Tax Strategies For W-2 Earners: Top 5 Tax Saving Tips in 2025

0:00 many W2 taxpayers feel like they cannot use the tax code to reduce their own taxes but that is absolutely false and that is why in this video I'm going to show you the top five ways to reduce your taxes when you have W2 income so when you earn W2 income you can reduce your taxes by carefully and strategically making Investments that not only increases your wealth but also reduces your taxes at the same time so as a licensed CPA that tax plans every day at my CPA coach I am going to reveal to you my tax reduction Matrix that I personally use to consistently save my W2 clients thousands of dollars in taxes every year so let's Jump Right In All right so let's start off with a very easy one here number one deferring

0:47 your income now I like to think of this as pushing income off of your tax return this year and Reporting it at some point in the future when ideally you may be in a lower tax bracket so look the more income you earn the higher your tax bracket will be and the more taxes you will pay on certain portions of your income but when we defer some of that income we can immediately reduce our taxes so for example let's say a portion of your income is taxed at 35% and we'll just use $100,000 of income here for Simplicity well if you did absolutely nothing then you would pay $35,000 in taxes on that portion of your income but if you deferred that income you would immediately save $335,000 in taxes and

1:32 let's say in the future you withdraw portions of this income when maybe it's taxed at 12% for instance which means that when all is said and done here you would only pay $122,000 on taxes on that same amount of income saving you a net of $223,000 so in order for you to defer income and save money and taxes when all is said and done you must fully understand your income and how it is being taxed now and how it may be taxed in the future but with that said you're probably wondering well how exactly do I defer my income well you can easily defer your income with various retirement plans health plans and even deferred compensation plans so as far as Retirement plans go you could set up a traditional IRA on your own and defer up

2:17 to$ 7 to $8,000 depending on your age and income and if your employer offers a 401k plan for instance then you could also defer about 23 to $31,000 as an employee of that company and if you happen to have a side business or a side 1099 gig you may also be able to defer another $46,000 or so through the use of something like a solo 401k or SE Ira as an employer but that's just retirement you can also set up a health savings account or HSA and deduct up to $4 to $8,500 of income you place into it if you qualify but outside of tax advantage accounts like these I have also seen my W2 client set up deferred compensation plans with their employer which is basically just an arrangement

3:04 with your employer where they agree to pay portions of your compensation at a later date some employers will even go as far as offering you stock options or Equity compensation as mechanisms to allow you to defer tax to a later date so if you're looking to reduce your taxes as a W2 employee all of these things should be explored and this is just level one so let's go ahead and take it a step further here method number two real estate invest in so I have several clients that are able to reduce their W2 taxes to almost nothing by investing their income into rental properties and that is because when you buy rental properties you benefit from a few different things here like number one depreciation this is a noncash expense that the tax code allows you to deduct on your tax return and in some

3:50 cases people are able to depreciate up to 20% of their property values in one given year so if you bought a $400,000 rental property you could potentially depreciate $80,000 of that amount and use that to reduce income on your tax return to pay less taxes that's if you meet certain criteria and that's just the beginning here the second benefit is number two no capital gains when you sell the property that is if you use a technique called a 1031 exchange which basically allows you to avoid capital gains tax when you sell a property if you buy another qualifying property within a specified amount of time and number three let's not forget that you are buying an appreciating asset buying real estate is not an expense it is an asset so you are trading one asset your

4:36 cash for another asset property and Equity usually so unlike spending money on an expensive car that loses its value as soon as you drive it off the lap real estate usually appreciates and value and can preserve your capital and then there's my personal favorite number four real estate cash flows real estate is one of the only Investments where you can profit from rental income in reality but show a paper loss on your tax return for tax purposes but to do this correctly you do need to understand several Tax Strategies and Concepts like the short-term rental strategy the real estate professional tax status cost segregation and so much more so just drop a comment below if you want to learn more about those Concepts but the purpose of this video is to expose you to the various ways that you can reduce

5:22 your taxes so let's keep going here with number three business investing so just like you can buy real estate you can also by a business to receive big tax benefits or simply invest into an existing business or even start a side business so let's break this down a little bit here starting with buying a business so just like you can depreciate real estate assets when you buy the assets of a business you can also depreciate those assets on your tax return and use it to reduce your income for example let's say you bought a dry cleaning business for $100,000 to simplify this and let's say that that business has washers dryers property and other equipment worth $75,000 well in that case you can elect

