Buying an apartment building wouldn't directly lower your W2 tax obligations anyway.

 

I understand this. Thanks for your help though!

 

It's a simple process with several options. First give thanks that you have the financial problem you do.

Here is a list of things I do to lower taxable income: *see your tax advisor I'm here for entertainment purposes only, mostly my own entertainment, not yours. Reading my opinions is like reading the forum column of a "mens magazine" for relationship advice, its just my version of the story, not necessarily the truth.

1) Donate appreciated assets, not cash to charity. The easiest way is to create a charitable giving fund at Fidelity or Vanguard. I'm buying VOO on a regular basis in one of my taxable brokerage accounts, every year I donate the shares with the lowest basis to the charitable fund for a deduction at market value. For example, if I'm planning on donating $10,000 to charity this year, I'll gradually buy $10,000 of VOO throughout the year and donate $10,000 worth of VOO I bought ten years ago. It lowers my income by $10,000 for the contribution and steps up my basis lowering long term gains if I ever do sell.

2) Opportunity zone funds may be an option. I stay away from them because most oversell the tax hype and under deliver on the asset performance.

3) Work less. Seriously, why work for 60 cents on the dollar. If you like working to "win" there is a different set of tax rules you should play by. Read #4 or 5

4) Start a business. Don't start a job, start a scalable business where VAs, contractors and/or employees do the work for you. Your role is creation and management, not labor. If you start a business and "fail" after a few years of "losses", you may have to close down the LLC and start over. In the meantime, legitimate business expenses will offset your income. If you have kids, put them on the payroll. Children (under 18) of the owners in a family owned business don't pay social security tax and are usually in a lower bracket than the parent. You can thank the farm lobby for that beauty. For the 1-2 combo, the kids put earnings into a Roth IRA. For an added bonus start a SIMPLE IRA that lets them contribute $15,500 per year into the plan and then roll to a Roth after 2 years. Use the Augusta Rule and rent your house to your company for up to two weeks each year to have a mandatory annual meeting. It is a deductible business expense and non reportable as personal income. You could also rent your house to strangers, but why...

5) Get over the landlord hangup, seriously. [[i]Gunfighter stands on soapbox] If you are too buzy, lazy or self-important to be a landlord, you can't claim one of the best tax deductions available. [[i]Steps down] You can be a landlord for tax purposes without fixing toilets and laying tile. Be a direct owner of rental property and hire a manager. Buy a Dollar General or other small NNN and manage it yourself. If you have enough money, you can buy a $15 million storage facility and hire Public Storage or Extra Space to work for you. The point is, once you can check the box for Real Estate Professional then group ALL real estate as a "combined activity" under IRC 469, your passive apartments become deductible. In 2021 for every $100 I invested in apartment syndications I was able to claim $75 in deductions. This was thanks to 100% bonus depreciation and cost segregation. 100% bonus depreciation is phasing out in the next 5 years 80, 60, 40, 20 then 0, but accelerated depreciation through cost segregation remains. Ask any divorce attorney or estate attorney where most of the wealthy clients have their money. The answer is real estate and family business.

6) Put Solar panels on something. Your real benefit depends on how much the local utility subsidizes the purchase. Ours paid for 50% a few years ago, then we claimed some federal tax credits. I don't recall all of the math, but I seem to recall the benefits were higher because it was a commercial property. Thank the W-2 tax payers for the freebie.

7) I put this last, because I know the least about it. Buy a "working interest" in an oil and gas well. Sorry, I don't know how, but would love to learn. Any oil and gas investors in the crowd?

[[i]Back on soapbox]
By design, the tax system gives the best deductions to job creators, housing providers and energy producers. Be one of those and you play by a different set of rules. There are no shortcuts for the straight W-2 crowd. Anything that appears as a shortcut for the W-2 crowd has a huge back end win for the ones writing the laws. Do you know how much money Black Rock is about to make from our W-2 tax savings plan? Do you know how much money banks make off of real estate loans? Take away the real estate tax deductions and real estate lending shrinks considerably.[[i]off soapbox]

The best way to win the tax game is read the rule book and play by the set of rules used by rich people.

 

Dude, my Iraqi dinars are going to hit any day now!

 

Fewer people get excess with a higher contribution? You’re going to have to show some math on that one.

You keep saying that the black rock fund doesn’t beat inflation, but a simple web exercise completely disproves that. The 10 year return is substantially ahead of inflation.

