The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 133 - How Much Can a High W-2 Earner Reduce Their Taxes?
We map a clear path for high W‑2 earners to cut taxes by stacking business losses, targeted charitable deductions, and solar credits. A simple $1.5M case study shows how careful sequencing can drive liability from $450k toward $55k while building long‑term wealth.
• 401(k) contribution and plan limits for high earners
• Where RSUs, real estate, and oil and gas fit
• Excess Business Loss caps and their 2025 reductions
• Mortgage interest rules and HELOC tracing considerations
• Charitable deductions at 30% to 60% of AGI
• How to sequence losses, charity, then credits
• Solar investment tax credits and bonus depreciation
• Walkthrough of a $1.5M income optimization model
• State tax impacts and planning windows
• Action steps to engage a tax strategist
Go to https://www.prosperalcpa.com/opportunity report and complete the short survey to see what may be possible for your taxes
If you're a high W 2 earner and you're overpaying in taxes and wondering what I can do here, what is the maximum amount I could be saving in taxes with advanced tax planning? This episode is going to be really great for you. We're going to dive into what are the key deduction strategies and limitations of those strategies. More focusing on what's possible and how far can we take our tax deductions and what are those limits? Now, if you want to dive more into this particular strategies, you'll see some show notes and links to more details on what those strategies are. But today I'm going to share with you what is possible and what are the limitations on how much we can eliminate from our W-2 taxation. Now, this is going to be a little more simplified, so you're going to see a few details left out. In particular, I'm not going to talk as much about state taxes just because I'm trying to make this understandable for you as W-2s and you're unlikely to be tax professionals. So I'll touch a little on state taxes. But essentially, what you're going to find is when we factor in the state tax-related opportunities, the savings are even better. But I'm just trying to keep things digestible here on this YouTube podcasting framework. So let's dive into it today. And if you are making a high W-2, in this example, I would say$750 and up, what you're going to find is if you aren't at least considering some advanced tax planning, you could be leaving hundreds of thousands and over the lifetime of your career, millions of dollars on the table if you don't do advanced tax planning. So now I'm going to share with you just what may be possible and what are those limits. Now, first let's talk about some of the low-hanging fruit and things that you likely have already heard of. And hang in there because we'll get into the more sophisticated things and opportunities. But when we have our 401k, how much can we put into those? If you haven't already been notified by your HR department, the most amount that you can defer in your 401k is going to be$23,000 if you're under age 50 and$30,500 if you are 50 years and older. Okay, you get a little bit of catch-up. Now there's also some that your employer can put into the plan. And when you factor in that as well, you see a deduction limit of$69,000 if you're under$50 or$75,500 if you are over$50. Now that is for you individually. So if you have a spouse with a W-2, they also will be entitled to those deduction limitations. So each spouse could put in as much as$23,000 to$50,000 to defer their taxes. And that most likely will defer your state taxes. Now let's talk about what we can do beyond 401ks. Because let's be honest, if you're a high income earner, that's not even going to put much of a dent into your tax, but we got to start thinking what can we do to be more strategic? There's got to be more out there. So, and you know, if you've been making above$750 every year, maybe you're in uh you're getting lots of RSUs and paying taxes on them. This is gonna be really important for you to at least consider here. Now, you may have heard some strategies that can be used to offset your W-2s involving real estate. The most common ones we see is oil and gas investing, short-term rentals, and then the real investing with real estate professional tax status. Those are ways that you can invest in real estate, and real estate gives you access to massive depreciation. And a lot of high W-2s will use this to create business losses that'll offset their W-2s. Some other things that they may consider is creating a business on the side that may that that creates tax incentives, it may involve equipment rentals, it may involve solar the rent the purchasing and renting out of solar panels to get depreciation and tax credits. These are some of the things that the high incomeers and the high W-2s are considering. Now, the business loss that you can take has its limitations. It's called the excess business loss limitation, and that limits the amount of losses that we can create from things like the oil and gas and the real estate and the side business against your W-2s. And in 2025, that amount was$313,000 if you were single and$626,000 if you're married filing joint. And while we're all excited for bonus depreciation to be permanent uh with the one big beautiful bill act, a lot of people didn't realize there were some downsides to this new bill. And the downside is that the the deduction limit for this excess business loss is actually going to go down a decent amount. So in 2025, the most you can deduct goes down from 313 to 256,000 if you're single and if you're married filing joint, the most that you can deduct from those business loss strategies is going to be$512,000 from$626,000 