EP 150 - Why the Wealthy Use Tax Strategy Stacking

We break down why one “big” tax move rarely solves the tax problem for high-income earners, especially when legal limits cap how much any single strategy can do. We lay out how tax strategy stacking works so we can cut taxes now, manage risk, and keep layering savings year after year.

• the hidden limits behind popular write-off strategies like cost segregation and business losses
• the excess business loss limitation and why W-2 earners hit ceilings fast
• attacking AGI first with practical moves like entity structuring and legitimate family payroll
• layering charitable deduction strategies to reduce taxable income after other tactics max out
• using capital loss harvesting to offset major capital gains events
• diversifying tax strategies to hedge audit risk and law changes
• layering year-two upgrades like solar credits on a short-term rental
• deciding what to do with tax savings and adjusting W-2 withholding sooner

Now, if any of this sounds interesting and applicable to you and you're interested on how this may apply, I strongly encourage you to go to https://www.prosperalcpa.com/apply. And there you'll fill out a quick survey, have a conversation with someone on the team, and we will personally share with you what may be possible for you based on your situation when we utilize advanced tax reduction strategies.

Transcript

What Strategy Stacking Means

SPEAKER_00 0:00

If you're a high income earner, one of the most important things that you can do to maximize savings that you're probably not doing, even if you work with a tax strategist, is a strategy stack. A tax strategy stack. This is something that few tax advisors are aware of. And I'm going to share with you what tax strategy stacking is and how it works in this conversation. But before we jump into this a little bit more about me, my name is Mark Perlberg CPA. I'm founder of Prosperal CPA, and we have served hundreds of high-income earners in providing the most advanced tax reduction strategies. And we've highly refined this process. And one of the things that really separates us from the masses is our ability to strategy stack. And I want to share with you how strategy stacking can be useful for you as a high income earner. And what you're going to learn today and pay close attention. We're going to talk about what are the limits of having just one tax reduction strategy. And most of the people who are just getting started off with the tax planner, and most of our basic tax planners out there are going to usually just provide one strategy. We're going to talk about how strategy stacking, as opposed to just going down one path, is going to maximize your savings, how strategy stacking works, and what you can do to implement strategy stacking in your tax reduction and wealth building strategy to really put what I would say gasoline on the fire to optimize not only your current tax savings, but long-term tax savings and wealth creation. So let's get into the conversation here.

Why Single Strategies Hit Limits

SPEAKER_00 1:49

Now, the first thing I want to talk about to help you understand why you want a strategy stack is having to do with the limits of different strategies. Now, I love all of the probably most popular strategies you've probably seen. We love talking about cost segregation. Sometimes those tax deferral strategies make sense in hiring the kids, but there are limits to how far we can take each strategy. Even with cost segregation, let's talk about cost segregation. There's something called the excess business loss limitation. That's a limit on how many business losses you can take against your W-2 or any non-business income, including stock capital gains. So if you're looking to use real estate losses to offset your income, you're gonna max out at a certain number. Now in 2026, that number is $512,000. That's the maximum amount of losses that you can take against the W-2 or stock cap gains or maybe portfolio interest. Now that's a pretty good deduction, but our clients often need more than that. They're often gonna find that you know we have income earners that are making $1 million, $2 million, $3 million. That $512 is great, but it just puts a dent in their tax bill and they're gonna need more tax savings. And oftentimes it doesn't even help them out with their state taxes, especially if you're living in California, which is just a rough state for paying taxes. So we have to consider what do we do once we've maxed out the business losses that we can create. And it may not be from cost segregation, from like the depreciation strategies on real estate. It may be from other ways. Maybe you're buying equipment to get depreciation, or maybe you're using retirement accounts to lower your the business income, or maybe you're putting money into a SEP IRA or a 401k, but at the end of the day, you're often gonna find that that's not enough. So, what else can we do besides creating business losses and tax write-offs on our businesses to save money

Attack AGI Then Add Charity

SPEAKER_00 3:58

on taxes? Well, one very, very powerful strategy is charitable deductions. When we strategy stack, what we will do is we will first, what we do oftentimes is we call it attacking the AGI. What are some of the low-hanging fruit? Can we put the kids on payroll legitimately? Do we have opportunities to create maximum write-offs? Are there depreciation strategies, income strategies, income timing, income shifting, entity structuring? But oftentimes, while those opportunities could save us hundreds of thousands and millions of dollars, we often find that the client is still paying an extremely high amount of taxes because these are high income earners. So then we can layer in charitable deduction strategies. Charitable deduction strategies can give you a deduction that can be as high as 60% of your income or your adjusted gross income. So if we have W-2 income and business income and stock gains and real estate, all that together. Once we've maximized and brought our income as low as it can be, then we have our taxable income and we can drop that by as much as 60% with a charitable deduction strategy. Now, if we only did charitable deduction strategies and we were only able to eliminate 60% of your income, while that would be powerful, for some of our clients, again, when you are when you are earning $3 million, $4 million every year, or we we have lots of clients in the in the $1 to $2 million and $750 up range. Oftentimes we find that even with the charitable, while it's amazing to offset 60% of your income, you're still paying hundreds of thousands of dollars in state and federal taxes. But when we combine them together, we can do some incredibly powerful things. Again, we're not gonna do just charitable, but we oftentimes will layer that in with the write-off strategies. And then some other things that may make sense for us are tax credit strategies and identifying tax incentives that result in credits. Now let's talk about another limit

