How to aggressively save/invest and avoid taxes?

[letsquitpharm]

Hi 👋

I am looking for financial advices to squeeze as much 💰 as possible, and possibly FIRE...

I got multiple contract opportunities for remote jobs, and very possibly double my current salary in a few months, with total comp >= 500k/yr. I have maxed out 401k and HSA. I have two real estate properties worth 2M in total, one for rental income and another one for myself. No student loan debt, only ~1.0-1.1M mortgage.

Any tips to avoid paying too much taxes next year?

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[WVUPharm2007]

Don't forget the Roth

 

[letsquitpharm]

Don't forget the Roth

I think I am disqualified for Roth? I make >144000/yr...

 

[letsquitpharm]

What I have in mind:
1. 401k
2. HSA
3. Mortgage interest of 750k
4. Property tax

Anything else?
I heard LLC can deduct taxes, but how does it work?

 

[confettiflyer]

I think I am disqualified for Roth? I make >144000/yr...

Back door still open, like yo mama’s.

 

[mentos]

Move to a no income tax state? Not much else you can do to legally avoid Uncle Sam.

People here without kids will tell you to have kids to save on taxes. But they often forget that you have to pay for them for 18+ years.

 

[WVUPharm2007]

I think I am disqualified for Roth? I make >144000/yr...

1) Backdoor
2) Your AGI might be under the limit.

 

[Dred Pirate]

1) Backdoor
2) Your AGI might be under the limit.

Technically MAGI. But for most people the same.

 

[sunnyandseventytwo]

1) Backdoor
2) Your AGI might be under the limit.

Is a Roth actually beneficial for him? It's hard to say what bracket he's in with the info provided, but I'm sure it's at least 35%. A Roth won't help with that and I suspect his bracket will be lower when he retires.

OP: How are you getting paid for the contract positions? If it's 1099 income, how about setting up a SEP and pre-taxing your limit into that?

PS: Quit trolling us with your "only 1 million dollar mortgage". It's only impressive if your house is paid off.

 

[Dr Wario]

What I have in mind:
1. 401k
2. HSA
3. Mortgage interest of 750k
4. Property tax

Anything else?
I heard LLC can deduct taxes, but how does it work?

LLC is a pass through entity for tax purposes, so would not save anything on taxes. You would set up an LLC for liability protection and privacy for your rental property, though honestly it would probably be 95% as effective to just get a large umbrella insurance policy over your existing coverage. There are other business structures that could save taxes on your rental profits, such as an s-corp, but they come with a lot more hassle and likely not worth it.

It sounds to me like your earning power is vast and your energy would be better spent optimizing that since you have already done the basic things (except maybe a 529 plan in the event you have children or others you would like to assist paying for education).

 

[sunnyandseventytwo]

If you are a contractor then you need to pay the employer portion of social security and medicare tax. You also don’t get taxed free healthcare benefits

I assumed he had a regular job that would be paying his SS, though upon re-read, maybe he only has contract jobs. At any rate, he's well over the maximum for social security withholding.

 

[letsquitpharm]

I assumed he had a regular job that would be paying his SS, though upon re-read, maybe he only has contract jobs. At any rate, he's well over the maximum for social security withholding.

I have a FT job, paying all insurances and social security and other stuff. I got hit with so many recruiters calls lately for additional jobs, with pay rate >130/hr contract and/or 250k/yr perm. One of them successfully convinced me to moonlight, as long as there's no conflict of interest, and the client is so desperate for a qualified warm body anyway...My current job already places me in the 35% tax bracket btw.

 

[letsquitpharm]

Is a Roth actually beneficial for him? It's hard to say what bracket he's in with the info provided, but I'm sure it's at least 35%. A Roth won't help with that and I suspect his bracket will be lower when he retires.

OP: How are you getting paid for the contract positions? If it's 1099 income, how about setting up a SEP and pre-taxing your limit into that?

PS: Quit trolling us with your "only 1 million dollar mortgage". It's only impressive if your house is paid off.

not trolling you, just give a basic overview of my current financial breakdown.

