Tax, Investing, and Legal Strategies for W2 Employees

Not-so-fun fact: As a W2 employee, you are taxed at a rate higher than businesses and investors.

In fact, no group in America pays more taxes than high-salary wage-earning W2 employees. 

Whether you are a medical professional, a tech professional or any other full-time employee for a U.S. company, there are some little-known ways you can jumpstart your tax savings and investment journey.

They include:

Let’s take a look at these tax, investing and legal strategies for 9-to-5’ers so you can make an informed decision about the best steps to take to secure your financial future.

Tax Strategies for W2 Employees

Tax planning is a key component of a solid wealth management strategy. Remember: W2 employees are taxed on gross income first, with the IRS taking a portion before you receive your paycheck.

In contrast, business owners and investors (with the correct structures in place) pay the IRS quarterly on their net income after expenses. 

When you (as a full-time employee) invest through a properly structured entity, your investment income gets the same tax treatment as a business. This allows you to use your money before deducting taxes. 

If you’re like most of our clients, you've been told there isn't much you can do to lower your taxes beyond taking deductions or using retirement vehicles like 401ks and IRAs. That’s why finding the right CPA to work with is so crucial. You need someone who knows what they’re talking about.

The right CPA can help W2 earners leverage tax strategies to achieve and maintain tax rates in the 0-10% range. This accelerates your overall cash flow and net worth.

Many CPAs don’t understand that it's possible to save outside the standard deductions. A high-level CPA is someone who earns a high income themselves, someone who has personally found a way to pay nearly $0 in tax by leveraging advanced strategies. 

If you find a CPA with an MBA and who can perform Chief Financial Officer functions, even better— these folks will be able to help you navigate complex tax decisions and make it seem easy.

When you work with that level of CPA, you'll start to find creative (but completely legal) ways to save taxes. And that savings can be invested in equally creative, equally overlooked ways.

Such as …

Investing Strategies For W2 Employees

W2 employees spend years growing their career and growing their income. At a certain point we have plenty of income but 20-30% of it is being sucked away by the IRS.

Saving money on tax is important, but the real magic happens once W2 earners invest their tax savings into tax-advantaged deals.

There are tons of deal types, but the top asset classes include real estate, syndications in energy or machinery, and algorithmic trading. In general, there are two categories of investments you should be looking at...

Depreciation Deals

• W2 earners should invest in energy or machinery deals that allow them to be a general partner (GP) in the first year in order to claim accelerated bonus depreciation. As of this writing (December 2024), syndications have changed over the past year. They only way to get depreciation as a W2 is to be a GENERAL PARTNER (not LIMITED). This only works for ENERGY & MACHINERY. RV PARKS would require you to be a Real Estate Professional.
• If you are a Real Estate Professional, you can also access bonus depreciation from multi-family and commercial investments.

Cash Flow Deals

• These deals don't offer tax benefits, but can drive so much income that they outperform the tax savings. Investments in this category include things like self-storage and algorithmic trading.
• You can invest in cash flow deals through a tax shelter, such as a 501(C)3 Non-Profit Private Foundation, to get the initial tax savings as well as tax advantaged portfolio growth.

Legal Strategies For W2 Employees

As you accelerate your tax and investment approach, it's important to incorporate asset protection and legal strategies into your plan. The Royal Legal approach for W2 earners lets you:

• Own assets anonymously so that your wealth isn't on public display
• Set up limited liability companies to protect your personal net worth from lawsuits
• Minimize risk by separating your business activities from your assets
• Hold each asset in isolation so that lawsuits can't jeopardize your entire portfolio
• Use insurance as a last line of defense in case everything goes wrong

Even a W2 employee with no investments needs to set up entity structuring. This means creating LLCs and making sure your assets are held anonymously.

Once your LLC hits the $50-75k income mark, the S-Corp election becomes your best friend.  S Corps utilize pass-through taxation, meaning income and losses "pass through" the company directly to the shareholders. 

Unlike C Corps (which have corporate taxes and then shareholder taxes on dividends), S Corps allow shareholders to pay taxes only at their individual income tax rates, simplifying the process.

For businesses generating between $75,000 and $250,000 in profits per owner, electing S-Corp status can offer significant savings. While LLCs face self-employment taxes on all profits, S-Corps split profits into wages and distributive shares, the latter of which is not subject to self-employment taxes. This distinction can provide considerable savings on the Social Security and Medicare tax burden.

The S Corps elections also means you can write off business expenses such as equipment, work meals, travel and more. For example, you can depreciate vehicles—80% if under 6,000 lbs or 100% if over 6,000 lbs.

You can even pay your kids to work, typically up to around $14k/year. They avoid income tax and you avoid having profit taxed at your normal income tax rate. Win/win!

There’s a Path to True Financial Freedom For W2 Employees

You’ve worked hard your entire life. It’s time to gain control over your time and money. Rapidly achieving true freedom requires a good tax and investment strategy.

We can show full-time, W2 workers how to save $20k or more in taxes during the first year. Then we can show you how to find the right deals to re-invest your tax savings.

Real estate. Turnkey properties. ATMs. Self-storage syndications. Apartment complex rehabs. The list of deals that outperform traditional stock market investments (and sometimes provide additional tax benefits) is long, and we can help you find them.

Finally, you need the right tax and legal structures to continue to reduce your taxes down to the 0-10% range. Without the right business entities, this will be impossible.

Take a look at a typical 20-year plan that includes asset protection structures, estate planning, investing and tax shelters: