The tax plan Preston built for a $300,000 W2 earner

0:00 I had a client come to me a few months ago. He was a successful professional, $300,000 in W2 income, and between federal, state, and FICO taxes, he's paying nearly $100,000 every single year. He thought he was doing everything right. He had a CPA. He was maxing out his 401k. Standard stuff. Now, after working together for 60 days, we identified $88,000 in year one value between tax savings, cash flow optimization, and strategic positioning. And that's a conservative number. The aggressive plan pushed it over to $150,000. Now, I'm not talking about some offshore account or some audit bait. These are legitimate strategies written to the tax code that hireers can use if they know they exist and they structure things correctly. And here's what's wild. His previous CPA and never mentioned any of this, not because they were bad at their job, but because traditional CPAs are trained to file taxes and not to restructure your entire financial life around tax optimization. So, let me give you the full picture of where this client was. He's a W2 employee making $300,000 plus. He owns two properties with about $2 million in equity, has about $150,000 in retirement accounts, strong credit, no debt outside of mortgages. On paper, he's doing really well. But here's what was happening. His effective tax rate was about 33%. So out of every dollar he earned, he was keeping 67 cents. Federal taxes alone were eating $72,000. North Carolina state tax another $16,500 and FICA another $13,000. You add it all up and he's paying $101,000 in taxes annually. Now, his CPA is filing everything correctly. The returns were accurate. But here's the thing. Filing

1:17 correctly and structuring optimally are two completely different skill sets. Most CPAs go to school. They learn the tax code. They learn how to prepare returns and stay compliant. That's their training. But when it comes to strategic tax planning, entity structuring, wealth optimization, that's just not what they do. It's like going to a general practitioner when you need a surgeon. They're both doctors, but they do very different things. And here's what compounds the problem. Once you're making over $200,000, the basic strategies stop working. The standard deduction, the normal 401k contribution, taking the home mortgage insurance deduction. That stuff is fine, but it's not moving the needle anymore. You need a completely different playbook. And that's what most high earners don't have. So, here's how we approach this. We build a 12-month plan around three core pillars. And I want you to understand the structure here because this is how we work with every single client who's in this income range. Pillar one is tax infrastructure. This is about entity structure and documentation systems. When you're W2 employee making six figures, you need a business entity even if you're not running a traditional business because a tax code is built to favor business owners. But it's not enough just to form an LLC and call it a day. You need the right documentation, the right banking setup, the right bookkeeping, and the right processes. Otherwise, you're just creating liability without any benefit.

2:16 Pillar two is strategic deductions. This is where we convert personal expenses that you're already paying into legitimate business deductions. I'm talking about equipment, your home office, vehicle expenses, and certain types of property rentals. The key word here is legitimate. These aren't loopholes. These are strategies literally written into the tax code, but you have to know they exist, and you have to implement them correctly. Pillar three is wealth deployment. This is about taking the money you're saving and then deploying it into assets that compound over time because tax savings don't matter if you just spend the money. Real wealth is built when you systemically deploy capital into the right vehicles. Now, I'm going to walk you through some of the specific strategies in each of these categories. I'm not going to give you every detail because honestly that would take us hours and it needs to be customized to your situation. But I want you to see how this works. All right, so let's get into some of the specifics. First up is entity structure. First thing we did was get him set up with a single member LLC. Now he already had the LLC formed was just sitting there. He wasn't using it for anything. So we built out the infrastructure, business checking account, business credit card, the bookkeeping system, the documentation folders for receipts and records. Now this sounds basic, but this is where most people fail. They form the LLC and then they come funds. They don't keep records and they can't substantiate their deductions. and then when they get audited, everything falls apart. Next, we looked at equipment purchases.

3:18 There's a section in the tax code that lets you immediately expense business equipment. Instead of depreciating it over five or seven years, Congress also recently restored 100% bonus depreciation earlier this year. So, if you buy qualifying equipment and put it into service before December 31st, you can deduct the full amount in the same year. For this client, we identified about $20,000 in equipment he needed anyway, like a new laptop, monitors, office furniture, etc. By timing these purchases correctly and placing them into service before year end, we created an immediate deduction of $20,000. That is 32% federal bracket plus the 5.5% state, that's a $7,500 tax benefit. Out of pocket cost after the tax savings is $12,500. Now, here's the thing. He was going to buy this stuff anyway, like the new computer and the office furniture. But by purchasing it through the business and documenting it properly, they turn a personal expense into a business deduction. Then we tackle the home office. Most people know about the home office deduction, but they either skip it because they think it's autobait or they use a simplified method which caps it out at $1,500. There's another method called the actual expense method.

