Do tax preparer add value for 7 figure W2 income

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novemberrain
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Do tax preparer add value for 7 figure W2 income

Post by novemberrain »

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livesoft
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Re: Do tax preparer add value for 7 figure W2 income

Post by livesoft »

One can always try a year with paying for tax prep.

I think the tax prep is not the issue. It is doing things with compensation and investments BEFORE even getting to the tax prep part.
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furwut
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Re: Do tax preparer add value for 7 figure W2 income

Post by furwut »

livesoft wrote: Thu Apr 15, 2021 11:25 am One can always try a year with paying for tax prep.

I think the tax prep is not the issue. It is doing things with compensation and investments BEFORE even getting to the tax prep part.
+1
After the 2017 tax bill passed I know of several high-income couples who restructured how their income was recognized in order to take full advantage of the opportunities opened up. This required the assistance of tax accountants specializing in this area. One guy told me his tax savings was in the multiple of 6 figures.
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novemberrain
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Re: Do tax preparer add value for 7 figure W2 income

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jarjarM
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Re: Do tax preparer add value for 7 figure W2 income

Post by jarjarM »

novemberrain wrote: Thu Apr 15, 2021 11:49 am
furwut wrote: Thu Apr 15, 2021 11:39 am who restructured how their income was recognized
Thanks. Would you have any more information on this ? Both my and my husband's employers are megacorps who dole out standard payslips and W2s. They won't make an exception for us in terms of deferring income or anything like that. Wondering whether "restructuring income" is something I can also do. Thanks
Small business owners will definitely gain some advantage with tax preparer, especially after 2017 tax act. For W2 incomer, I think there isn't much other than maybe a few deductions that one could've missed here and there. However, an estate/tax planner is worth it, especially if one is looking at the current and future estate tax limit differential.
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Re: Do tax preparer add value for 7 figure W2 income

Post by livesoft »

novemberrain wrote: Thu Apr 15, 2021 11:49 am Thanks. Would you have any more information on this ? Both my and my husband's employers are megacorps who dole out standard payslips and W2s. They won't make an exception for us in terms of deferring income or anything like that. Wondering whether "restructuring income" is something I can also do. Thanks
Many of the folks that I know with deferred compensation worked for Megacorps. I've never had deferred compensation, but I believe it was available to maybe 3 or 4 people at my former employer, such as CEO, CFO, and COO.
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Re: Do tax preparer add value for 7 figure W2 income

Post by TomatoTomahto »

We use a tax preparer (CPA), but have done so because income is attributed to 5 different states (!). In a state audit, having a CPA manage the process was a big win.

I don’t know if we will use the CPA after retirement, but I expect their charges will be lower then.

We are all W2, pension, SS, and RSU income. Not many opportunities for legal creativity.
I get the FI part but not the RE part of FIRE.
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Re: Do tax preparer add value for 7 figure W2 income

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Re: Do tax preparer add value for 7 figure W2 income

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Re: Do tax preparer add value for 7 figure W2 income

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Re: Do tax preparer add value for 7 figure W2 income

Post by jebmke »

Probably the easiest way to manage income in a W2 situation is to shift taxable income into future years by bringing forward deductions from future years when you might expect to have lower income (and lower tax rate). One of the most flexible means to do this is to make large donations to a Donor Advised Fund or Charitable Foundation to cover donations you might make in those future (low tax) years.

Often one's crystal ball on those future years only clears up shortly before the inflection point (which is often retirement) so it pays to have a framework and pay attention to when those inflection points will occur.

Prior to retiring I started doing pro forma tax returns for the first year of retirement (not knowing exactly when that would be), the year my pension started (known, but likely after point #1), the year I start Social Security and the year I start RMDs. I update them every year. That way I know what those inflection points will do to me. I do these pro-forma returns even before I prepare my return for the last actual tax year. In fact, my actual return is the last one I do since I have little control over that outcome anyway.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Do tax preparer add value for 7 figure W2 income

Post by TheTimeLord »

Yes, because if you are making 7 figures your time is worth more than you would pay a tax preparer or CPA.
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Re: Do tax preparer add value for 7 figure W2 income

Post by jebmke »

TheTimeLord wrote: Thu Apr 15, 2021 12:40 pm Yes, because if you are making 7 figures your time is worth more than you would pay a tax preparer or CPA.
On the other hand, you should be able to bang out a W-2 tax return in 30-45 minutes. The time it takes to deliver the docs, return and sign the 8879 etc might not be less.
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Re: Do tax preparer add value for 7 figure W2 income

Post by afan »

I agree that your simple tax situation does not offer many places for you to make a mistake or for a paid preparer to help.