6:07 to use Section 179 depreciation which is a tax provision that may allow you to write off 100% of those assets in one year basically granting you with a $75,000 deduction that you can then use to reduce your taxes alternatively you can invest into an existing business as a partner and that investment can also be taxed adopti when that business incurs expenses related to your investment for instance if your investment is being allocated to things like additional advertising expenses or the development of a new product or service or for any expense really those expenses are usually 100% tax deductible if they have a valid business purpose which may greatly benefit you from a tax perspective and then finally you may

6:54 even decide to start your own business even if it's just a side business or small side gig where you earn $199 income and this can benefit you greatly because when you run your own business you are able to write off more of your expenses and usually things that you may already be paying for for example when you have a business you may be able to write off portions of your home expenses car expenses meals at restaurants travel expenses health care and in some cases even child care or education expenses with the right structure again there is some Nuance to correctly doing these things but my goal here is is to expose you to how you can use the tax code to your benefit here while keeping your W2 job so let's move on to the next example in our Matrix here number four oil and

7:40 gas investing so as a CPA I have clients that make these types of Investments and are able to write off up to 90% of what they invest in one given year and the great thing is that they are able to invest passively and then use their investment deductions to reduce active W2 income on their tax return so let's talk about how exactly this works so first of all you have to understand that increasing domestic oil and gas production is a major priority of the US government and since they can't do this themselves they provide very big tax breaks to companies that conduct drilling operations to increase this type of production which means if you invest into these types of companies you get to participate in those very same tax benefits now the type of Investments

8:25 we are talking about here are not on the stock market or on a public Exchange these are usually private companies that accept investments from people who qualify as accredited investors and if you do you will be able to benefit from a number of tax breaks available to these companies like depletion depreciation and the unique ability to write off intangible costs related to Drilling and so much more so if you want to learn more about this I do have a separate video on our Channel already that goes into much more detail so make sure you subscribe and check that out to learn more which brings us to the fifth part of our Matrix here to reduce taxes on W2 income number five charitable investing and giving strategies so there are actually several creative ways to use Charities to reduce your taxes

9:11 significantly as a CPA I have had W2 clients set up their own nonprofits to reduce their taxes set up private foundations to reduce their taxes set up Donor advised funds or simply donate appreciated property to a nonprofit organization of their choice and the tax benefits of doing this is quite simple the tax law allows you to deduct donations you make if you use the itemized tax deduction on your tax return and if you set up your own nonprofit organization or qualify giving fund if you will you can basically create charitable tax deductions by moving money to another entity structure that you still control for example let's say you usually give about $10,000 to nonprofit organizations each year which could even be your church but you want

9:56 to find a way to save more money in taxes and let's say you have some extra capital on the side well since you already give $10,000 each year well what if you just created a qualified nonprofit fund and move let's say $50,000 to it that way you would be able to realize a larger charitable tax deduction in that year and still give the same $10,000 to nonprofits of your choice from that fund like you already do the only difference is that you're realizing the tax benefits sooner and you can do this with your own nonprofits private foundations or setting up something like a Donor advised fund for example now another thing that I have seen people do is donate appreciated property to nonprofits and this is big because when you donate property to a nonprofit whether it's stocks equipment

10:43 real estate or whatever the case may be the donation is usually valued at its fair market value not the cost that you paid for the property so for instance let's say you paid $11,000 for property that you ended up donating to a charity but when you donated it it was worth $10,000 well that would mean that you would be able to write off the $10,000 value of that donation not the $1,000 cost you paid for and you would be surprised but there are a lot of ways you can be creative with this I once had a client who set up his own nonprofit bought Section 8 rental properties and donated those properties to his own nonprofit to save massive amount of money in taxes and that's just one creative example but with this tax reduction Matrix there are endless

11:29 possibilities of what you can do to reduce your taxes while keeping your W2 job so if you want to learn more about this make sure you subscribe to our Channel at a minimum and if you need immediate assistance with reducing your taxes right now just apply to become a client of M today at my CPAC coach.com