to$512,000. So a$100,000 reduction in allowable deductions against your W-2s. Now let's talk about some other nice deductions that you probably are aware of, or maybe you don't, so you plug it in and you just hope that you see the best results. Um mortgage interest. Now you can deduct the mortgage interest on a total of up to$700,000 and fifty thousand dollars of acquisition costs on your home mortgage. So if you have a mortgage that's over$750,000, you will not be able to deduct all your interest. And also, by the way, if you don't recognize itemized deductions, if you use the standard deductions, you're not going to deduct any of it. Now that you may find there are some strategies. If you're a really entrepreneurial W-2, and sometimes we find this with silver high W-2s, they have real estate here and they're doing passive investments there. They may decide to do to take out equity or to take out a loan against their equity in their property or a HELOC, heck, home equity line of credit. So they borrow money against their equity line of credit, uh, against their equity in their home. They have more debt on their home, but they know that the interest is tax deductible as an itemized deduction. So they say we're gonna gather more cash. We know and we project that this investment here is gonna save us, let's say, was gonna give us about 12% of profit per year or ROI. And that's gonna justify paying the interest on our home equity line of credit, especially when we factor in that interest expense is tax deductible. Now, let's talk about a really impactful strategy or concept that we explore with our clients with is advanced charitable deductions. Now, there are some flaws and some unique nuances that they're introducing in the 2026 tax code, but I'm gonna simplify this for you just so you can make sense of this. The maximum amount of cash deductions you can create to offset your adjusted gross income, which for most of you use that W 2 income and maybe some investment income, is 60% of that amount. So if you have um a hundred thousand a million dollars of W-2 income, you could potentially create a six hundred thousand dollar charitable deduction. Now, you're probably not gonna have the cash to do that or don't want us to do that, but there are advanced ways to create cash deductions that are affordable uh using leverage and timing. We there are other strategies out there involving the donation of land and assets and stocks, and you typically see the maximum amount of a charitable deduction to be 30% of your adjusted gross income, and sometimes you'll see it as high as 50% on some deduction strategies related to charitable. Now, so we we can offset we used to be able to offset 630, we're down to 525 married filing joint of business loss deductions, and then we can offset typically anywhere from 30 to 60 percent of the remaining income after we've maximized our business losses. And I'm gonna share with you how this all kind of comes together in a little bit. But essentially the way it works is first you chip away your adjusted gross income, which is your W-2 minus your maybe some of your uh invest what you've deferred in your retirement accounts, and then minus some business losses if you were able to create them, and then what of what remains you can deduct typically anywhere from 30 to 60 percent uh of that amount with charity charitable deductions. Now, there's one other strategy that we use once we've exhausted our charitable and business loss strategies, and that is going to involve tax credits. And tax credits are really fun. So when I talk about tax credits, for the most part, we're gonna get tax credits as it relates to investing into solar panels that we rent out to third parties, and we can facilitate the transactions. Our clients are gonna buy solar panels, they're gonna rent them out to other users, and they're gonna get the benefit of all the bonus depreciation and the tax credits, and that makes this uh puts them in a very favorable position. So you're first you have your business losses that are maxed out at that five at that either six thirty or five twenty-five, uh sorry, five twelve amount in twenty-five, but also you have these tax credits that can further reduce your taxes. Now, with the investment tax credit that we create with solar strategies with our clients, you can offset either the first twenty-five thousand dollars or you can get a credit that offsets seventy-five percent, that offsets seventy-five percent of the taxes above twenty-five thousand dollars. So we were to really take this as far as we can, and we do this with some of our clients where it makes sense, especially the higher income earners. You first you maximize the business losses, then the then the charitable, and then you factor in how can we put the credits into this situation and maybe back that into what we're trying to create as a business loss. It kind of involves some some finagling and some circular transactions here because the solar strategies uh are gonna reduce your taxable, your your adjusted gross income, and it's gonna really impact how much we want to apply to the current year. You can also get some credits that apply to the prior years with solar, which is really exciting. So you can even bet get back, go back as far as three years to get prior year taxes back with our solar strategy. So it's really cool stuff. So I'd like to share uh now, and you'll be able to follow this if you're just listening, is just I'm gonna this is an oversimplified Excel doc. Let me pull this up to help you make sense of what may be possible for you if you were to be proactive and take your tax reduction strategies as far as possible. So let's get into this oversimplified Excel doc here. Now, if