4:12 You calculate the square footage of your dedicated office space as a percentage of your total home and then you apply the percentage to your actual housing expenses. Take mortgage interest, property taxes, utilities, insurance, repairs, maintenance, even depreciation on the structure itself. And yes, if you rent, you can also deduct the rent. All this becomes partially deductible. For this client, his office was about 150 ft² in an,800T home. That's a 8.3% business use and his annual housing costs were about $30,000. So, we got a $2,500 deduction just from the home office. Now, the key here is documentation. You need exclusive use of the space. It can be a guest bedroom that you use also as an office. It has to be dedicated to business activity. So, we took photos. We measured everything and we documented it properly. This is a really cool strategy. There's a provision in the tax code that let you rent your home to your business for up to 14 days per year. The business deducts the expense. You receive the income taxree and it doesn't even get reported to your personal return. But this is critical. You have to do this right. You need written agendas before each meeting. You need meeting minutes after. And you need to document who attended if it's not just you. And you need to make sure that you charge fair market rate. The fair market rate here is about $300 to $600 per day depending on the property. We kept it conservative at $350 per meeting over the course of a year. If you do 12 meetings, that's $4,200 and completely taxfree income to you personally. The business writes it off and you don't have to pay any tax on it. I myself use this and also clients use this strategy for years with zero issues. Now, before we keep going, I want to invite you to something. This week, I'm hosting a free live master class where we're going to

5:29 go deep on these strategies. We're going to hang out for a few hours. I'm going to show you exactly what my clients are doing that you can ask questions in real time. It's completely free to join. The link is in the description. And spots are limited because I want to keep it small enough that can actually answer your questions. All right, let's keep going. Once we have the foundation in place, we set up what's called an accountable plan. This is a written policy that allows your LLC to reimburse you taxfree for business use of personal expenses. So, think cell phone, internet, vehicle mileage, business meals, travel, supplies, etc. Let's say you use your personal cell phone 40% for business. Your bill is $120 per month. The business can reimburse you $48 per month. That's $576 per year. Same thing with internet. If you're using it for business, you can document the percentage and get reimbured. Vehicle mileage is huge. The standard mileage rate for 2025 is.7 cents per mile. If you drive 3,000 business miles per year, that's $2,100 in reimbursements. For this client, between phone, internet, mileage, and other expenses, we're looking at $6 to $800 per month in taxfree reimbursements. That's $7,200 to $9,600 annually that he's getting back without paying any tax on it. The business deducts it on schedule C. You don't report it as income. It's completely legal as long as you document it properly. Next, we optimize his W4.

6:28 Here's what most people don't understand. If you're getting a big tax refund every year, that means you overpaid. You gave the government an interest free loan. And if you're implementing all these business deductions, your actual tax liability is going to be way lower than what your employer is withholding based on your W2 income. So, we ran all the numbers. We estimated his LLC deductions for the year, home office, equipment, august, accountable plan, probably about $25,000 in total deductions. That reduces taxable income, which means he doesn't need as much withheld from his paycheck. We adjusted his W4 to reduce his withholding by about $800 per month. That's $9,600 per year in freed up cash flow that can now deploy strategically instead of waiting for a refund. Now, let's talk about retirement accounts because this is where most people are leaving huge money on the table. First, the obvious one is to max out your 401k for 2025. That's $23,500 if you're under 50. At a 37.5% combined tax rate, that's an $8,800 tax savings. Even those income is over the Roth IRA contribution limits, we can still get money into a Roth using the backdoor method. You contribute $7,000 to a traditional IRA as a non-deductible contribution. Then, you immediately convert it to a Roth.

