TLDR;
This video presents five key strategies for W2 taxpayers to reduce their tax burden through strategic investments and financial planning. It covers deferring income through retirement and health plans, investing in real estate for depreciation and cash flow, business investments for asset depreciation and expense deductions, oil and gas investments for significant write-offs, and charitable giving strategies using nonprofits and property donations.
- Deferring income can lower your tax bracket in the present.
- Real estate investments offer depreciation and potential cash flow.
- Business investments allow for asset depreciation and expense deductions.
- Oil and gas investments provide substantial write-offs.
- Charitable giving strategies can significantly reduce taxes through various methods.
Deferring Income [0:42]
Deferring income involves postponing the reporting of income to a future tax year, ideally when you might be in a lower tax bracket. This strategy can lead to significant tax savings by reducing the immediate tax liability on your current income. You can defer income through retirement plans like traditional IRAs and 401(k)s, health savings accounts (HSAs), and deferred compensation plans offered by employers, including stock options or equity compensation.
Real Estate Investing [3:28]
Investing in rental properties can substantially reduce W2 taxes through several benefits. Depreciation, a non-cash expense, allows you to deduct a portion of the property's value each year. Using a 1031 exchange, you can avoid capital gains taxes when selling a property by reinvesting the proceeds into another qualifying property. Real estate is an appreciating asset that can preserve capital, and rental income can provide cash flow while showing a paper loss for tax purposes.
Business Investing [5:24]
Investing in or starting a business offers various tax benefits. When buying a business, you can depreciate its assets, reducing your taxable income. Section 179 depreciation allows for writing off 100% of certain asset values in one year. Investing in an existing business as a partner can lead to tax deductions based on the business's expenses. Starting your own side business allows you to write off expenses like home, car, meals, travel, healthcare, and even childcare under certain conditions.
Oil and Gas Investing [7:37]
Investing in oil and gas companies, particularly private ones that accept investments from accredited investors, can result in significant tax write-offs, potentially up to 90% of the investment in a given year. These investments benefit from tax breaks provided by the U.S. government to encourage domestic oil and gas production, including depletion, depreciation, and the ability to write off intangible drilling costs.
Charitable Investing and Giving Strategies [8:58]
Charitable giving offers several ways to reduce taxes. Setting up nonprofits, private foundations, or donor-advised funds allows for creating charitable tax deductions while maintaining control over the funds. Donating appreciated property, such as stocks or real estate, to a nonprofit allows you to deduct the fair market value of the property, not the original cost. Creative strategies, such as donating Section 8 rental properties to a personal nonprofit, can lead to substantial tax savings.