On the other hand, you may want to talk to a CPA who gives tax advice. They may be able to help you think of how investments, for example, can lower your overall tax bill. Real estate investing is one way some people do this. You have to be willing to devote enough time, money and effort to get the tax benefits. Not much you can do about the W2 income.
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Re: Do tax preparer add value for 7 figure W2 income

Post by ipdiddly »

There are many folks that pay high taxes (and I am one of them) who scratch their heads every year and think "perhaps I am missing something." The problem and the reality is that if most of your income is W2 income (or pension income) plus divs/cap gains, then there is not likely any magic bullet that will reduce your tax bill in any significant way.
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Re: Do tax preparer add value for 7 figure W2 income

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TheTimeLord
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Re: Do tax preparer add value for 7 figure W2 income

Post by TheTimeLord »

jebmke wrote: Thu Apr 15, 2021 12:46 pm
TheTimeLord wrote: Thu Apr 15, 2021 12:40 pm Yes, because if you are making 7 figures your time is worth more than you would pay a tax preparer or CPA.
On the other hand, you should be able to bang out a W-2 tax return in 30-45 minutes. The time it takes to deliver the docs, return and sign the 8879 etc might not be less.
A good point.
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Re: Do tax preparer add value for 7 figure W2 income

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I've never used a tax preparer, only TurboTax. I just bite the bullet and pay my taxes.
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Re: Do tax preparer add value for 7 figure W2 income

Post by milktoast »

Your tax situation and bracket is the same as mine. I do it myself.

One year I had a professional do it because my wife insisted. Never again. They didn't adjust the basis on the RSUs even though I gave them the supplemental paperwork. And done. Fired. You would think seeing a "your client owes half a million dollars in back taxes and penalties" would trigger a head scratch or two. But nope.

As long as you have the supplemental information on your RSUs, it's fairly simple to just bang it out in turbotax. Takes me 2-3 hours - but that's because I have like 30 RSU transactions where I need to manually adjust the basis.
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Re: Do tax preparer add value for 7 figure W2 income

Post by jebmke »

afan wrote: Thu Apr 15, 2021 12:52 pm I agree that your simple tax situation does not offer many places for you to make a mistake or for a paid preparer to help.

On the other hand, you may want to talk to a CPA who gives tax advice. They may be able to help you think of how investments, for example, can lower your overall tax bill. Real estate investing is one way some people do this. You have to be willing to devote enough time, money and effort to get the tax benefits. Not much you can do about the W2 income.
Depending on assets and family situation, better source of advice for high earner on tax planning may be with an attorney specializing in taxation. Often the good firms that have strong estate planning practices have one or more partners who have advanced degrees in taxation and can advise on how to integrate tax planning into estate and giving plans.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Do tax preparer add value for 7 figure W2 income

Post by Makefile »

novemberrain wrote: Thu Apr 15, 2021 11:22 am I have been reading up on bogleheads last few years. Me and my husband both have all these : 401k, after tax 401k, HSA, 529, backdoor IRA, mega backdoor. However, all together those still represent less than 15% of AGI.
It's only a drop in the bucket but if you look into Series I savings bonds, the interest is federal tax deferred for up to 30 years and state tax exempt, and the six-month rate going into effect May 3 is expected to be pretty attractive (3.54%) due to the way the CPI changed over the past six months.

There is a $10,000 limit but various ways to increase it somewhat ($10,000 for self, $10,000 for spouse, potentially more with revocable trusts).

Another small opportunity is UTMA accounts for each child. For example, if you had low-basis VTSAX shares, you could gift them to the UTMA (without selling them); with VTSAX's dividend yield of about 1.28% it would take several years of gifting at the max gift tax exemption before the annual dividends would go over the $2,200 kiddie tax investment income limit. Then, the children could hopefully hold the VTSAX shares for life, or at a minimum wait until the kiddie tax no longer applies before selling them for college, house down payment, etc. It would also work with just gifting cash to the UTMA and buying funds afterward; you could even target low-dividend funds like Vanguard Growth Index if you wanted to fill them without hitting the kiddie tax limit. Be aware that the money unconditionally goes to the child at age 21 which may limit how much you want to put into an UTMA.

You could also look into savings bonds for the children.
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Re: Do tax preparer add value for 7 figure W2 income

Post by HomeStretch »

With income from W-2/RSU/dividends, being in your accumulation years, and maxing out all the Roth and tax deferred space available to you, it doesn’t seem likely there is an unidentified opportunity to significantly reduce your current tax burden.