7:25 There's no tax on the conversion if you do it right away. Now, you've got $7,000 growing taxfree forever. And if his employer 401k plan allows for after tax contributions and inplanned Roth conversions, he'd be doing what's called a mega backdoor Roth. The total 401k limit is $70,000 after his employee contribution and employer match whenever a room is left can go in as after tax contributions and can convert it to a Roth immediately. Now, not every plan allows for this, but if yours does, this is how you get massive amounts of money into tax regrow. Once his LLC starts generating profit, we're going to open up a solo 401k for the business that lets him put him up to 20% of his business income into retirement on top of his W2 contributions. All right, now let's talk about how everything comes together because saving on taxes is just step one. If you're saving $30,000 per year in taxes, but you're just spending that money, you haven't actually built any wealth. The real wealth is built when you start systemically deploying capital into assets that compound over time. So, we built an allocation framework for this client, and this is the same framework that we use for all our high- income clients. We use a barbell strategy. You got your core position, which is high conviction wealth building. Then he got an income sleeve that generates cash flow and then he got a small allocation to high upside asymmetric place. First we looked at his retirement accounts. He had about $150,000 sitting in index funds. Index funds are fine but they're not optimized for tax advantaged accounts. The whole point of a retirement account is that gains grow taxfree or tax deferred. So you want to make sure that assets produce income. We moved his retirement money into incomeroucing real estate vehicles. These are funds that own short-term rental properties and distribute monthly income or quarterly.

8:42 The distributions are typically between 10 to 14% annually. So on $150,000 he's looking at 15 to $21,000 per year in distributions inside his retirement accounts. Now he's not taking that money out. It's reinvesting. But the point is you're generating real cash flow inside a tax advantage rapper. That's way more powerful than hoping the S&P goes up 8% this year. Next, we talked about his home equity. He's sitting on $2 million across two properties. That's just dead capital just sitting there. Now, we're not rushing into anything. You don't want to take on debt just to take on debt. But we created a plan for how we could strategically access the equity over the next few years. One option is using a heliloc to deploy capital into appreciating assets during market pullbacks. You pay maybe 7 or 8% interest on the heliloc. But if you're deploying it to assets that you believe will appreciate between 20 to 30% annually over the next 5 years, that's a positive carry. The other option is using that equity to acquire income reducing real estate. Could be a short-term rental property, could be a long-term rental, could be house hacking and multif family. Finally, we allocated a small portion to high upside plays.

9:32 These are positions where you're putting in a little bit of capital, but the potential return is massive if things work out. It could be early stage companies, could be specific sectors with tailwinds, could be alternative assets. The key is keeping this small, maybe 5 to 10% of your total portfolio because these are volatile. They can go to zero, but if one of them hits, it can completely change your financial picture. So the overall framework is 70 to 80% in your core wealth building position, 10 to 20% in income producing assets, then 5 to 10% in asymmetric place. That's how you balance safety with upside. All right, so let's break down the actual numbers for year 1. I'm going to give you both the conservative and the moderate scenarios because it depends on how aggressive you want to be with implementation. So, after adding up all the total tax savings, we're looking at $15,500 to $27,300. After adding up all the cash flow improvements, we're looking at $12,800 to $17,200. After adding up the retirement account repositioning and the income generation, we're looking at $15,000 to $18,000. Total investment value here is $16,000 to $21,500. Total base plan total, we're looking at $44,300 to $66,000 in year one value.

10:28 Now, if you go aggressive, if you add a larger equipment purchases like a vehicle, if you deploy some home equity strategically, or even if you launch a real estate income stream, you can push this to 75,000 to $147,000 in total year one value. That's the difference between doing the basics and actually optimizing your entire financial structure. Now, here's why the timing matters. Right now, we're in Q4. If you want to implement strategies that reduce your 2025 tax bill, you got maybe 60 days left. Some of these strategies require action before December 31st. If you wait until January, you can't go back and capture 2025 deductions. You're stuck with whatever you paid. And look, I get it. This stuff is complex. It's not something that you want to figure out on your own, like googling tax strategies at 11:00 p.m. That's why I'm hosting this free live master class this week. We're going to do a deep dive on these strategies. We're going to hang out for a few hours, and I'm going to show you exactly what my clients are doing, and you can ask questions in real time. And again, it's completely free to join. The link is in the description. But that being said, I appreciate you watching. And if you found this video helpful, please give it a like and watch this video next that the almighty algorithm recommends that you watch