I doubt I will be paid as 1099, probably as W2. But I don't need any insurance coverage from the staffing agency. Honestly, I wish I can be paid as 1099, then I can ask for a 25% increase in the pay rate.

 

[Rouelle]

Move to a no income tax state? Not much else you can do to legally avoid Uncle Sam.

People here without kids will tell you to have kids to save on taxes. But they often forget that you have to pay for them for 18+ years.

As a parent, I can definitively say that the tax benefit is negligible. 🤣

Sometimes those no income tax states make up for it in property taxes…

 

[mentos]

True about the property tax. The only state I know that has low property tax and no state income tax is Nevada. Of course a house in the hot desert will need a lot of maintenance.

California is great when it comes to property tax….1.25% of purchase price + no more than 2% increase annually. Big saving over time.

Yeah but a SFH is like 2 million in CA.

 

[confettiflyer]

True about the property tax. The only state I know that has low property tax and no state income tax is Nevada. Of course a house in the hot desert will need a lot of maintenance.

California is great when it comes to property tax….1.25% of purchase price + no more than 2% increase annually. Big saving over time.

Yes and no about the maintenance.... utility bills will be sky high, but there's a reason airlines park planes in the desert when they're not in use, lower/easier maintenance costs.

As for California property tax, it's even better than you describe. It's more like 1.08% of purchase, and the basis of which that 1% is based off of is only allowed to increase max 2% per year. I have a CFD overlay, so that's a bit different, but the core is the same.

Yeah but a SFH is like 2 million in CA.

Dude, just buy a normal house and it's not $2M. Don't buy none of that acreage/large lot nonsense. Get you a zero lot line house where you can high-five your neighbors from the toilet and barely have room in your driveway to keep your car, and you can get away with the low $1M's.

EDIT: Ah crap maybe you're right. Hey! I see a few handful of SFRs < $1.5M. Bless these folks buying houses today at these prices. Yeeek.

 

[confettiflyer]

Oh and back to topic, I think the i401k limit is like $61,000 (2022). Spouse uses this for consulting.

Best way to put away money is to avoid being an employee and go work as a 1099 contractor, but I believe OP said they cannot go this route (or they can, with great difficulty).

 

[mentos]

Yes and no about the maintenance.... utility bills will be sky high, but there's a reason airlines park planes in the desert when they're not in use, lower/easier maintenance costs.

As for California property tax, it's even better than you describe. It's more like 1.08% of purchase, and the basis of which that 1% is based off of is only allowed to increase max 2% per year. I have a CFD overlay, so that's a bit different, but the core is the same.



Dude, just buy a normal house and it's not $2M. Don't buy none of that acreage/large lot nonsense. Get you a zero lot line house where you can high-five your neighbors from the toilet and barely have room in your driveway to keep your car, and you can get away with the low $1M's.

View attachment 357314

EDIT: Ah crap maybe you're right. Hey! I see a few handful of SFRs < $1.5M. Bless these folks buying houses today at these prices. Yeeek.

I don't get why houses are so close together there. What's the point of a SFH if your neighbor is 3 feet away?

 

[mentos]

It is good to know the max 2% increase is based on the 1% only. Yeah, property tax in California is quite generous. If you got the house at a good price, you are golden. Your property tax is set.

SFH with a huge lot and in a prime location will always do well. They don’t build this kind of houses anymore. All the new ones are tract homes on a tiny lot with 5 neighbors.

That's like saying if you bought AMZN for $300 pre-split, you're golden. No one has a time machine.

 

[confettiflyer]

This is why…mid 80s in the middle of summer with a nice breeze. As global warming gets worse and worse..LA will become even more desirable especially for the wealthy.

View attachment 357328

LA is gross. Up north is better, we have senior water rights for droughts. In fact, one of our water districts just sold water to Los Angeles for a couple million bucks.

Higher wages, too.

 

[mentos]

LA is gross. Up north is better, we have senior water rights for droughts. In fact, one of our water districts just sold water to Los Angeles for a couple million bucks.