Perhaps there is an opportunity to improve your portfolio’s tax efficiency which could result in some tax savings. For feedback on this, consider posting your financial picture in the “Asking Portfolio Questions” format found here:
https://www.bogleheads.org/wiki/Asking_ ... _questions

There is likely opportunity for you as you get closer to/are in retirement to smooth your marginal tax rate/maximize your after-tax funds over your retirement horizon with Roth conversions, good portfolio withdrawal strategies, utilizing healthcare subsidies, being aware of Medicare IRMAA, social security claiming strategies, etc. So keep reading this forum and filing away knowledge about those areas until you are in a position to utilize it. To optimize, I think you need to be prepared to crunch the numbers yourself and run your preliminary plans by the forum posters here and whatever professional you may use.

Another area for a high net worth couple to focus on is estate planning with a knowledgable estate and trust attorney in your state.
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inbox788
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Re: Do tax preparer add value for 7 figure W2 income

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novemberrain wrote: Thu Apr 15, 2021 11:22 amMost of my income is W2 with some RSUs, 1099-DIV. I don't have any business income or any rental income.

Last few years I have been using online tax prep software. This year also I entered my info into online software and my total tax liability is several hundred thousands (similar numbers as last couple of years). This is federal + state + FICA etc. AGI is 7 figures (between 1 & 2m)

However, I am wondering whether any professional tax preparer would add any value in reducing my tax bill by suggesting any other ways to reduce tax bill.I am left wondering whether I am not being the most tax efficient as I could be.

I have been reading up on bogleheads last few years. Me and my husband both have all these : 401k, after tax 401k, HSA, 529, backdoor IRA, mega backdoor. However, all together those still represent less than 15% of AGI.
Not 7 figures, but mainly W2 income and few deductions. I make enough to not worry about paying a few bucks to a tax-preparer. A basic tax preparer just fills out the form, and hasn't added value, just a small cost and buys peace of mind (and someone to try to throw under the bus if necessary; at the very least, shows you tried). I've wondered if there's any benefit to find a more advanced tax expert, but figured any potential benefit would be offset by higher fees, but with your higher income, the odds may be better.

Looked into Opportunity Zones (was suggested to me), and came to the conclusion that it wouldn't help my tax situation (possibly increase tax). If your tax investment adviser suggest something, be sure you understand it, and not just take their word for it.

While back, I was doing my own. I made a big mistake, but caught it later and fixed it myself with an amendment. I've had some small discrepancies with the CPA, and pretty much took their numbers, even if I wasn't sure about it, though I have one issue about last years taxes I've got to discuss with him. Hopefully it doesn't mean an amendment, but if it does, I might get a little back.

Thanks for doing your part in keeping the government operating and the economy humming.
milktoast wrote: Thu Apr 15, 2021 1:18 pmThey didn't adjust the basis on the RSUs even though I gave them the supplemental paperwork.
LOL. I think that was my amendment. Too bad I couldn't fire myself. Many preparers do little more than data entry.
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Re: Do tax preparer add value for 7 figure W2 income

Post by afan »

jebmke wrote: Thu Apr 15, 2021 1:27 pm
afan wrote: Thu Apr 15, 2021 12:52 pm I agree that your simple tax situation does not offer many places for you to make a mistake or for a paid preparer to help.

On the other hand, you may want to talk to a CPA who gives tax advice. They may be able to help you think of how investments, for example, can lower your overall tax bill. Real estate investing is one way some people do this. You have to be willing to devote enough time, money and effort to get the tax benefits. Not much you can do about the W2 income.
Depending on assets and family situation, better source of advice for high earner on tax planning may be with an attorney specializing in taxation. Often the good firms that have strong estate planning practices have one or more partners who have advanced degrees in taxation and can advise on how to integrate tax planning into estate and giving plans.
For estate planning, absolutely.

For tax- not so much. Tax lawyers are for when your taxes are complicated, not just high. Or when the IRS takes you to court. Simple W2 income, no matter how much, does not call for a tax lawyer. There is nothing for them to do.

If you start creating a VERY complicated financial life, with lots of investments that take you into gray areas of tax law, then you need a tax attorney. For someone with high W2 income but a simple tax return, they could do themselves a lot of harm by going into complicated maneuvers to cut taxes. Even if they are ultimately legal, the hassle may not be worth it. And the waters are infested with people who will look at that 7 figured income and offer schemes claiming they will save taxes. Better off without them.
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Re: Do tax preparer add value for 7 figure W2 income

Post by afan »

milktoast wrote: Thu Apr 15, 2021 1:18 pm Your tax situation and bracket is the same as mine. I do it myself.

