Four tax mistakes found in 100 returns from W-2 earners over $300K

0:00 I spent the last 6 months auditing tax returns from W-2 earners making $300,000 or more per year. Now, out of the first 100 returns, 94 of them were leaking money. The average miss was just over $42,000 per year. Some were missing $80,000 or more. One household was even $127,000. Now, here's the part that should bother you. Every one of these returns was filed by a licensed CPA. If you're making money and you've ever had the feeling that you're overpaying way too much in taxes, but you don't actually know where the leak is, this video is going to give you a real answer. Okay, I'm not just going to give you generic tips, not stuff you've seen on five other channels. to give you the four actual patterns I see on returns from people in your exact situation with real numbers attached, plus a 15-minute check you can run on your own return today to see if you're in the 94 or the six. My name is Preston. We work with high-income W-2 earners and business owners on integrated tax and wealth strategies. Now, the patterns I'm going to show you today are real. They're what shows up on the spreadsheet household after household week after week. Here's how this is going to go. You're going to see the four patterns with a real dollar cost on each one. And the fourth one is brand new for 2026 because the law just changed and almost no CPAs have integrated it yet, so stick around for that. Let's talk about the first pattern. Almost 80 of those 100 returns showed someone doing exactly what they were told to do. Maxing the 401k, getting the match, and stopping there.

1:05 If that's you and you've been feeling responsible by your finances because [music] of it, this next part is going to be very uncomfortable. You're using one tax advantage account when you have access to four or five. The 401k gets all the attention because it's the easiest. Your employer hands you the form, contributions come out automatically, you don't even have to think about it, so you don't. Well, underneath that one account, there's a stack of other vehicles you probably qualify for, but probably aren't using. There's a HSA that compounds tax-free in a way that nothing else in the code does. There's a mega back door Roth, which is when your employer's plan allows after-tax contributions and lets you convert them into a Roth. Most of the people I talk to have never asked HR if it's available. Some plans don't offer them, probably have to, and people just never check. We also have donor advised funds if you give to charity. There's deferred comp if you're at a big company. Each one of these has its own rules, its own timing, and its own ideal income range as well. None of these get set up on autopilot. They require somebody to actually look at your situation and recommend the right ones in the right order. I just had an engineer come in last year. He was making $385,000 per year, maxing out his 401k, and felt great about it. He pulled his benefits package, we ran all the numbers, get access to a mega backdoor Roth, and didn't know about it. That was 3 years of missed contributions, roughly $135,000 that should have been growing tax-free for the next 30 years, just gone. Now, let's get to the next one. More than half of these 100 returns had some side income to them. Consulting work, a small rental, etc. Now, almost none of them had any structure around it. The lack of structure was costing a typical household between 10 to 25,000 per year.

2:22 When you have a W-2 income plus side income, here's the thing that most people miss. Your W-2 is locked. There's almost nothing you can do with it from a tax perspective. The withholding happens, FICA gets taken, and the money is gone before you see it. Now, on the other hand, the side income is where every lever lives. What I see on the returns is the side income just gets dumped onto a schedule C. There's no entity, there's no election, no segregation of expenses. The IRS treats the whole net as self-employment income and takes 15.3% off the top, and that's before you even get to federal and state. Then, the QBI deduction either gets missed entirely or gets phased out because the income is structured wrong. Now, the fix isn't complicated. An S corp election on the side income lets you split it into a reasonable salary plus distributions. The distributions don't get hit with the self-employment tax. On a $100,000 side business, that move alone is worth roughly $10,000 per year. Now, the bigger leverage is what the S corp will let you do next. Once it exists, you can sponsor a solo 401k. That means you can contribute another $24,500 plus 25% of your salary into a tax-advantaged retirement account from the side business. That's on top of your day job's 401k. You can also lease equipment, hire your spouse, run an accountable plan for travel and meals.