Capital Gains And Loss Harvesting

SPEAKER_00 6:07

here. We got our 60% limit for charitable, and we have our $512,000 limit of business losses against non-business income. So if you're a high W2, you're maxing out on those business losses. So what else is out there? Well, here's another thing that we can consider capital gains income. Now, we could offset 60% of it with a charitable deduction strategy that may be too expensive most of the time. And we could create business losses to offset that, but then we hit that 512 limit pretty fast on a significant capital gain event. However, there are ways we can harvest capital losses in a very efficient manner to completely wipe out capital gains events. And we have seen this with our clients, where we see multi-million dollar capital gain events, and we are able to completely eliminate the taxes with capital gain loss harvesting strategies. And yet we still have capital remaining to further reduce the client's taxes against their other sources of income because we can layer in business deduction strategies and capital and charitable deduction strategies to take away a large portion of whatever remains that could be subject to taxation. So all these things, when you put them together and you look at the limitations of each potential strategy and the types of income the client has, when we can stack them and layer them together, we can maximize savings as we approach all these different limits and factor them in into the optimal amounts we want to put into each strategy.

Diversify Strategies To Lower Risk

SPEAKER_00 7:50

And of course, the strategy has to make sense with the client, it has to align with the client's vision and the goals. Now let's talk about some other reasons why you want to have multiple tax reduction strategies. You may find that one strategy doesn't give you the results that you're hoping for. Maybe that cost segregation study didn't give you the write-offs that you were hoping for to offset that bonus you're getting or that spike in income. Or maybe you're really big into oil and gas, but lately you found that the oil and gas isn't giving you the returns that you're wanting. And maybe you want to just have, just like you have, we want to have a diverse portfolio when you're investing, we recommend that our clients have a diverse collection of tax reduction strategies. So we're not putting all our eggs in one basket. We're not just relying on that one cost egg to save us the day and doing cost segregation studies everywhere, every day, and just buying more and more real estate, because eventually you may find that the real estate doesn't give you enough write-offs, or you don't want to buy any more real estate. So you have to have multiple strategies and backup strategies in case one strategy doesn't work. Also, you will find if you want to take a more aggressive stance and utilize more aggressive strategies, you may be taking on a certain amount of risk that maybe a stance that you're taking, a position you're taking on a certain valuation and write-off could get overturned. It could get adjusted, could lose in an audit. And oftentimes, if you are taking an aggressive stance, regardless of what type of expert you are working with, some people will want to take aggressive stances and take on that risk. You can hedge against losing out on all the savings by spreading it across multiple strategies. So in case a valuation is changed, you don't lose all of your tax savings that you've created for the year. Some other things we may consider here is that there's always going to be changes in the law. You just saw bonus depreciation is just phase back in. And there's gonna be changes in your circumstances. So you want to be able to understand that there are all these different ways that can come together that you want to have access to, not only so we can stack them together to maximize savings, but also minimize risk.

Layering Moves Year After Year

SPEAKER_00 10:24

Now, let's also talk about the timing of this thing and then what I call strategy layering. Because as we work with our clients, and this is why our clients stay, it's never gonna be about one idea, and this is why strategy stacking allows you to save more and more taxes every year and really compound your wealth. And let me share with you how layering of the strategies, and I'm gonna give you some real examples that you can take with you and use in your business and in your tax reduction strategies. Because when you usually start off, and most of the clients we get have never done anything very significant to reduce their taxes besides maybe put some money in a 401k. So the first thing that we want to do is utilize the highest lever items. What are the things where that require the least amount of time, money, and effort to create the most amount of savings? Where's gonna have the greatest transformation for our clients? That's usually what we're gonna tackle first. So maybe a client does a short-term rental, maybe they utilize an advanced leverage charitable strategy, maybe they create new entity structures. We're really focusing on those big ticket items. But the reason why we have a continued conversation and we're always adding greater value is because we never stop there. We're always looking to take it further. And let me give you some real examples of how you can take it further.