Higher wages, too.

LA is the last place I'd want to be in CA. It's gross and congested. Took me 45min to go 7 miles. Venice Beach is overrun with homeless camps now. I dig San Diego in Socal and the Bay Area in the north.

 

[confettiflyer]

Let’s not make this into NorCal vs SoCal thing but we both know all the cool people live in SoCal.

Fair. Cool people in SoCal and it’s probably the best place to be if you’re an indie music fan.

But we still have the water and we just let you have it because we are nice and like your movies/exports. Quit watering your lawns, though.

 

[mentos]

When will the west coast run out of water?

Officials worry Southern California won't have enough water to get through summer without unprecedented cuts | CNN

"I don't want anybody to turn on the faucet and not have water," said one Southern California water manager.

www.cnn.com

 

[WorthlessOxygen]

When will the west coast run out of water?

Officials worry Southern California won't have enough water to get through summer without unprecedented cuts | CNN

"I don't want anybody to turn on the faucet and not have water," said one Southern California water manager.

www.cnn.com

Oof I don't like any time scales have to add an option beyond "extreme"

 

[mentos]

You cant afford to live next to the homeless

The lowest price home I see on Venice Beach is 3.3mil so that is true.

 

[LadyDustyBlue]

Hi 👋

I am looking for financial advices to squeeze as much 💰 as possible, and possibly FIRE...

I got multiple contract opportunities for remote jobs, and very possibly double my current salary in a few months, with total comp >= 500k/yr. I have maxed out 401k and HSA. I have two real estate properties worth 2M in total, one for rental income and another one for myself. No student loan debt, only ~1.0-1.1M mortgage.

Any tips to avoid paying too much taxes next year?

Read below quoted post, but also just don’t move to California unless you’re chasing a higher wage & can afford to stay there. Speaking as a Southern California native but I’m moving out of there next year.

Move to a no income tax state? Not much else you can do to legally avoid Uncle Sam.

People here without kids will tell you to have kids to save on taxes. But they often forget that you have to pay for them for 18+ years.

^ Or start a business and have it registered in Delaware 😅 - just kidding. But the economy isn’t great for investments/stick so I wouldn’t bet on it for another few years. I’d just work, stick to savings and hope it grows… and if you’re a Gen Z or think like them, save your money in cash because that seems to be a trend like we’re in WW2 times. That last part is no joke.

 

[Dred Pirate]

Any tips to avoid paying too much taxes next year?

One word of advice - finanical independence isn't about paying the lowest taxes, but about having the most money left after you pay taxes - this is an important distinction. Don't let the tail wag the dog.

 

[confettiflyer]

Friends -- I've figured it out, the secret to being able to afford living in California*. MOVE. TO. MEXICO.

The tacos would be off the hooooooooook.

How the Path to Homeownership Runs Through Mexico (Published 2022)

San Diego residents are moving to Tijuana to get more for their money. Some hope to save for down payments on houses that are way out of reach north of the border.

www.nytimes.com

*Hey, technically, you're in Baja California.

 

[Dred Pirate]

Friends -- I've figured it out, the secret to being able to afford living in California*. MOVE. TO. MEXICO.

The tacos would be off the hooooooooook.

How the Path to Homeownership Runs Through Mexico (Published 2022)

San Diego residents are moving to Tijuana to get more for their money. Some hope to save for down payments on houses that are way out of reach north of the border.

www.nytimes.com

*Hey, technically, you're in Baja California.

the weather is nice there

 

[mentos]

Friends -- I've figured it out, the secret to being able to afford living in California*. MOVE. TO. MEXICO.

The tacos would be off the hooooooooook.

How the Path to Homeownership Runs Through Mexico (Published 2022)

San Diego residents are moving to Tijuana to get more for their money. Some hope to save for down payments on houses that are way out of reach north of the border.

www.nytimes.com

*Hey, technically, you're in Baja California.

I'd be afraid of the cartel violence.