One year I had a professional do it because my wife insisted. Never again. They didn't adjust the basis on the RSUs even though I gave them the supplemental paperwork. And done. Fired. You would think seeing a "your client owes half a million dollars in back taxes and penalties" would trigger a head scratch or two. But nope.

As long as you have the supplemental information on your RSUs, it's fairly simple to just bang it out in turbotax. Takes me 2-3 hours - but that's because I have like 30 RSU transactions where I need to manually adjust the basis.
Did they still try to collect their fee?
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Re: Do tax preparer add value for 7 figure W2 income

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afan wrote: Thu Apr 15, 2021 4:27 pm Did they still try to collect their fee?
No. I told them about the mistake within minutes of receiving the "bad news" and indicated in that email that they were fired and would not be paid.

If it had resulted in a small change, I would have paid them. I think people deserve to be paid for their work even if I never intend to hire them again because their work is poor.

But seriously, you can't look at a return where the amount of tax and penalty owed is approximately the same as the taxes paid (including making estimated payments) and not check it for errors. That is a situation where anyone should be able to identify that something is amiss right up front.
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Re: Do tax preparer add value for 7 figure W2 income

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Re: Do tax preparer add value for 7 figure W2 income

Post by jebmke »

novemberrain wrote: Thu Apr 15, 2021 5:10 pm jebmke wrote: ↑Thu Apr 15, 2021 2:27 pm
Depending on assets and family situation, better source of advice for high earner on tax planning may be with an attorney specializing in taxation.

Thanks. I probably need to do that at some point. However, this specific post question was about annual tax burden lowering.
Depending on your assets and goals, that is what they do. Probably make sense once your assets grow to some moderate size (8+ figures) where shifting money between generations or via other mechanics to either heirs or charities makes sense. These types of moves can affect your income during the years when you make the moves.
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Re: Do tax preparer add value for 7 figure W2 income

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Re: Do tax preparer add value for 7 figure W2 income

Post by jebmke »

novemberrain wrote: Thu Apr 15, 2021 5:22 pm
jebmke wrote: Thu Apr 15, 2021 12:38 pm Probably the easiest way to manage income in a W2 situation is to shift taxable income into future years by bringing forward deductions from future years
Thanks. As it stands now, both me and husband plan to work for foreseeable future. So unless there are some extraneous circumstances (health disaster for one of us; or one of our industries suddenly stops being so high paying; prolonged unemployment etc), we may be in this high tax bracket for couple of decades.
Yes; most of the moves like this are better made in the later years. A lot of folks in my area (retired or near retired) have moved aggressively with private foundations - they shielded a lot of income from taxes over several years. I'm not a big fan of foundations with smaller amounts. Under $5-10 million it is more trouble than it is worth.

edit - without deferral arrangements, avoiding taxes on W2 income is difficult. My wife was in the investment business for a number of years and they were able to defer large portions of their compensation. I don't recall how they did it but she was a partner so it wasn't all W2 income. I was pretty busy back then and didn't focus on it since it didn't hit our 1040 at the time.
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Re: Do tax preparer add value for 7 figure W2 income

Post by milktoast »

novemberrain wrote: Thu Apr 15, 2021 5:10 pm Nice. Sounds similar to mine. I have maybe 12 RSU transactions every year. Basically monthly vesting. I don't sell anything actively, but my employer automatically sells a percentage to withhold taxes. Is that your case too ? Or do you actively sell and diversify.
I actively sell all shares when I'm not locked out. All non-RSU compensation is deferred into NQDC/401k/mega-backdoor/HSA. Vest every six months and live off cash in between - have 12 months cash because sometimes the trading window for a quarter is canceled. What I don't need for spending goes into taxable account (TSM and international).

My experience tells me that you should always sell your employers shares when you can. Holding vested shares in a "hot tech IPO" during 2000 taught me that lesson in a way that can't be forgotten. I'm still heavily tied to my employer's success both in future RSU vesting and NQDC (paid out for 15 years after retirement). But never again can I watch millions of dollars go to zero when I had the option to sell. Nope can't do it.
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Re: Do tax preparer add value for 7 figure W2 income

Post by jebmke »

milktoast wrote: Thu Apr 15, 2021 5:39 pm My experience tells me that you should always sell your employers shares when you can.
Agree; I skipped the DC plan for bonuses. But the bigger nut was NQ options and because I was an insider it was frowned on to move too much and we only had brief windows when we could peel off a small layer. I rode some up and down and then back up and then moved a lot in a structured sell plan when I saw I was heading for retirement. I basically ignored options when I was looking at the numbers for assets - I treated them as if they didn't exist.
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