and equipment. Here's a realistic example. Let's say you invest $150,000 in Bitcoin mining equipment. You buy approximately 20 high efficiency ASIC miners. You either set them up in your own facility with adequate power and cooling, or more commonly, you colllocate them at a professional mining facility that handles the operations for you. In year one, you deduct a full $150,000 against your active income at a 40% combined federal and state tax rate, that's $60,000 in tax savings. Your net investment after tax benefits is $90,000. Now, here's where it gets really interesting. Those miners generate Bitcoin. Depending on Bitcoin's price, network difficulty, and your electricity costs, you might generate $30,000 to $60,000 worth of Bitcoin in the first year. that Bitcoin is taxed as ordinary income when you receive it and it's based on the fair market value on the day you mine it. But here's a strategy. You don't sell that Bitcoin immediately. You hold it. And when Bitcoin appreciates and you eventually sell years later, that appreciation is taxed at long-term capital gains rate, not ordinary income rates. So basically, you're converting ordinary income deductions today into long-term capital gains tomorrow. Let me walk you through

20:19 the complete economics. So you invested $150,000 in mining equipment. You deduct $150,000 in year 1, saving $60,000 in taxes. Over three years, your miners generate $180,000 worth of Bitcoin at the time you mine it. You pay ordinary income taxes on the $180,000, which cost you $72,000 at a 40% rate, but you held that Bitcoin and it doubled in value. When you sell, you have $360,000. Your capital gains tax on the $180,000 appreciation is $42,000 at a 23.8% rate. And so, your total tax paid is $114,000 on $150,000 investment that you effectively made for $90,000 after the first year deduction. you end up with $245,000 after all taxes. [music] That's a 273% return on your net investment over 3 years. Now, there are some really important considerations here. First is the mining difficulty increases over time, so your miners produce less Bitcoin as time goes on. The equipment also eventually becomes obsolete, typically within 3 to 5 years. You need to factor in electricity costs, hosting fees if you're coll-locating, and also maintenance. Secondly, this only works if you're operating a legitimate mining business. You need to actually mine Bitcoin and report the income. You can't just buy the equipment, take the deduction, and leave the machine in boxes. The IRS expects the equipment to be placed in service and used in your business. Third, [music] Bitcoin's price is volatile. The mining revenue could be higher or lower depending on market conditions. This isn't a risk-free strategy. You're making a real investment in Bitcoin mining with favorable tax treatment and not just buying a tax deduction. If you're high

21:35 earner in a 35 to 37% federal bracket who believes in Bitcoin's long-term appreciation potential, you understand the technology and want to accumulate Bitcoin through mining rather than direct purchases, then this can be for you. So, if you're looking for ways to generate tax deductions while accumulating a hard asset that could appreciate significantly, then Bitcoin mining with a 100% bonus depreciation is one of the most powerful strategies available in 2025. All right, we've covered seven strategies that can legitimately save you tens of thousands of dollars, if not hundreds of thousands of dollars in taxes. But here's the reality. Understanding these strategies is one thing. Actually implementing them correctly is something else entirely. That's exactly why I'm hosting a live master class this week. We're going to spend a few hours together going deep on implementation. This is the same process my clients use to reduce their tax bills and add over $100,000 or more to their net worth. If you're earning a h 100,000 to over a million dollars and you're serious about keeping more of what you earn, grab a free seat. The link is in the description. We only have a limited spots because I want to keep it small to answer everyone's questions. Let me close with something really important.

22:26 These strategies work when implemented correctly. They work for my clients and they'll continue to work as long as the tax code provisions remain in place, but they require professional guidance, meticulous documentation, and genuine business purpose beyond just the tax benefits. If you found this video helpful, please give it a like and watch this video next that YouTube recommends.