Starting new high paying job and looking for advice on lowering my taxable income. USA

Submitted by AssociationCrazy5551 t3_zy8jvo in personalfinance

35 years old, married with 2 young kids. For the past 5 years I've been making roughly 100k, but next week I start my new position, which will be paying 200k on W2.

We bought a home 3 years ago and my wife works full time. We both contribute the minimums to our 401k to get the most out of our employer matching (half up to 3%). I watch the kids while I work from home.

My goal here is to lower my taxable income as much as possible so I can keep as much cash on hand to save up for our first rental property. I am not really interested in retirement investing, I am more interested in real estate investing and starting my own company a few years down the line

The salary seems quite high, but I work in cyber security so this is normal for someone with 10 years experience. If anything I've been underpaid for a long time

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hayodksd t1_j24ci16 wrote

Whats the question? The only way to lower your taxable income is trough traditional 401k, IRA, HSA or FSA and a couple other benefits that are pre-tax. Since you said you aren’t interested in retirement investing, I don’t see how you are going to be able to lower your taxable income by much.

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AssociationCrazy5551 OP t1_j24dl0m wrote

Okay thank you. I was curious if there's a way to lower it based on being a home owner, having kids, or investing in real estate. On a side note, is there any benefit to filing jointly now that my income is way higher? We have been filing separately because we don't really see the benefits of filing jointly. I mess around with stocks and crypto, she doesn't want to get involved with any of that.

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hayodksd t1_j24ei3u wrote

Mortgage interest, dependents and investing in real estate (depending) will help, absolutely, but won’t be the same as for example, doing the max amount ($20k) in traditional 401k. Filling jointly will also be better for both of you, since the deduction will be higher. With the mortgage interest, dependents it will lower your standard deduction and you will have a higher refund, depending on how you manage your W2. Filing jointly has more benefits than disadvantages.

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zffch t1_j24d6ow wrote

Honestly there is not much way to offset W-2 income that actually keeps money in your pocket, besides retirement investing. Most deductions represent money spent. You could give to charity, or run a failing business that has a net loss, but you have less money afterwards.

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wanttostayhidden t1_j24gdhk wrote

>We both contribute the minimums to our 401k

If you both start maxing your pre-tax 401k contributions, that will lower your taxable income by around 40k. I'm not sure why you wouldn't take full advantage of that.

Also, out of curiosity, why do you file separately? In most cases, filing jointly is usually the better option.

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AssociationCrazy5551 OP t1_j24h4v6 wrote

I had a tax scare a couple years ago where the IRS sent me a cp2000 for unreported crypto trades from 2017. Since I never sent a cost basis the bill was over a million dollars. I learned all about 1099s after that and fixed the situation myself, but she's still unwary to file with me.

Now that our incomes vary greatly, I think it's time to start looking into filing jointly

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weiner_forest t1_j24cvu4 wrote

Nothing meaningful, not as a W2 salaries employee. The federal government doesn't give you a tax break in saving principle for investments; be it rentals, stocks, etc., unless it's in the form of retirement, which you said you're not interested in.

You'll have options for tax savings later when you become a landlord though.

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biondablonde t1_j24dqyb wrote

Max the 401ks. Does your health care plan come with an HSA? If so, max that too. Take advantage of any other pre-tax perks your employer offers (transit benefits, etc). Beyond that, there's not much you can do to reduce taxable on your W2. Do you have a hobby you can monetize so that you can claim biz expenses on Schedule C?

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apb925 t1_j24f8te wrote

You can do real estate investing through an IRA after you've saved enough for it to make sense. Could be good to explore

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AssociationCrazy5551 OP t1_j24g6qk wrote

That's very interesting I will look into that!

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apb925 t1_j24gkgl wrote

Oh actually, thinking about more. Your adjusted gross income needs to be less than $144k to contribute to an IRA the normal way. Might not be possible unless the backdoor/mega backdoor rolling a 401k into an IRA is possible. I've never done that, so don't know details

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shadow_chance t1_j257wuw wrote

> My goal here is to lower my taxable income as much as possible so I can keep as much cash on hand to save up for our first rental property

You don't get it both ways. The best way for W2 workers to reduce tax liability is to save for retirement with a 401k.

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dswpro t1_j24fmb0 wrote

Ask your employer if they offer a non qual plan. It's a form of deferred compensation that doesn't qualify for the 401k tax code and can be used in addition to traditional 401k. A non qual can reduce your immediate tax liability and even grow through investment choices. It's usually only available to corporate officers, executives, or other highly compensated employees, and not all companies offer it. Consult a tax or investment advisor before enrolling as there are different forms of non qual plans and some carry significant risk should your employer become insolvent.

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ScoDucks89 t1_j25uy6g wrote

Other than a at home business as a side hustle or rental homes it can be tough once you exhaust all your HSA/IRA/401k areas. Goodluck!

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