3:21 The structure unlocks a different category of strategies entirely. Now, a typical rule of thumb, if you're netting more than about 40 to 50,000 from a side activity, the entity conversation is worth having now. If you're below that, the cost and complexity probably isn't worth it yet. Above that, you're leaving five figures per year on the table for every year you put it off. The check to run yourself is on schedule SC of your last return. If there's a number on line 12, and you don't have an S corp election in place, that's the number you should be calling about this month. Now, the third one is harder because the issue isn't an account or an entity. It's a relationship you have with whoever does your taxes. Now, really quick, now everything I'm walking through today is the same framework I'm going to run through this week. We're going to go deeper on how to run a tax projection on your own situation, what the right entity structure looks like at different income levels, and the major tax code changes that happened. It's free, the link is in the description, and we're going to cap attendance because I want to actually answer your questions live. You can grab a free spot down there. Pattern three is the one that cost the most over a lifetime, and it's the hardest to see if you're inside of it. Out of those 94 returns with errors, the average household not had a single [music] planning conversation with their CPA in the previous 24 months. Not a single one. There's a difference between tax preparation and tax planning. Most people don't know there was a difference because their CPA does both poorly and calls it the same thing. Preparation is what happens in March or April. Your CPA takes what already happened during the year, plugs it into a software, files it, and sends you a [music] bill. Think about it like this, they're documenting the past.

4:31 They're just a historian. Now, don't get me wrong, that's a real and necessary service, it's also not the service that saves you money. Planning is what happens in October, November, December of the year before. It's looking at projected income, projected gains, life events that are coming up, and asking where you can shift, accelerate, defer, or restructure to land the year better than the last one. Now, most CPAs don't do this. Not because they're bad at their jobs, but because their business model is built around volume preparation. A 1-hour planning meeting in November doesn't pay them what an extra return in April does. They get rewarded for the historian work. So, the historian work is what they default to. I had a couple that came in, he's a doctor, and she runs a consulting practice on the side. Combined income just over $600,000. They've been with the same CPA for 9 years. We went through her side income, which was being filed as schedule C with no S corp election. The S corp election alone was worth about $14,000 per year in self-employment tax savings. Now, they weren't angry at the CPA, the CPA wasn't bad at their job, he was doing exactly what they hired him to do, which is file their returns. But, nobody ever told them that filing and planning are two different products. So, think about the last time your CPA called you before the year ended to talk about the year ahead instead of the year behind. If it's been more than 12 months, or it's never happened at all, you don't have a tax strategist, you have a tax filer. Now, again, both have value, but the strategist conversation is the one where the real money lives. Most people are paying for one and assuming they're getting both. All right, before I get to the last pattern, which is the most time-sensitive one of the four, and frankly the one that most CPAs haven't even integrated into their software yet, this is the one that's going to matter

5:48 most for your 2026 return specifically, so stick with me. The window's open right now, but it's not going to be forever because the rules just changed and most preparers haven't caught up. The One Big Beautiful Bill Act passed in 2025, three things in it matter for high earners. First is a salt cap, which is a cap on how much state and local tax you can deduct. [music] It went from $10,000 to up to $40,000 if you live in California, New York, New Jersey, Illinois, basically anywhere with a high state income tax. For someone in California making $400,000, this can be worth several thousand dollars in federal savings just from itemizing more aggressively than you used to. Second is a 100% bonus depreciation was made permanent. This has been phasing down for years, but now it's locked. So for anyone investing into short-term rentals, equipment, or qualified business assets, the math just changed. You can fully expense qualifying assets into year one. You can combine it with cost segregation on a real estate purchase. This is going to be one of the most powerful tools available to a high earner, and as of last year, it's permanent. Third is section 179 expensing got expanded. There's higher thresholds, broader categories of qualifying property as well. Now here's the issue. When I audit returns for 2025 that were filed in early 2026, the One Big Beautiful Bill changes show up unevenly. Some preparers caught them, plenty didn't. The 2026 planning conversations that should be happening right now mostly aren't happening yet because most CPAs are still in cleanup mode from tax season and won't get to forward plan until Q3 at the earliest.

6:55 [music] But by then, half the year's gone and most of the moves you could have made are off the table. If you have any flexibility in your 2026 income, any equity investing coming up, or any side business income, let's say any real estate plans on the horizon, this is the year to actually run the projection. The rules are different from what they were two years ago. The strategy that worked then is not the optimal strategy now. So to recap, I audited 100 returns, 94 of them were leaking money. The average miss was $42,000 per year. If you're in the 94, you're not behind. Most people get exactly what their CPA gives them, and most CPAs give exactly what their fee covers. The shift starts the moment you decide to ask different questions. We covered the four patterns I see most often on $300,000 per year plus returns, but what I didn't get into here is exactly how to run the projection on yourself before you call anyone. And again, if you want to join my free live training where I'm going to go deeper into all these, the link is in the description for that. Let me know in the comments what you want me to cover next, and check out this next video that the almighty algorithm recommends. I'll see you in the next video.