we were to earn in this example 1.5 million dollars, if we did nothing at all, the taxes would and we're gonna assume 30% tax on all your income. Now, if you're in California, obviously the taxes would be a lot more than this. But if you're in Tennessee or Texas or Florida where there's no state taxes, we can say four we're for this example, we're gonna say$450,000 of federal taxes. So we factor in what's the most amount of business losses for someone making this amount of money who wants to take their real estate strategies or maybe some oil and gas investments as far as possible. We're gonna say$525,000 of a tax deduction. Now we're doing some cost segs on your 25 returns, we could make this number 630. So at this point, your adjusted gross income is$975,000. So you you went from$1.5 all the way down to$975,000 of adjusted gross income. Now that's not your taxable income because we still have our standard deductions or itemized deductions. So from there, we will let's say we want to do a charitable strategy. Now, a common strategy's a common way that we stack this is we'll actually create a charitable deduction now offset around 50% of your income. So if we were to stack our charitable strategies together to optimize them, as we see for most of our clients here, we go from an adjusted gross income to a$487,000 deduction for charitable. Now we're down to$487,000 of income that we're gonna pay taxes on. Right now, there this is obviously oversimplified. There are other itemized deductions like that, mortgage interest. You may have additional uh cash deductions, etc. etc. But we're just gonna keep this super simple so you can understand this as much as possible here. So let's say we now are at 487. If we do nothing at all, the taxes would be$146,000 based on the 30% tax bracket. Obviously, you know the marginal rates changed, but super simple here. We started off at uh$450, now we're down to$146,000 in taxes. And let's say we wanted to now apply, uh, we say, hey, let's take this as far as we can we can go here. We don't want to pay as much as$150,000 in taxes. How about we use these solar strategies? And in all the instances, the cost to create the savings is less than the savings created. So in this example here, we get a credit that is gonna be equivalent to uh 75% of this$146 that exceeds$25,000. So what we do here is if you were to look at the formula, we essentially look at this the$146, we move we we subtract$25,000 from it, and then we multiply it by 75%. That gives us 90 access to$90,000 of tax credits. And if we were to stack all these concepts on top of each other, the maximum business losses of 50% tax deduction for charitable, and then tax credits derived from our solar strategies, we're all the way down to taxes of$55,000. Now the now it looks here as though we're reducing the taxes by around$400,000, right? We started at$450,000 and we're all the way down to$55,000. So over$400,000 of tax reduction for high W 2 in this example. Now, we could actually take this further when you consider the fact that um I mean this the savings are actually greater if you were to assume that these are clients in states with state taxes. So if we were to have a client in California, you would expect significantly more uh tax savings than$55,000, especially considering that this top bracketed income, this 1.5, is actually taxed at 37% on the federal level and actually over 13% on the state level. So the savings can actually be a whole lot more here. So, you know, as you can see here, there's just tons of possibilities in how far we can drive down your taxes when we stack all these concepts together and we layer in all of our deduction strategies and the credit strategies, and this stuff can really have a transformational impact on your ability to drive down taxes and build wealth. So I hope you gained an understanding or a greater understanding of just what may be possible. And I know that you may have heard that oh, the tax code is is meant for the entrepreneurs and the real estate investors, and I'm just getting it getting hit in the head because I'm a W-2. But what you're actually gonna find when you work with a tax strategist is there is a whole world of opportunities, even for you as a W-2 earner. You're gonna have to think outside of the box and be a little more resourceful and open-minded, and you're gonna have to work with a tax professional. But at the end of the day, there are some really, really impactful things that a tax advisor can do for you to drive down your taxes, permanently eliminate your taxes, and give you the ability to build wealth. Now, what are you gonna do with that tax savings? It could be buy more real estate, put it into index funds. You can invest into other vehicles that further reduce your taxes. And hopefully, this is a way that you can accelerate your progress towards whatever goals you're looking to achieve. Maybe that's to retire a little earlier, or maybe transition into another position, or maybe work full-time, or help your wife quit her job so she can work full-time with the kids. All these things can become more possible when we implement advanced tax reduction strategies. All right, well, I hope you found this helpful. And if you have any questions at all, and in particular, if you want to see what may be possible for you, if you're a high incomer, to drive down your taxes, I want you to go to prosperalcpa.com slash opportunity report. That's prosper with an L CPA.com slash opportunity report, and you're gonna fill out a quick survey, talk to someone on our team, and I will personally present for you a video illustrating what may be possible with our tax reduction strategies. All right, hope this helps and happy tax savings.