ESG nonsense notwithstanding (we are likely on the same page, I’ll leave it at that), the ALPA comm said that the plan assets would initially be placed in that fund. My guess, having dealt with professional management of a very large trust in another life, is that there has to be some time for assets to accumulate before professional active management makes sense. The expense ratio of the Blackrock fund is pretty modest, and of the available funds that meet the requirement for the 40/60 ratio, it actually looks like one of the more efficient ones. That said, there doesn’t seem to be anything forcing that fund to hold the assets forever, and the way ALPA worded it makes me think it will be temporary. And FWIW, the Company signing all our paychecks has gone ESG hog wild too. I’m not sure why that would influence your decision to participate in the plan, but you do you.

When I go back and re-read this thread, two themes stick out for people who believe they are better off outside the plan. (1) They want to spend the cash now, or (2) They don’t think the MBCBP returns will be adequate to overcome the opportunity cost of missing out on taxable higher returns outside the plan.

I have no words for people in (1). They have decided to raid money that is meant for retirement, and I say have at it.

What I’m trying to further understand about the guys in the (2) camp, is are you truly looking for max returns with all your investable assets? Do you really have no cash/money market/low risk assets in your portfolio, ever?

Considering the modest number of dollars that most people will contribute to this plan, it will take quite some time before it’s a large part of your retirement savings. Is a percent or two of your portfolio going to a moderate to low risk fund really the end of the world? And if you already have some allocation to a similar risk profile with a portion of your 401k, then I’m just not seeing any opportunity cost whatsoever if you rebalance the 401k to account for the MBCBP. Not being critical, I’d genuinely like to know if you guys are really putting every penny you have in higher risk/return investments.

 

Let’s start with correct facts. IRS limits for 2023 are as follows: 1) Individual 401K contributions are $22,500. 2). Catch up if you turn 50 anytime in 2023 $7500. 3) Maximum company DC contributions are $43,500. For a total of $73,500 (if over 50). When you hit individual contributions of $22,500 and/or $7,500 for your personal contributions, you’ll just see a bump in your monthly pay, since your elective 401k contributions become basic income at that time. You will most likely still have company DC contributions continue after that up to $43,500. When the company DC limit is reached then that income on your paycheck will be called “spill cash”. All three categories are separate and don’t spill into each other. The only way to contribute “catch up” funds to your 401K is to elect a percentage for the catch up category in your Fidelity account page. When the company DC contributions reach the $43,500, only that extra “spill cash” will be flowed (if you don’t opt out) into your MBCBP. So, for you younger guys that might not seem like much. But if you’re on the top of the scale it’s significant.

The Blackrock fund is a balanced and very conservative fund, with lots of bonds and other securities that don’t fluctuate too much and has a 10 year return of around 4.5%. Doesn’t sound like much. But when your money goes in tax free and Alpa dues free, you’re saving over 25% and for the high earners potentially much higher…. As high as 35-37%. And the company will plus you up to keep your account at no lower than what you’ve ever invested into the MBCBP. So with the tax savings, you’re already 25% ahead of what you’d pay to invest that money post tax/Alpa dues.

You all need to make up your mind what’s best for you, but I hope I’ve helped some of you make a more informed decision.

 

It can easily exceed 35K for senior pilots…. Easily exceed. That’s a ton of cash you’ll get a tax shelter on. Remember, money that goes into your MBCBP is tax and Alpa dues free. So you’ll have to exceed at least 25% return, annually to break even…. And that’s if the Blackrock fund makes 0% or less, since the company will fully fund us if the index fund is in negative territory…. Now that’s a threat because they probably will let multiple years slide in a down market and get behind. Like they did w/ the pension. I agree 100% that the possibility exists that Delta will be negligent in make us whole. But still under the rules they will keep us whole. Show me an additional tax break or investment (that’s conceivable and not a one off lucky Vegas miracle or land grab investment) in addition to our 401k DC rules that will exceed the basic tax break the MBCBP will provide. Realistically over a 10 year period you’ll have a tax advantage+investment return of over 30%. That’s great.

 

3. is flat out wrong. The post you were correcting was correct.

 

Dues free, tax deferred. Not tax free. Also the 25% annual return comment is BAD math.

You absolutely nailed the magnitude of the overage though. It is only growing larger with the 17 and 18 % DC. $40k is a reasonable assumption for WBA next year.

I'm sure you mean well, but your last two posts are a perfect example why trusting pilots for financial advice is a BAD idea.

 

*proceeds to not give correct facts*

Ever heard of 401a contributions? And "spill cash?" Weird, my paycheck shows 401(k) Excess and 401(k) Excess Plus. You sure you work at Delta?