Short-Term Rentals Plus Solar Credits

SPEAKER_00 11:49

Let's say you got a short-term rental, which is a very popular tax reduction strategy. So you buy a short-term rental, you do the cost tag, you create massive savings, get all this bonus depreciation to offset your W 2 or your profits in your business. Fantastic, congratulations. Well, what are you gonna do in year two, right? What value could we bring? What kind of ideas can you implement to further create savings? Well, if you have a short-term rental, maybe in year two, you take some time to see if it makes sense to put a solar panel on that short-term rental. Now you're reducing energy costs, you get bonus depreciation on the short on the solar panel, and you get federal tax credits. There's very few ways out there that you can reduce your costs in your business and reduce your taxes at the same time. Or maybe you decide that now you have this business that's your short-term rental business, you want to create some new write-offs with it. So you can hire the family, you can hire the kids to support you in the short-term rental business. You get write-offs that go to the kids. In 2026, the first $16,000 you pay them is completely untaxed. And some of that could even go to a Roth IRA, or all of it could go to eventually go to a Roth IRA to grow tax-free. You could be part of the college financing initiatives. Or maybe you decide to implement some new fringe benefits for your employees for the purpose of retention, or maybe that could be to create just additional tax advantage income that you can set aside for your own retirement. There are always so many ideas out there for our clients, especially if you're a high incomer. And oftentimes we don't want to overwhelm you, and we're not even gonna have enough time to implement everything possible. So a lot of times we focus on the biggest ticket items to have the greatest impact. And then in year two, we see how can we take this further?

What To Do With Tax Savings

SPEAKER_00 13:43

Another thing you may want to consider as well is what are you gonna do with your tax savings? Let's say you get a $100,000 refund or even more than that. Well, that's fantastic. But then you gotta figure what am I gonna do with this? Am I gonna let this sit in my bank account and lose value due to inflation? Or am I gonna put it in a brokerage account and eventually pay capital gains tax on the exits of the stock and taxes on the dividend income? So, how do we protect your tax savings and grow it in a tax efficient manner? So as you make more and more money and you add new strategies, you're saving more and more in taxes. You have more and more cash in your pocket, in your bank account, and you got to figure out what to do with it. And how can you grow that tax savings and invest that tax savings in a way that is protected from future taxation? So we can create long-term tax savings.

Reduce W-2 Withholding Faster

SPEAKER_00 14:39

Another thing I want to mention here is that with our high W-2 clients, once we know the strategies we're gonna implement and we get comfortable and confident in the outcomes, we can reduce the withholdings from your W 2. And that allows us to make sure that you're not waiting for us to do your tax return and get all your K1s. We're not gonna wait for all that for you to see the benefits of the tax strategies. We are gonna reduce the amount of taxes withheld from your paycheck. So immediately, once we know what we're gonna save you, you're gonna get that savings in the form of increased amounts of paychecks. Every other week or whatever, whenever you get your paycheck, you're gonna get more of it now because we're gonna take less out of your paycheck. We're gonna change your withholdings so you can have more money on hand, you can take advantage of the time value of money because we know that you don't have to pay as nearly as much anymore to taxes. So these are all ways that we can do it.

Summary And How To Apply

SPEAKER_00 15:42

Now, to summarize how you should be thinking about this, it's great that you're finally thinking about tax reduction, but tax planning isn't one idea, and there are going to be limitations on how far you can take each strategy. So when you stack a tax write-off strategy, a business write-off strategy, and any business-related strategies with charitable reduction strategies, maybe some capital gain strategies and multiple strategies in each category, you're gonna find you're gonna be able to get closer to the limitations and really get the most amount of tax savings allowed based on how the tax law is written. Additionally, we want to diversify, diversify your tax reduction strategies so you're not putting all your eggs in one basket, and it allows you to have more strategies that are aligned with the outcome you're looking for, and you're reducing the risk of something going wrong. And the way you want to do this is you focus on the big ticket items first, what's gonna save you the most amount of money, what's feasible in year one. And every year you want to revisit this and see how we can add additional layers to this and add multiple uh multiple strategies and multiple ways that we can further your strategies along the way. And then finally, also what are we gonna do with our tax savings? Once we've implemented tax planning and we have more cash on hand, how are we gonna protect the growth of that savings from future taxation? And with tax strategy stacking, all this becomes possible because you understand the tax reduction strategies out there and how that's all gonna come together and how we can put them all together for you to maximize your savings. Now, if any of this sounds interesting and applicable to you and you're interested on how this may apply, I strongly encourage you to go to prosperalcpa.com slash apply. And there you'll fill out a quick survey, have a conversation with someone on the team, and we will personally share with you what may be possible for you based on your situation when we utilize advanced tax reduction strategies.